a. Dividends may either be cash (property) or stock. Any dividend other than from the unissued shares of the corporation is, in contemplation of law, a cash dividend. A stock dividend is one that is declared and paid out from the unissued shares of corporation. Declaration of stock dividends, unlike cash dividends, need the concurrence of the stockholders.
A declaration of dividends may be revoked if the same was irregularly declared, such as when the same is violative of the trust fund doctrine; otherwise, it can no longer be revoked once the right thereto has already vested in the stockholders.
b. The dividend declaration is improper. Dividends may be declared only out of unrestricted retained earnings and as understood in generally accepted accounting principles, such declaration would preclude its being sourced from mere increments in the value of corporate assets which may fluctuate from time to time.
I will not accept the case. Section 43 of the Corporation Code states that no stock dividend shall be issued without the approval of the stockholders representing not less than 2/3 of the outstanding capital stock at a regular or special meeting duly called for that purpose. Conformably with Section 50 of the Corporation Code, a written notice of the holding of the regular meeting sent to the shareholders will suffice. The notice itself specifies the said subject matter.
I would not approve a proposed stipulation in the management contract that the managing corporation, as an additional compensation to it, should be entitled to 10% of any stock dividend that may be declared. Stockholders are the only ones entitled to receive stock dividends. (Nielsen & Co v. Lepanto Mining 26 SCRA 569) I would add that the unsubscribed capital stock of a corporation may only be issued for cash or property or for services already rendered constituting a demandable debt (Sec 62 Corp Code).
As an alternative, I would suggest that the managing corporation should instead be given a net profit participation and, if it later so desires, to then convert the amount that may be due thereby to equity or shares of stock at no less than the par value thereof.
As the chairman of the meeting, I would rule against the motion considering that a declaration of stock dividends should initially be taken by the board of directors and thereafter to be concurred in by a 2/3 vote of the stockholders. There is no prohibition, however, against the stockholders’ resolving to recommend to the board of directors that it consider a declaration of stock dividends for concurrence thereafter by the stockholders.
a. Corporation X is guilty of violating Section 43 of the Corp Code. This provision prohibits stock corporations from retaining surplus profits in excess of 100% of their paid-in capital.
b. The instances when a corporation shall not be held liable for not declaring dividends are: (Sec.43)
1. when justified by definite corporate expansion projects or programs approved by the BOD; or
2. when the corporation is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its or his consent, and such consent has not yet been secured; or
3. when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation, such as when there is need for special reserve for probable contingencies.
a. A corporation may declare dividends if it has unrestricted retained earnings.
b. Profits belong to the corporation, while dividends belong to the stockholders when dividend is declared.
A cash dividend involves disbursement of earnings to stockholders, while stock dividend does not involve any disbursement. A cash dividend affects the fractional interest in property which each share represents, while a stock dividend decreases the fractional interest in corporate property which each share represents. A cash dividend does not increase the legal capital, while a stock dividend does, as there is no cash outlay involved. Cash dividends are subject to income tax, while stock dividends are not. Declaration of stock dividend requires the approval of both the majority of the members of the board of directors and at least 2/3 of the stockholders. In the declaration of cash dividend, the approval by a majority of the members of the board of directors will suffice.
c. Both cash dividend and stock dividend may be declared out of unrestricted retained earnings. Paid-in surplus can be declared stock dividend but not cash dividend, because a stock dividend merely transfers the paid-in surplus to capital.
a. Ace is entitled to the whole amount of his shares which is 100,000. A contract of subscription is an indivisible contract. If only partial payment for the subscription was made, it cannot be the basis for the amount of cash dividend in favor of the stockholder. Cash dividends due on delinquent stocks shall first be applied to the unpaid balance on the subscription plus cost and expenses. (Sec 43) Stocks become delinquent 30 days from the due date specified in the contract of subscription or in the date stated in the call made by the board (Sec 67). In this case, the cash dividend is not yet delinquent. Ace Cruz, therefore can claim the entire cash dividend payable on December 1, 2008.
b. NO. No certificate of stock shall be issued to a subscriber until the full amount of subscription together with interest and expenses (in case of delinquent shares), if any is due, has been paid (Sec 64). Clearly, since Ace Cruz did not pay the full subscription yet, the certificate of stock shall not be issued to him.
NO, the suit will not prosper. Paterno cannot compel XYZ Corporation to pay dividends, which have to be declared by the Board of Directors and the latter cannot do so, unless there are sufficient unrestricted retained earnings. Otherwise, the corporation will be forced to use its capital to make said payments in violation of the trust fund doctrine. Likewise, redemption of shares cannot be compelled. While the certificate allows such redemption, the option and discretion to do so are clearly vested in the Corporation.
YES. Stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital stock except among others, when the corporation is prohibited under any loan agreement with any financial institution or creditor; whether local or foreign, from declaring dividends without the consent of the creditor and such consent has not been secured. (Section 43 of the Corporation Code)
a. Under Sec. 45 of the Corporation Code, no corporation shall possess or exercise any corporate power except those conferred by the Code or by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred. When the corporation does an act or engages in an activity which is outside of its express, implied, or incidental powers set out in its articles of incorporation, the act is deemed to be ultra vires.
b. When the Board engages in an activity or enters into a contract without the ratificatory vote of the stockholders in those instances where the Corporation Code so requires such ratificatory vote, such as when the corporation is made to invest in another corporation or engage in a business which is not in pursuit of its primary purpose, the board resolution not ratified by stockholders owning or representing at least 2/3 of the outstanding capital stock would make the transaction void, as being ultra vires.
c. When a corporate officer enters into a contract on behalf of the corporation without having been so expressly or impliedly authorized by the board of Directors, even when the act or contract falls within the corporation’s express, implied or incidental power, then the unauthorized act of the corporate officer is deemed to be ultra vires.
