What are the Corporation as an artificial being

attributes of a
corporation? By this, it means that the law regards a corporation as a
The attributes of a
juridical person, with a legal personality separate and distinct
corporation are
drawn from its from the persons composing it. As a juridical person, it may
statutory own properties, exercise rights, and incur obligations
definition. independently of the persons comprising it.
It is an artificial
being. Principle of Limited liability.
It is created by
operation of law. Stockholders or Members cannot be held liable for the
It has the right
ofsuccession.
Liabilities of the Corporation, except as to the extent of their
It has the powers, investments or promised Investments (Doctrine of Limited
attributes, and Liability).
properties expressly
authorized by law or What is dissolution?
incidental to its
existence.
Dissolution is the extinguishment or cancellation of the
corporate franchise and the termination of its corporate
existence for business purposes.

A corporation sole may be dissolved and its affairs

settled voluntarily by submitting to the SEC a
verified declaration of dissolution, setting forth:

(a) The name of the corporation;

(b) The reason for dissolution and winding up;
(c) The authorization for the dissolution of the corporation by
the particular religious denomination, sect or church;
(d) The names and addresses of the persons who are to
supervise the winding up of the affairs of the corporation.

What is the consequence of dissolution?

A corporation that has already been dissolved, be it voluntarily

or involuntarily, retains no juridical personality to conduct its
business save for those directed towards corporate liquidation.
In other words, the corporation ceases to be a body corporate
for the purpose of continuing the business for which it was
organized. But it shall, nevertheless, be continued as a body
corporate for three (3) years after the time when it would have
been so dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling it gradually to
settle and close its affairs, to dispose of and convey its property
and to divide its assets.

The dissolution does not automatically convert the parties into

strangers or change their intra-corporate relationship. Neither
does it terminate existing causes of action which arose because
of the corporate ties of the parties.

What are the methods of dissolution?

Dissolution may be voluntary or involuntary. It is voluntary if

the dissolution is initiated by the corporation and it is
involuntary, if it is against the will of the corporation or
initiated by an aggrieved party or the SEC.

Voluntary dissolution

What are the voluntary modes of dissolution?

The voluntary modes of dissolution are:

1. Verified request for dissolution which does not prejudice

the rights of creditors having a claim against it;
2. Petition for dissolution where creditors are affected
3. Shortening of the corporate term;
4. Merger or consolidation; and - Merger is a re-organization of 2 or
more corporations that results in their consolidating into a single corporation,
which is one of the constituent corporations, one disappearing or dissolving and
the other surviving.
5. Affidavit of dissolution by a corporation sole.

What do you mean by a request for dissolution where

no creditors are affected?
This covers a situation where the corporation has no creditors
or with creditors but without conflicting claims and the
corporate assets are enough to satisfy the claims.

Involuntary dissolution

What are the grounds for the involuntary dissolution

of the corporation?

A corporation may be dissolved by the SEC motu proprio or

upon filing of a verified complaint by any interested party. The
following may be grounds for dissolution of the corporation:

a. Non-use of the corporate charter as provided

under Section 21 of the RCC.

Under Section 21 of the RCC, if a corporation does not

formally organize and commence its business within five (5)
years from the date of its incorporation, its certificate of
incorporation shall be deemed revoked as of the day following
the end of the five-year period.

b. Continuous in operation of a corporation as

provided under Section 21 of the RCC.

If a corporation has commenced its business but subsequently

becomes inoperative for a period of at least five (5) consecutive
years, the SEC may, after due notice and hearing, place the
corporation under delinquent status. A delinquent corporation
shall have a period oftwo (2) years to resume operations and
comply with all requirements that the SEC shall prescribe.
Upon compliance by the corporation, the SEC shall issue an
order lifting the delinquent status.

c. Upon receipt of a lawful court order dissolving

the corporation.
d. Upon finding by final judgment that the
corporation procured its incorporation through
fraud
e. Upon finding by final judgment that the
corporation:

What is liquidation?

Liquidation is the process of settling the affairs of the

corporation after its dissolution.
(1) collection of all that is due the corporation,
(2) The settlement and adjustment of claims against it, and
(3) the payment of its debts and
(4) the distribution of the remaining assets,

if any among the stockholders thereof in accordance with

their contracts, or if there be no special contract, on the basis
of their respective interests.

The manner of liquidation or winding up may be provided for

in the corporate bylaws and this would prevail unless it is
inconsistent with law. The finds basis under Section 122 of the
OCC (now Section 139 of the RCC), which empowers every
corporation whose corporate existence has been legally
terminated to continue as a body corporate for three (3) years
after the time when it would have been dissolved. This
continued existence would only be for the purposes of
“prosecuting and defending suits by or against it and enabling
it to settle and close its affairs, to dispose of and convey its
property and to distribute its assets.
What are the methods of liquidation?

There are four (4) methods of liquidation, namely:

a) by the corporation itself;

b) by the trustee duly appointed by the corporation;
c) by the receiver that the SEC may appoint upon judgment
dissolving the corporation after hearing the corporation’s
petition for voluntary dissolution; and,
d) by the rehabilitation receiver or liquidator appointed by the
court after judgment on a petition for liquidation involving
an insolvent debtor

Methods of corporate liquidation are:

1. The Board of Directors or Trustees pursing the liquidation
– subject to the 3-year period;
2. Liquidation pursued thru a Court-appointed receiver – not
subject to the 3-year period; and
3. Liquidation pursued through a Trustee – the trustee may
continue to prosecute a case commenced by the
corporation within 3 years from its dissolution until
rendition of final judgment, even if such judgment is
rendered beyond the 3-year period.

How are the assets of the corporation distributed

during the liquidation process?

The assets of the corporation shall be used to pay off the

claims of various creditors based on the law on concurrence
and preference of credit. The residual assets shall then be
distributed to the holders of the preferred shares of stock, if
any, then to the holders of common shares based on their
agreement, if any, otherwise, in proportion to their respective
shareholdings in the corporation.
Distinguish a corporation from other forms of
business organisations.

Sole Proprietorship v. Corporation

A sole proprietorship does not possess a juridical personality

separate and distinct from the personality of the owner of the
enterprise. The law merely recognizes the existence of a sole
proprietorship as a form of business organization conducted
for profit by an individual and requires its proprietor or owner
to secure licenses and permits, register its business name, and
pay taxes to the national government. Thus, the personal
assets of the proprietor may be held to answer for the
obligations incurred by the sole proprietorship in conducting
its business and it is registered with the DTI.

In contrast, a corporation possesses a legal personality separate

and distinct from its owners.

Partnership v. Corporation
Partnership Corporation
As to Creation
Created by mere agreement of the Created by law or by operation of
parties. law.
As to Number of Organizers
May be organized by at least 2 Requires at least 2 incorporators
persons. (except a one person corporation).
As to Commencement of Judicial Personality
Acquires juridical personality from
Acquires juridical personality from
the date of issuance of the certificate
the moment of execution of the
of incorporation by the Securities and
contract of partnership.
Exchange Commission (SEC).

Partnership Corporation
As to Powers
Partnership may exercise any power
authorized by the partners (provided it
is not contrary to law, morals, good
customs, public order, public policy).
As to Management
Unless agreed upon, every partner is
an agent of the partnership.
As to Effect of Mismanagement
Corporation can exercise only the
powers expressly granted by law or
implied from those granted or
incident to its existence.
The power to do business and manage
its affairs is vested in the board of
directors or trustees.

The suit against a member of the

A partner as such can sue a co-partner board of directors or trustees who
who mismanages. mismanages must be in the name of
the corporation.
As to Right of Succession
Corporation has right of succession.
Partnership has no right of
succession.
As to Extent of Liability To Third Persons

Partners are liable personally and Stockholders are liable only to the
subsidiarily (sometimes solidarily) for extent of the shares subscribed by
partnership debts to third persons. them (Doctrine of Limited Liability).

As to Transfer of Interest

Partner cannot transfer his interest in

the partnership so as to make the
transferee a partner without the
unanimous consent of all the existing
partners because the partnership is
based on the principle of delectus
personarum.
Stockholder has generally the right to
transfer his shares without prior
consent of the other stockholders
because corporation is not based on
this principle.

As to Term of Existence
Partnership may be established for Corporation exists in perpetuity unless
any period of time stipulated by the its AOI provides for a shorter period.
partners.

As to Firm Name

Corporation may adopt any name

Limited partnership is required by law provided it is distinguishable from
to add the word “Ltd.” to its name. any other corporate name.

As to Dissolution

May be dissolved at any time by any Can only be dissolved with the
or all of the partners. consent of the State.
As to Governing Law
Governed by the NCC. Governed by the RCC.

Doctrine of Piercing the corporate veil

Though the corporation has separate and distinct personality

from its stockholders, such personality may be disregarded, or
veil of corporate fiction may be pierced, attaching personal
liability to the responsible person.

Authorities agreed on at least 3 basic areas where

piercing the veil is allowed, to wit:

1. Defeat of public convenience (Equity Piercing) – when

the corporation is used to evade existing obligations;
2. Fraud cases – when the corporation is used to justify
wrong, protect fraud, or defend a crime; or
3. Alter ego cases – where the corporation is merely a farce
since it is a mere alter ego or a business conduit of a
person.
The rationale for piercing in a given case is to remove the
barrier between the corporation and the persons comprising it
to thwart the fraudulent schemes of those who use the
corporate personality as a shield for undertaking proscribed
activities.

Piercing must be based on Clear Evidence: To disregard the

separate juridical personality, it is elementary that the
wrongdoing cannot be presumed and must be clearly and
convincingly established. Application of the doctrine of
piercing should be done with caution. Otherwise, an injustice
that was never intended may result from an erroneous
application.

What is the doctrine of reverse piercing of the

corporate veil?

In a traditional veil-piercing action, the court disregards the

existence of the corporate entity so a claimant can reach the
assets of a corporate insider (meaning, the directors,
stockholders, and officers). In reverse piercing action, however,
the plaintiff seeks to reach the assets of the corporation to
satisfy claims against corporate insider. Reverse piercing flows
in the opposite direction (of traditional corporate veil-piercing)
and makes the corporation able for the debt of the
shareholders or members.

Req:
Deliberately incorporated a separate vehicle to transfer his
properties therein with the end goal of evading his obligation
to the creditor.

What are the effects of piercing the corporate veil?

Does it result in the dissolution of the corporation?

The piercing of the corporate veil does not dissolve the

corporation. It simply means that the stockholder and/or
director and/or officer, whose action/s became the basis for
the application of the doctrine, and the corporation shall be
treated as one and the same entity.

No res judicata in piercing cases. Application of the

doctrine to a particular case does not deny the corporation of
legal personality for any and all purposes, but only for the
particular transaction or instance, or the particular obligation
for which the doctrine was applied.

TYPES OF PIERCING CASES

Fraud-piercing cases have the following elements:

1. There must have been fraud or an evil motive in the
affected transaction, and the mere proof of control of the
corporation by itself would not authorize piercing;
2. Corporate fiction is used as a means to commit the fraud
or avoid the consequences thereof; and
3. The main action should seek for the enforcement of
pecuniary claims pertaining to the corporation against
corporate officers or stockholders.

Alter-ego Piercing Cases: Mere ownership by a single

stockholder or by another corporation of all or nearly all of
the capital stocks is not, by itself, a sufficient ground for
disregarding the separate corporate personality. Other
circumstances showing that the corporation is being used to
commit fraud or proof of existence of absolute control over
the corporation have to be proven. In short, before the
corporate fiction can be disregarded, alter-ego elements must
first be sufficiently established.

Probative Factors in Piercing the Corporate Veil:

(MIMS)

1. Methods of conducting the business;

2. Identity of directors and officers;
3. Manner of keeping corporate books and records; and
4. Stock ownership by one or common ownership of both
corporations.

Case law lays down the three-pronged test to

determine the application of the alter ego theory or
the instrumentality theory, to wit:

1. Control or instrumentality test – control, not mere

majority or complete stock control but complete
domination, not only of the finances but of policy and
business practice with respect to the transaction assailed so
that the corporate entity as to this transaction had at that
time no separate mind, will, or existence of its own;
2. Fraud test – such control must have been used to commit
fraud or wrong, to perpetuate the violation of a statutory
or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff ’s legal rights; and
3. Harm test – the control and breach of duty must be the
proximate cause of the injury or unjust loss complained of.

Stock Corporation: has a capital stock divided into shares

and is authorized to distribute to the holders ofsuch shares
dividends or allotments ofthe surplus profits based on the
shares held.

Nonstock Corporation: has no capital stock and/ or not

authorized to distribute dividends to its members.173 A
nonstock corporation may be organized for any purposes
except for profit and political ends.

Public corporation – one formed or organized for the

government of a portion of the state. Its purpose is for the
general good and welfare.
Stock vs. share:

Authorized capital stock means the amount fixed in the

articles of incorporation to be subscribed and paid by the
stockholders of the corporation. It is the maximum number of
shares that the corporation is legally allowed to issue without
amending the articles of incorporation.

How to increase ACS

The increase of capital stock requires approval by at least the

majority of the board and the stockholders representing at least
2/3s of the outstanding capital stock while a subscription to
the unissued portion of the authorized capital stock only
requires a majority of the quorum of the board of directors.

At least 25% of the increase in capital stock must be

subscribed and at least 25% of the amount subscribed must be
paid while the required payment for subscription to the
unissued portion of the authorized capital stock depends on the
amount that the Board of Directors may approve, which can be
higher or lower than 25% of the subscription.
 Pre-emptive Right Right of First Refusal
Arises by virtue of:

Common law right. 1. Contractual stipulations; or

2. Specified statutory provisions.
May be exercised by stockholders May only be exercised if provided for
even when no provision is granted by by law or by the AOI. It is a creature
law. of Contract Law.
Pertains to that portion of the
authorized capital stock that has not
Pertains to shares already issued.
been subscribed i.e. unissued shares
that are offered for subscription.
A right claimed against the A right exercisable against another
corporation on unissued shares of its stockholder of the corporation on his
capital stock shares of stock.

Right to Dividends: The term “dividend” in its technical

sense and ordinary acceptation is that part of portion of the
profits of the enterprise which the corporation, by its
governing agents, sets apart for ratable division among the
holders of its capital stock—it is a payment, and the right
thereto is an incident of ownership of stock
Right of First Refusal — Obligates a stockholder who may
wish to sell or assign his shares to first offer the shares to the
corporation or to the other existing stockholders under terms
and conditions which are reasonable.
Nature of the Right of First Refusal

The right of first refusal is primarily an attribute of ownership,

and consequently can be effected only through a contractual
commitment by the owner of the shares. Consequently, the
waiver of a right of first refusal when duly constituted can be
effected only by the registered owner.

Pre-emptive right — refers to the right of a stockholder of

a stock corporation to subscribe to all issues or disposition of
shares of any class, in proportion to their respective
shareholdings. Although it can validly be withdrawn, it cannot
be done in breach of fiduciary duties such as to perpetuate
control over the corporation.

• This right includes all issues and disposition of such shares

any class.
• It is a common law right and may be exercised by
stockholders even without legal provision.

Basis of Preemptive Right: Preservation of the existing

proportional rights of the stockholders.

What is the rationale of pre-emptive right?

The foundation or underlying basis of this right is to maintain

the proportionate voting strength and control of existing
stockholders, that is, the existing ratio of their interest and
voting power in the corporation. This right prevents the
dilution and impairment of the stockholders’ interest in the
corporation.

AOI vs Bylaws

The best proof of the purpose of a corporation is its AOI and

bylaws. The AOI must state the primary and secondary
purposes of the corporation, while the bylaws outline the
administrative organization of the corporation, which, in turn,
is supposed to insure or facilitate the accomplishment of said
purpose.

Bylaws are the self -imposed rules resulting from the

agreement between the [corporation] and its members to
conduct the corporate business in a particular way. In that
sense, the bylaws are the private “statutes” by which the
[corporation] is regulated, and will function. Bylaws constitute
a binding contract as between the [corporation] and its
members, and as among the members themselves. They are
self-imposed private laws binding on all members, directors,
and officers of the [corporation]. The prevailing rule is that
the provisions of the AOI and the bylaws must be strictly
complied with and applied to the letter.

What are the nature and functions of the articles of

incorporation?

It is the document prepared by the incorporators organizing a

corporation containing the matters required by the RCC and
filed with the SEC. It offers the ultimate evidence of the
nature and purpose of a corporation and defines the
contractual relationships between the State and the
corporation, the stockholders and the State, and the
corporation and the stockholders.

W h a t a re t h e c o n t e n t s o f t h e a r t i c l e s o f
incorporation?

The articles of incorporation shall contain substantially the

following matters, except as otherwise prescribed by the RCC
or by special law:

a. The name of the corporation;

b. The specific purpose or purposes for which the
corporation is being formed. Where a corporation has
more than one stated purpose, the articles of incorporation
shall indicate the primary purpose and the secondary
purpose or purposes: Provided, That a nonstock
corporation may not include a purpose which would
change or contradict its nature as such;
c. The place where the principal office of the corporation is
to be located, which must be within the Philippines;
d. The term for which the corporation is to exist, if the
corporation has not elected perpetual existence;
e. The names, nationalities, and residence addresses
of the incorporators;
f. The number of directors, which shall not be more than
fifteen (15) or the number of trustees which may be more
than fifteen (15);
g. The names, nationalities, and residence addresses
of persons who shall act as directors or trustees until
the first regular directors or trustees are duly elected and
qualified in accordance with the RCC;
h. If it is a stock corporation, the amount of its
authorized capital stock, number of shares into which
it is divided, the par value of each, names, nationalities,
and residence addresses of the original subscribers, the
amount subscribed and paid by each on the subscription,
and a statement that some or all of the shares are without
par value, if applicable;
i. If it is a nonstock corporation, the amount of its
capital, the names, nationalities, and residence addresses of
the contributors, and amount contributed by each;
j. and Such other matters consistent with law and which the
incorporators may deem necessary and convenient.

An arbitration agreement may also be provided in the articles

of incorporation pursuant to Section 181 of the RCC.

Amendment of the AOI should have the vote of at least

majority of the Board and at least 2/3 of the shareholders.
The proposed amendments shall take effect upon their
approval or from the date of filing if not acted upon by the
SEC within 6 months for a cause not attributable to the
corporation (Sec. 15, RCC).

Stock corporation may be converted to non-stock corporation

by amendment of the AOI. Conversion may be made by mere
amendment of the purpose clause in the AOI, among others.
In effect, the shares subscriptions constitute as the capital
contributions of the shareholders, and they are converted into
members who divest themselves of any right to receive
dividends of any profits of the corporation.

A non-stock corporation cannot be converted into a stock

corporation by a mere amendment of the AOI. It is
fundamental that the non-stock corporation be dissolved first
under any of the methods specified in the Corporation Code.

What is the trust fund doctrine? The trust fund doctrine

provides that subscriptions to the capital stock of a corporation
constitute a fund to which the creditors have a right to look for
the satisfaction of heir claims. In a sense, they have to be
unimpaired for the protection of creditors. These cover the
entire consideration received for the issuance of no par value
shares or the aggregate amount for the par value shares issued
by the corporation.

It must be noted, however, that the trust fund doctrine is not

limited to the stockholders’ subscriptions. The scope of the
doctrine encompasses not only the capital stock but also other
property and assets generally regarded in equity as a trust fund
for the payment of corporate debts.

Application of the Trust Fund Doctrine:

1. Where the corporation has distributed its capital among
the stockholders without providing for the payment of
creditors;
2. When there is payment of dividends without unrestricted
retained earnings;
3. Where it had released the subscribers to the capital stock
from their subscriptions;
4. Where it has transferred the corporate property in fraud
of its creditors;
5. Where the corporation is insolvent;
6. Prohibition against the issuance of watered stocks;
7. Purchase of a corporation of its own shares; and Decrease
of authorized capital stock to the prejudice of the
corporation’s creditors.

What are the classes of shares?

The shares of stock corporations may be divided into classes
or series of shares, or both. These are as follows:
1. Common shares
2. Preferred shares
3. Par value shares
4. No par value shares
5. Voting shares
6. Non-voting shares
7. Founder’s shares
8. Treasury shares
9. Redeemable shares
10.Watered shares
11.Other classification as may be provided in the articles of
incorporation; provided it is not contrary to law.

Preferred shares versus common shares

What are preferred shares of stock?

These are shares of stock that are given certain preferences as
may be provided in the articles of incorporation but may be
denied the right to vote.

What are common shares of stock?

Common shares are the basic class of stock ordinarily and

usually issued without privileges or advantages except that they
cannot be denied the right to vote. Owners are entitled to a
pro-rata share in the profits of the corporation and in its assets
upon dissolution and liquidation and, in the management of
its affairs.

Par value shares - value of the stocks

These are shares with a stated or fixed value set out in the
Articles of Incorporation, which remains the same regardless
of the profitability of the corporation. This gives rise to
financial stability, and is the reason why banks, trust
corporations, insurance companies and building and loan
associations must always be organized with par value shares.
Par value is minimum issue price of such share in the Articles
of Incorporation which must be stated in the certificate.

No par value shares

These are shares without a stated value in the AOI. They are
without nominal value. They may be issued for the amount
stipulated in the AOI, or fixed by the Board. [Sec 61]

Limitations on no par value shares [Sec. 6]

1. Cannot have an issue price of less than P5.00 per share
2. Once issued, they shall be deemed fully paid and non-
assessable, and the holders of such shares shall not be liable
to the corporation or to its creditors in respect thereto
3. Entire consideration received by the corporation shall be
treated as capital and shall not be available for distribution
as dividends
4. The AOI must state the fact that the corporation issues no-
par shares and the number of shares
5. Cannot be issued as preferred stock
6. Cannot be issued by banks, insurance companies, public
utilities and building and loan associations
7. Cannot be issued by all corporations authorized to obtain
or access funds from the “public”

Note: A new addition in the Revised Corporation Code is the

prohibition on the issuance of no-par shares being imposed on
all corporations authorized to obtain or access funds from the
“public.” This prohibition is not anymore limited to banks,
insurance companies, public utilities and building and loan
associations.

What are voting shares?

These are shares which can vote on all corporate acts
requiring stockholders’ approval. The corporation should
always have voting shares. These are the common shares of
stock.
What are non-voting shares?
These are shares that are denied the right to vote in the articles
of incorporation. Provided, however, that there shall always be
a class or series of shares which have complete voting rights.

What classes of shares may be denied the right to

vote?

No share may be deprived of voting rights except those

classified and issued as “preferred” or “redeemable” shares.
Treasury shares, by their nature, cannot vote and there is need
to deny them such right in the articles of incorporation.
Delinquent shares are also not entitled to vote and similar to
treasury shares, there is no need to deny them such right in the
articles of incorporation. The denial is statutory.

In what instances does the law vest the right to vote

for nonvoting shares?

Holders of non-voting shares shall be entitled to vote on the

following matters:

a. Amendment of the articles of incorporation;

b. Adoption and amendment of bylaws;
c. Sale, lease, exchange, mortgage, pledge, or other
disposition of all or substantially all of the corporate
property;
d. Incurring, creating, or increasing bonded indebtedness;
e. Increase or decrease of authorized capital stock;
f. Merger or consolidation of the corporation with another
corporation or other corporations;
g. Investment of corporate funds in another corporation or
business in accordance with the RCC;
h. and Dissolution of the corporation.

Except as provided in the immediately preceding paragraph,

the vote required to approve a particular corporate act under
the RCC shall be deemed to refer only to stocks with voting
rights.

What are founders' shares?

Founders’ shares are shares classified as such in the articles of

incorporation which may be given certain rights and privileges
not enjoyed by the owners of other stocks. Where the exclusive
right to vote and be voted for in the election of directors is
granted, it must be for a limited period not to exceed five (5)
years from the date of incorporation: Provided, That such
exclusive right shall not be allowed if its exercise will violate
Commonwealth Act No. 108, otherwise known as the “Anti-
Dummy Law”; R.A. No. 7042, otherwise known as the
“Foreign Investments Act of 1991”; and other pertinent laws.

What are treasury shares?

Treasury shares are shares of stock that have been issued and
fully paid for, but subsequently reacquired by the issuing
corporation through purchase, redemption, donation, or some
other lawful means. Such shares may again be disposed of for
a reasonable price fixed by the board of directors.

Treasury shares shall have no voting right as long as such

shares remain in the Treasury. No dividends can be declared
thereon as corporations cannot declare dividends to
themselves.

Redeemable Shares are shares which may be purchased by

the corporation from the holders of such shares upon the
expiration of a fixed period, regardless of the existence of
unrestricted retained earnings in the books of the corporation.

Can the corporation be compelled to redeem

redeemable shares if it has no available surplus
profit?
Yes, if the redeemable shares are mandatory in nature, the
issuing corporation may be compelled to redeem the shares,
regardless of the existence of unrestricted retained earnings. It
should be noted, however, that redemption may not be made
where the corporation is insolvent or if such redemption will
cause insolvency or inability of the corporation to meet its
debts as they mature.

Watered Stocks – stocks issued for a consideration less than

its par or issued value or for a consideration in any form other
than cash, valued in excess of its fair value.