WHAT IS A SUBSCRIPTION CONTRACT?

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:
a. existing corporation; or
b. 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.

ARTICLES OF INCORPORATION vs. BYLAWS

Articles of Incorporation is primarily governed by Sections 13 to 16 of the Revised

Corporation Code while Bylaws is governed by Sections 45 to 47 of the same Code. Below is
a table provided to show the difference of Articles of Incorporation and Bylaws.
 FEATURES OF THE REVISED CORPORATION CODE

Republic Act No. 11232, otherwise known as the REVISED CORPORATION CODE OF THE
PHILIPPINES (RCC) was signed into law by the President on February 20, 2019. RCC expressly
repealed Batas Pambansa Blg. 68, otherwise known as “The Corporation Code of the
Philippines (Old Code).”
Below is a comparative table of the two laws (RCC and Old Code) featuring notable
amendments under the RCC.
Old Code Revised Corporation Code

1. Number of Incorporators (Sec. 10)

  – The requirement as to minimum number of

incorporators has been removed and retaining the
– The required number of incorporators in organizing a maximum. Thus, ONE PERSON
corporation is at least five (5) but not more than fifteen CORPORATION (which is governed by Section 115 –
(15) incorporators.     132) is now allowed.

2. Corporate Term (Sec. 11)

  – PERPETUAL EXISTENCE of a Corporation is now

allowed unless its Articles of Incorporation provides
otherwise. The only limitation as to the existence
of a Corporation is its Articles of Incorporation.
Thus, the Articles of Incorporation may limit the
term of the Corporate term for a period not
exceeding 70 years or 20 years etc. It is the Articles
of Incorporation that controls the corporate term.
–  Corporations are allowed to exist for a period not If the Articles of Incorporation does not provide, or
exceeding fifty (50) years from the date of incorporation is silent as to the Corporate term, the RCC
unless sooner dissolved or unless said period is extended.   allows PERPETUAL EXISTENCE. (Sec. 11)  

3.    Amount of Capital Stock to be subscribed and paid for the purpose of incorporation (Sec. 13)

  – It requires that at least 25% of the authorized capital

stock must be subscribed, and at least 25% of the total
subscription must be paid by the stockholders, provided that   – Stock corporations are NOT REQUIRED to have a
the minimum paid-up capital shall not be lower than minimum capital stock, EXCEPT when provided by
Php5,000.00.   special law. (Sec. 12)

4.                                            Arbitration Clause

  – It does not provide for the Arbitration of disputes.

However, under Sec. 104 regarding Deadlocks, the Securities
and Exchange Commission  has the power to arbitrate,
notwithstanding any contrary provision in the articles of   Under Sec. 13, An Arbitration Agreement may
incorporation or by-laws or agreement of stockholders of a now be included in the Articles of Incorporation or
close corporation, if the directors or stockholders are so its by-laws pursuant to Sec. 181   Deadlocks may
divided respecting the management of the corporation’s now be a subject for Arbitration EXCEPT when it
business and affairs that the votes required for any involves criminal offenses or interests of third
corporate action cannot be obtained.   parties.

5. Non-use of Corporate Charter (Sec. 22)

  – A corporation must formally organize and commence the   – Sec. 21 provides a longer period of five (5) years,
transaction of its businesses or the construction of its works otherwise the certificate of incorporation shall be
within two (2) years from the date of its incorporation, deemed REVOKED as of the day following the end
otherwise, the corporation shall be deemed DISSOLVED.   of the 5-year period.

6. Continuous inoperation of a Corporation (Sec. 22)

  – If a corporation has commenced the transaction of its   – Sec. 21 provides that if the corporation becomes
business but subsequently becomes inoperative for a period inoperative for a period of at least five (5)
of at least five (5) years, the same shall be a ground for consecutive years, the Commission may, after due
the SUSPENSION or REVOCATION of its corporate franchise notice and hearing,  place the corporation
or certificate of incorporation except when the failure to under DELINQUENT STATUS. The delinquent
commence is due to causes beyond the control of the corporation has two (2) years within which to
corporation as may be determined by the Securities and resume after complying with all the requirements
Exchange Commission.   the Commission has prescribed.

7. Corporations vested with public interest

  Sec. 22 provides a better understanding of

what corporations are vested with public interest.
They are the following:   a. Corporations listed with
an exchange or with assets of at least Fifty Million
Pesos (50,000,000) and having two hundred (200)
or more holders of shares, each holding at least
one hundred (100) shares of a class of its equity
shares;   b. Banks and quasi-banks, NSSLAs,
pawnshops, corporations engaged in money
service business, pre-need, trust and insurance
companies, and other financial intermediaries; and
c. Other corporations engaged in businesses vested
with public interest similar to the above, as may be
determined by the Commission.   The above
enumerated corporations shall have independent
  – Section 96 mentioned corporations vested with public directors constituting at least twenty percent (20%)
interest. of said corporation’s board of directors. 

8. Use of technology or electronic means.

  Written notices of stockholders meeting may now

be sent through electronic mail or such other
manner as the Commission shall allow under its
guidelines (Section 49).    Voting may also be done
through remote communication like
videoconferencing or teleconferencing or the like if
  – Please note that the Old Code was signed into law way allowed by the by-laws.   Note: the SEC shall
back in May 1, 1980 where the use of technology or develop and implement an electronic
electronic means was not perceived.   filing and monitoring system (Section 180).

9. Treasurer

  Sec. 24 expressly provides that a Treasurer must

be a resident. Meaning, a resident of the
  – Sec. 23 is silent as to the residency of the Treasurer Philippines  

10.  Disqualification of Directors, Trustees, or Officers (Sec. 27)

  Sec. 26 provides for an enumeration of grounds

for disqualification from being a director, trustee or
officer of any corporation if, within five (5) years
prior to the election or appointment as such, the
person was:   a. Convicted by final judgment:   –of
an offense punishable by imprisonment for a
period exceeding six (6) years; -for violating this
Code; and -for violating Republic Act No. 8799,
otherwise known as “The Securities Regulation
Code”;   b. Found administratively liable for any
  – persons convicted by final judgment of an offense offense involving fraudulent acts; and   c) By a
punishable by imprisonment for a period exceeding (6) foreign court or equivalent foreign regulatory
years; or – violated this Old code   Such conviction or authority for acts, violations or misconduct similar
violation must have occurred within five (5) years prior to to those enumerated in paragraphs (a) and (b)
the date of his election or appointment above.  

11. Reasonable Donations (Sec.36 [9])

  – Domestic or Foreign Corporations are NOT allowed to   Sec. 35(i) – Only Foreign corporations are not
give donations in aid of any political party or candidate or allowed to give such donations. The prohibition
for purposes of partisan political activity.     against Domestic Corporations is now omitted.
Thus, Domestic Corporations may now make
reasonable donations in aid of any political party or
 candidate or for purposes of partisan political
activity.  

12. Shares of stock in another corporation

  Sec. 61 now allows Shares of stock in another

corporation as one among the considerations for
   stocks  

13.  Inspection of Corporate Books. Sec. 74

  – Any officer or agent of the corporation CANNOT refuse

any director, trustees, stockholder or member of the
corporation to examine the Corporate Books and copy
excerpts from its records or minutes, otherwise, such
person shall be punishable under Sec. 144.   Question
1: What if said refusal made by such person was pursuant to
a resolution or order of the board of directors or
trustees?   Answer 1: The liability provided for by the Old   Sec. 73 provides for penalties to be imposed upon
Code shall now be imposed upon the directors or trustees a stockholder in case there is ABUSE OF RIGHTS as
who voted for such refusal.   Question 2: Is there any to Inspection of Corporate Books.   He shall be
defense to any action under this section?   Answer 2: Yes. A penalized under Sec. 158 without prejudice to
request for examination of corporate books may be refused liabilities under other related laws such as:  
the person requesting for such examination: – HAS – Republic Act No. 8293, otherwise known as
IMPROPERLY USED any information secured through prior the “Intellectual Property Code of the Philippines”,
examination of the records or minutes of such corporation as amended, and    – Republic Act No. 10173,
or any other corporation, or – was NOT acting in good faith otherwise known as the “Data Privacy Act of
or for legitimate purpose in making his demand   2012”.

14. Withdrawal of Request for Petition for Dissolution

  Sec. 137 provides thatCorporations who

requested for Dissolution may request for its
withdrawal provided all the necessary
  – Old code is silent as to this matter requirements are complied with.

Contract, as defined, is the meeting of the minds between two or more parties, where one party binds himself with
respect to the other, or where both parties bind themselves reciprocally, in favor of one another, to fulfill an
obligation to give, to do or not to do [Pineda, Obligations and Contracts, 2000].

As may be gleaned from the said definition, contracts are described as meeting of the minds, and thus may come in
whatever form—whether oral or written. As long as there is an agreement between the parties on a particular object
for a certain consideration, then a contract is perfected.

Form of contracts
As mentioned, contracts may come either verbally or in writing. However, when the law requires that a contract
should be in some specified form as a condition of its validity, then that form has to be observed  [See: Art. 1356,  Civil
Code].
Relative to this, the law, however, requires the following contracts to be in writing, and has to be notarized:

1. Contracts involving rights and obligations over real property;

2. Waiver of right to inherit; waiver of right over shares in conjugal partnership;
3. Grant of power to administer property;
4. Transfer of rights proceeding from an act appearing in a public document [See: Art. 1358].

What may be stipulated

The freedom of contract is a right, and the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient. It is however subject to limitation that the provisions agreed upon should
not be contrary to law, morals, good customs, public order, or public policy [See: Art. 1358].
It is very important to consider carefully the terms and conditions of a contract before entering into it, because the
law will not relieve a party from the effects of an unwise or unfavorable contract freely entered into  [See:  G.R. No.
137378]. It must always be remembered that equity is not an antidote against the disadvantages of a bad
bargain [See:  G.R. No. L-55187].
Contracts are obligatory
Obligations arising from contracts have the force of law between the parties, and thus, the parties should comply
with its provisions in good faith [See: Art. 1159]. This need for compliance makes these agreements obligatory as far
as the parties are concerned. Unless the stipulations in a contract are contrary to law, morals, good customs, public
order or public policy (as discussed above), the same shall bind the parties [See:  G.R. No. 152072], who are now
obliged to honor their respective commitments.

The principle of mutuality

Under the principle of mutuality, the contract must bind both the contracting parties; its validity or compliance
cannot be left to the will of one of them [See: Art. 1308]. It has to bind both, as it would be the height of unfairness if
only one of the contracting parties will be bound by its obligatory force.
The principle of mutuality between the parties is based essentially on their equality under which it is unacceptable to
have one party bound by the contract while leaving the other free from it [See:  G.R. No. 161718].

Relativity of contracts
The basic principle of relativity of contracts is that contracts can only bind the parties who entered into it, and cannot
favor or prejudice a third person, even if such third person is aware of such contract and has acted with his
knowledge. Where there is no privity of contract, there is likewise no obligation or liability to speak about  [See:  G.R.
No. 182128].

By way of exception, however, obligations created by contracts may likewise take effect not only between the
parties, but may also bind their assigns and heirs, as the obligations that contracts create may be assigned or
assumed by another. However, contractual rights and obligations are not transmissible if the obligations involved are
purely personal in nature [See: Art. 1311].

Given the foregoing, taking into consideration the essential characteristics of contracts, one can readily conclude that
when a person enters into an agreement with another, certain rights and obligations are created, which both
contracting parties are bound to observe and respect in the course of pursuing the objectives of business
relationships. This should be the guiding principle for entrepreneurs, as their growth and success largely depend
upon the dealings that they enter into, and the transactions they make, in the course of their businesses.