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Yes. As a general rule, the participation of eachstockholder in the earnings of the corporation is based on histotal subscription and not the amount paid by him.X, Y, and Z each owns 10% of the capital stock of a corporation.X exercised his pre-emptive right to new shares while Y offeredhis corresponding new shares to Z who purchased the same,thereby increasing Z’s proportionate holdings. Has X a groundfor complaint?No. the pre-emptive right of stockholders extends “toall issues or disposition of shares of any class” unless denied bythe articles of incorporation or an amendment.Suppose the original capital stock of a corporation is divided into100,000 shares which were all offered for subscription. Only60,000 shares were subscribed including 12,000 shares by X.Is X entitled to pre-emption in case the remaining unissued40,000 shares are again offered for subscription?No. X is not entitled to pre-emption with respect to theremaining unissued 40,000 shares. But where the number ofshares initially offered for subscription was only 40,000, then Xmay exercise his pre-emptive right, in case of the remaining40,000 shares are subsequently offered to subscription.The corporation has surplus profits amounting to more than100% of its paid-up capital stock. It has not declared dividendsfor the last 5 years. May the corporation be compelled by theSEC to declare dividends to its stockholders?It depends. Stock corporations are prohibited fromretaining surplus profits in excess of 100% of their paid-in capitalstock, except when justified by definite corporate expansionprojects or programs approved by BOD, or when the corporationis prohibited under any loan agreement with any financialinstitution or creditor and such consent has not yet beensecured, or when it can be clearly shown that such retention isnecessary under special circumstances. A corporation borrowed money for the purpose of payingdividends. Is this legal?It depends. As a rule dividends cannot be declared outof borrowed money, for borrowed money is not profits; butmoney may be borrowed temporarily for the purpose of payingdividends, if the corporation has used its surplus assets to makeimprovements for which it might have borrowed money.STOCKS AND STOCKHOLDERDerivative suit – one brought by one or morestockholders or members in the name and on behalf ofthe corporationWatered stock – stock issued for no value at all or fora value less than its equivalent either in cash, property,services, or stock dividends.Call – declaration officially made by a corporationusually expressed in the form of a resolution of theBOD requiring the payment of all or a certainprescribed portion of a subscriber’s stock subscription.Highest bidder – person offering at the sale “to pay thefull amount of the balance on the subscription togetherwith accrued interest for the smallest number ofshares.