Under Section 38 of the Corporation Code (Now Section 37, Revised Corporation

Code), a corporation engaged in increasing its authorized capital stock, with the

required vote of its Board of Directors and of its stockholders, must file a sworn

statement of the treasurer of the corporation showing that at 25% of “such

increased capital stock” has been subscribed and that at least 25% of the amount

subscribed has been paid either in actual cash or in property transferred to the

corporation. In other words, the corporation must issue at least 25% of the newly

or contemporaneously authorized capital stock in the course of complying with

the requirements of the Corporation Code for increasing its authorized capital

stock.

THREE INSTANCES OF IDSTRIUBUTION OF CORPORATE CAPITAL

The Trust Fund Doctrine provides that subscriptions to the capital of a

corporation constitute a fund to which the creditors have a right to look for the

satisfaction of their claims. This doctrine is the underlying principle in the

procedure for the distribution of capital assets, embodied in the Corporation

Code, which allows the distribution of corporate capital only in three instances:

(2) purchase of redeemable shares by the corporation, regardless of the existence

of unrestricted retained earnings, and (3) dissolution and eventual liquidation of

the corporation. (1) amendment of the Articles of Incorporation to reduce the

authorized capital stock,