WHAT IS A SUBSCRIPTION CONTRACT?

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Section 59 of the Revised Corporation Code (RCC) states the following:

“SEC. 59. Subscription Contract – Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract.” (emphasis and underscoring supplied)

From the afore-quoted provision of the RCC, it is clear that a prospective shareholder may, through a Subscription Contract, acquire unissued stock in the following corporations:

1. existing corporation; or
2. a corporation still to be formed.

          Letter (a) above or existing corporation refers to a corporation which Certificate of Incorporation under its corporate name has already been issued.

          Relative to letter (b) above is Section 60 of the RCC, which is stated in the following manner:

“SEC. 60. Pre-incorporation Subscription. – A subscription of shares in a corporation still to be formed shall be irrevocable for a period of at least six (6) months from the date of subscription, unless all of other subscribers consent to the revocation, or the corporation fails to incorporate within the same period or within a longer period stipulated in the contract of subscription. No pre – incorporation subscription may be revoked after the articles of incorporation is submitted to the Commission.”

What are the considerations for Stocks?

          Under Section 60 of the RCC, the consideration for Stocks are the following:

a. Actual cash paid to the corporation;

b. Property (tangible or intangible such as patents or copyrights)

• • Said property must actually be received by the corporation; and
  • Necessary or convenient for the use and lawful purposes of the corporation

c. Labor performed for or services actually rendered to the corporation;

d. Amounts transferred form unrestricted retained earnings to stated capital;

e. Outstanding shares exchanged for stocks in the event of reclassification or conversion;

f. Shares of stock in another corporation; and/or

g. Other generally accepted form of consideration.

Note: No shares of stock are issued in exchange for promissory notes or future service.

Does a corporation issue Stock Certificates upon the execution of a Subscription Contract?

• No. Stock Certificates are issued to a subscriber only when the full amount of his or her subscription together with interest and expenses (in case of delinquent shares), if any is due, has been PAID.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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