First, what are Subscription Agreements or Subscription Contracts?

Under Section 59 of the Revised Corporation Code, subscription contracts are any contracts for the acquisition of unissued stocks, even if parties may refer to it as a purchase or some other contract.

This provision presupposes a situation where a corporation has shares that it hasn’t opened to the public yet. When a company is incorporated, it authorizes a certain number of shares to be created in its Articles of Incorporation. These shares are referred to as authorized stocks. Authorized stocks are all shares that have been created, including those that are up for sale to investors (issued or outstanding shares) and those not up for sale (unissued shares).

Unissued shares those that a company reserves in the meantime so it has something to offer to the public to raise funds or something to pay for future investments.

When a corporation finally opens those unissued shares, an interested investor may enter into a contract with the company to buy or subscribe a set number of shares. As this is relatively a sale, a contract is executed between parties. This is then referred to as the Subscription Agreements or Subscription Contracts.

Are there even instances where subscription agreements are not made?

Note that Section 59 of the Revised Corporation states, “any contract… even if parties may refer to it as a purchase or some other contract”. Connecting this to the provisions of the Civil Code on Contracts, the law does not generally prescribe a particular form, as long as the requisites of consent, object and cause are present.

Moreover, in cases where a buyer is one of the corporation’s own stockholders, the transaction is loosely considered a related party transaction. This refers to an arrangement made between two parties who are joined by a preexisting business relationship or common interest.

Because of the familiarity between related parties, it is not uncommon for arrangements to be unsupported by formal agreements. Naturally, this posses problems in terms of substantiation or in showing evidence that the agreements do exist. This may be a reason why Section 59 provides a certain point of leniency, going so far as saying that there is a subscription agreement “even if parties refer to it as a purchase or some other contract”. Strictly speaking, there may be a subscription agreement even if the conveyance is not by virtue of a sale (e.g. donation) for as long as unissued stocks are acquired.

Can a stock certificate be issued even without a formal subscription agreement?

A stock certificate is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in the document is the owner of a designated number of shares of its stock. It is prima facie evidence that the holder is a shareholder of a corporation. 

Section 63 of the Revised Corporation Code states, “No certificate of stock shall be issued to a subscriber until the full amount of subscription together with interest and expenses, if any is due, has been paid.

Based on this provision, the operative condition that starts a subscriber’s right to demand the issuance of a stock certificate is the full payment of his subscription together with its interests and expenses, not the presence of a subscription contract.

Moreover, the word “shall” imposes an obligation upon the corporation which attaches automatically upon full payment. In effect, the subscriber has no duty to make a demand before the corporation actually issues a stock certificate. It is imperative upon the corporation to issue one.

Consequently, the absence of a formal subscription agreement should not hinder the stockholder’s right to to ask for the issuance of a stock certificate.