Title 7

• Derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue.
• Requisites of Derivative Suit

  • The party bringing the suit should be a shareholder as of the time the act or transaction complained of, the number of his shares not being material.
  • He has tried to exhaust intra-corporate remedies but the latter has failed or refused to heed his plea.
  • The cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular stockholder bringing the suit.
• Individual suit is where a stockholder or member is denied the right of inspection, wherein the wrong is done to him personally.
• Class/Representative suit is where the wrong is done to a group of stockholders.
• Reasons for not allowing direct individual suit:

  • It would conflict with the separate corporate entity principle.
  • The prior rights of the creditors may be prejudiced.
  • It would conflict with the duty of the management.
  • It would produce wasteful multiplicity of suits.
  • It would involve confusion in ascertaining the effect of partial recovery by an individual.
• Subscription contract is any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed.
• What is the nature of a subscription contract?

  Consensual and indivisible
• What do you call the subscription for shares of stock of a corporation still to be formed?

  Pre-incorporation subscription
• Statement 1: A pre-incorporation subscription is revocable for a period of at least 6 months from the date of subscription.

  Statement 2: Delinquent shares are also entitled to all rights granted to a stockholder.

  False; False
• Statement 1: Stocks shall not be issued for a consideration less than the par or issued price.

  Statement 2: Shares of stock shall be issued in exchange for promissory notes or future services

  True; False
• Who can fix the issued price of no-par value shares?

  Stockholders representing majority of OCS at a meeting duly called for
• Statement 1: Receivables cannot be treated as cash actually received.

  Statement 2: Property payment may be considered, not subject to verification by the SEC.

  True; False
• Where does "unpaid claim" arises from?

  Unpaid subscription
• It is any act by which property of one person is vested in another.

  Transfer
• What is the basis of the solidary liability of directors?

  Fiduciary character
• What doctrine is violated when the stocks are issued for a consideration which is less than its par value?

  Trust fund doctrine
• Statement 1: There is interest on unpaid subscription even if not required by the subscription contract.

  Statement 2: The highest bidder is the one who offers to pay the full amount of the balance, with the smallest amount of shares.

  False; True
• What are the fundamental rigts of a stockholder?

  Management, Proprietary, and Remedial rights
• What has been proven to be an effective remedy of the minority against the abuses of the management?

  Derivative suit
• Statement 1: In stock corporations, shareholders may generally not transfer their shares.

  Statement 2: The death of a shareholder, the executor or administrator duly appointed by the Corporation is vested with legal title to the stock and entitled to vote it.

  False; False
• Who is the party interest in a derivative suit?

  Corporation
• Statement 1: The stockholder's right to file a derivative suit is based on express provision of The Corporation Code.

  Statement 2: As a rule, a subscriber becomes a stockholder upon perfection of the subscription contract even though he has not paid for his shares.

  False; True
• General Rule:

  A pre-incorporation subscription is irrevocable for a period of at least 6 months from the date of subscription.

  Exceptions:

  1. All of the other subscribers consented to the revocation.
  2. The corporation fails to incorporate within the same period or within a longer period stipulated in the contract of subscription.
• It is the unit of interest in a corporation.

  Shares of stock
• It is the evidence of the holder's ownership of the stock and of his right as a shareholder.

  Certificate of stock
• Statement 1: Certificate of stock shall be issued to a subscriber even if the full amount of subscription is not yet paid.

  Statement 2: The holder of a delinquent stock can be included in the determination of quorum because he is entitled to vote.

  False; False