ILLUSTRATION:

Into 1,000 Corporation shares XI with has a an par original value of capital P100.00. stock of A
owns P100,000 500
Divided
Shares.
Of t more the () Subsequently, new shares). RightL shares to Both the vote. The. Before capital
old AI they and must stock are be 1s new. Offered g1ven shares increased a to are to to right
others. Voting P200, IfA 000 subscribe shares. (to to allowed 1,000 500
To subscribe O only 100 shares of the increased stock, his voting
Control would be reduced from 50% (500/ 1,000) to only 30%
(600/ 2,000).
(2) Right to net earnings as dividends.
Suppose the corporation
Made a net earnings of P50,000. Had this entire amount been
Distributed as as cash dividends before the increase, each stockholder,
Includig A would have received P50.00 (P50,000/ 1,000) per
Share, After the increase, the dividend would be reduced O P25.00
(P50,000/ 2,000) per share.
(3) Right to net corporate assets after liquidation. – Assume
That the total assets of the corporation amount to P170,000, with
Liabilities of P20,000 and surplus of P50,000. Thus, its net assets
Or net worth is P150,000. Therefore, the actual value per share is
P150 (P150,000/ 1,000). If the new shares were to be issued at their
Par value of P100, the actual value of the original shares would be
Reduced to P125 (P250,000/ 2,000).
If the rule of pre-emption will not be observed, it is evident
That existing stockholders who are allowed to subscribe to more
Than their pro rata shares in the increase of the capital stock and
New stockholders will unjustly benefit by P25.00 per share at the
Expense of the stockholders whose pre-emptive right is violated.
In the event of liquidation, each stockholder, old and new, will
Participate in the net assets of the corporation at the rate of P125