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    Sec 64 RCC

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    laurice julienne
    Section 64 is about director liability for watered stocks, which are stocks issued for no or less value than their actual worth. There are four types of watered stocks: bonus shares issued without consideration; discount shares issued as fully paid but for less than par value; shares issued for property or services valued below par value; and stock dividends issued without sufficient retained earnings. Directors who consent to issuing watered stocks, or fail to object in writing, are solidarily liable with shareholders for any difference between issuance price and fair value at the time of issuance. This protects corporations and creditors from overvalued capital.

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    Sec 64 RCC

    Uploaded by

    laurice julienne
    29 views2 pages
    Section 64 is about director liability for watered stocks, which are stocks issued for no or less value than their actual worth. There are four types of watered stocks: bonus shares issued without consideration; discount shares issued as fully paid but for less than par value; shares issued for property or services valued below par value; and stock dividends issued without sufficient retained earnings. Directors who consent to issuing watered stocks, or fail to object in writing, are solidarily liable with shareholders for any difference between issuance price and fair value at the time of issuance. This protects corporations and creditors from overvalued capital.

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    discussion on section 64 of the revised corporation code

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    Section 64 is about director liability for watered stocks, which are stocks issued for no or less value than their actual worth. There are four types of watered stocks: bonus shares issued without consideration; discount shares issued as fully paid but for less than par value; shares issued for property or services valued below par value; and stock dividends issued without sufficient retained earnings. Directors who consent to issuing watered stocks, or fail to object in writing, are solidarily liable with shareholders for any difference between issuance price and fair value at the time of issuance. This protects corporations and creditors from overvalued capital.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    29 views2 pages

    Sec 64 RCC

    Uploaded by

    laurice julienne
    Section 64 is about director liability for watered stocks, which are stocks issued for no or less value than their actual worth. There are four types of watered stocks: bonus shares issued without consideration; discount shares issued as fully paid but for less than par value; shares issued for property or services valued below par value; and stock dividends issued without sufficient retained earnings. Directors who consent to issuing watered stocks, or fail to object in writing, are solidarily liable with shareholders for any difference between issuance price and fair value at the time of issuance. This protects corporations and creditors from overvalued capital.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Section 64 is about the liability of directors for watered stocks.

    Watered stocks are stocks issued for no value at all or is issued at a higher value than it is actually worth
    (either in cash, property, services, or stock dividends.)

    It includes stocks that are:

    1. Issued for without consideration – BONUS SHARE


    2. Issued as fully paid when the corporation has received a lesser sum of money than its par or
    issued value – DISCOUNT SHARE
    3. Issued for a consideration other than actual cash, such as property or services, the fair valuation
    [fair vaue] of which is less than its par or issued value
    4. Issued a stock dividend when there are no sufficient retained earnings or surplus

    The issue itself is not void, but the agreement that the shares shall be paid for less than its par or issued
    value is illegal and void and it cannot be enforced.

    It is prohibited to issue WS to protect the persons who will acquire the stocks or those who may become
    creditors of the corporation in good faith with the knowledge that the outstanding capital stock being fully
    paid.

    It is only prohibited to the original issue of the stocks and not the subsequent transfer – why? It is because
    it will no longer be an issue but a sale.

    Treasury shares may be sold for less than their par or issued value – for they have already been issued and
    paid for – provided that the price is reasonable.

    For the corporation – the issuance is not merely ultra vires but illegal per se.

    For the creditors – the liability attaches to whether or not the creditors have relied on an over-valuation of
    corporate capital.

    The law holds the director or officer who – as specifically stated in SEC 64:

    1. Who consents to the issuance of stocks for a consideration less than its par value
    2. Who consents to the issuance of the stocks for a consideration other than cash, valued in excess
    of its fair value; and,
    3. Having knowledge of the insufficient consideration, does not file a written objection with the
    corporate secretary

    They are to be held solidary liable with the shareholder who benefitted from such issuance to the
    corporation or its creditor.

    (Solidary liable – either of them can be held liable for the whole amount of the difference.

    Note: the fair value of the stock is determined at the time of issuance – so that the subsequent increase in
    value of property given as consideration will not eliminate the water in the stock and relieve the director
    or officer from the liability.
    It is one of the cases that the corporation fiction be pierced

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