Corporation Law: The Revised Corporation Code of the Philippines - Sec 64

 THE REVISED CORPORATION CODE  OF THE PHILIPPINES 

Republic Act No. 11232 

TITLE VII - STOCKS AND STOCKHOLDERS

Section 64. Liability of Directors for Watered Stocks. 

A director or officer of a corporation who: 
(a) consents to the issuance of stocks for a consideration less than its par or issued value: 
(b) consents to the issuance of stocks for the consideration other than cash, valued in excess of its fair value; or 
(c) having knowledge of the insufficient consideration, does not file written objection with the corporate secretary, shall be liable to the corporation or its creditors, solidarily with the stockholder concerned for the difference between the value receive at the time of issuance of the stock and the par or issued value of the same.

1. Watered stocks. 
  • Watered stocks are stocks that are issued for a consideration less than the par or issued price thereof.
  • Strictly speaking watered stocks should be distinguished from bonus stocks. 
  • Bonus stocks are stocks that are issued without any valuable consideration. 
  • However, bonus stocks are also covered by the prohibition under the first sentence of Section 61 of the RCCP (previously Section 62 of the Corporation Code). 
2. Rationale. 
  • The prohibition against watered stocks is consistent with the general rule that an agreement between the corporation and a particular subscriber by which the subscription is not to be payable or is to be payable in part only cannot be either enforced by the subscriber or interposed as a defense in an action on the subscription. 
  • The rule applies whether the purpose of the agreement is to pretend that the stock is really greater than it is, or for the purpose of preventing the predominance of certain stockholders, or for any other purpose that is illegal and void, or in fraud of other stockholders or creditors or both.

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