Question

A,B,C,D,E and F, Filipino citizens , X,Y,Z, Amrican citizens, and R&S Japanese citizens agreed to form a domestic corporation with an authorized capital stock of P1,000,000 divided into one hundred thousand shares with a par value of P10 per share. B subscribed for 2,000 shares and he paid P12,000. X subscribed for 5,000 shares and he issued a promissory note in the amount of P30,000. F joined the group but he did not subscribe for any number of shares.

Is the payment of X for his subscription valid?
A. Yes, provided the promissory note is converted to cash on its maturity
B. Yes, as long as the other incorporators shall accept his promissory note
C. No, because only actual cash paid to the corporation can be valid payment
D. No, because shares of stock shall not be issued in exchange of promissory note

Answer 1

The validity of the payment for share subscription using a promissory note depends on the acceptance by the other incorporators and the legal provisions governing corporate practices in a given jurisdiction. Typically, a promissory note must be backed by guarantees or collateral. Always consult specific corporate law for precise information.

Step-by-step explanation:

The question pertains to whether the payment of X, an American citizen, for his share subscription in the form of a promissory note is considered valid for the purposes of forming a domestic corporation in the Philippines. According to the scenario, X has subscribed for 5,000 shares and issued a promissory note for P30,000 as payment. The question asks whether this form of payment is acceptable.

In general corporate practice, shareholders can contribute capital to a corporation in various forms, including cash, property, or even services, provided these are permissible contributions under the laws governing the corporation. In the case of promissory notes, they could potentially be used as payment provided the other incorporators accept it, or it is legally allowed and later converted into capital for the corporation. However, legal specifics can vary depending on the jurisdiction's corporate law.

For the payment of a subscription to be valid, certain legal conditions must be met, and often a promissory note would need to be backed by some form of guarantee or collateral. If this is done properly, and if allowed by law, the promissory note would indeed become an acceptable form of payment. It is always important to consult the legal framework within the specific domain of business operation for the most accurate understanding.