Asset Marketing Corporation

November 12, 1990 Asset Marketing Corporation 151 Paseo de Roxas, Makati Metro Manila Attention : Mr . H . R . Cabilao Treasurer Gentlemen : This refers to your letter dated October 19, 1990 seeking opinion relative to the plan of Asset Marketing Corporation to declare cash dividends to its stockholders during the interim period out of the unrestricted retained earnings of the company as of July 31, 1990. llcd As stated, the corporation proposes to declare P4,370,000.00 as cash dividends out of its retained earnings as of July 31, 1990 amounting to P6,398,479, broken down as follows: Balance per audited financial statement as of December 31, 1989 P2,852,682.00 Accumulated depreciation on appraisal increment charged to operation as of July 31, 1990 1,636,781.00 Net Income from operation for the seven months ended July 31, 1990 1,909,016.00 TOTAL P6,398,479.00 =========== You further stated that judging from its performance in the recent years, the company envisions that it will continue to be profitable as the first semester of 1990 and no losses are expected at all. Anent thereto, the Corporation Code provides in part: "The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock held by them. . . .." (Section 43, Corporation Code) "Retained earnings represent the balance of net profits, income, gains and losses of a corporation from the time of its incorporation after deducting distribution therefrom to shareholders and transfers therefrom to capital stock or capital surplus or capital surplus accounts. For all practical purposes, the term has the same meaning as earned surplus." (Ballantine & Sterling, Vol. 1 (1982 ed.),et 141.26 (3)) The board of directors, may, in its discretion, appropriate retained earnings or portions thereof for designated purposes, in which case they will not be available for dividends. These appropriations may be for various purposes: expansion, possible future loss and other contingencies. Restrictions may also be imposed by law. All these constitute restrictions on retained earnings which render the amount represented by such appropriations unavailable for dividends. The retained earnings which are not so appropriated are what are referred to as unrestricted retained earnings, the only fund out of which dividends can be legally paid. (Campos, Campos, The Corporation Code "Comments, Notes and Selected Cases", 1981 ed., p. 773) While it is a normal corporate practice to declare dividends after the end of the fiscal year when the company could definitely determine whether it made profits and the amount thereof, the Commission, on several occasions, has ruled that a corporation may declare dividends even before the end of its fiscal year, provided it has sufficient earned surplus for the purpose which will not be impaired by losses, whether expected or not, during the remaining period of the fiscal year. Thus, considering that the corporation allegedly has the retained earnings to cover the dividend declaration, the Commission interposes no objection to the above proposal, subject to the provisions of Section 43 of the Corporation Code, and subject further to the following conditions: 1. That the amount of dividends involved would not be impaired by losses during the remaining period of 1990; 2. That projected income statement of the company for the remaining period of the year as well as the basis and assumption used therein shall be submitted for the valuation of this Commission, showing that the Corporation will not sustain losses that would impair the existing earnings to be declared as dividends; and 3. That should the company sustain losses during the year, cash distributed to the stockholders of records must be correspondingly refunded to the Corporation. LibLex Please be advised accordingly. (SGD.) RODOLFO L. SAMARISTA Associate Commissioner