Mr. Marcelo T. Dy

February 20, 1991 Mr. Marcelo T. Dy Rizal Commercial Banking Corporation RCBC Building 333 Sen. Gil J. Puyat Ave. Makati, Metro Manila S i r : This refers to your letter of February 12, 1991, requesting opinion on the query posed therein. As stated, Rizal Commercial Banking Corporation (RCBC) declared a 40% stock dividend which resulted in the issuance of fractional shares. To eliminate said fractional shares and in compliance with Section 41 of the Corporation Code, RCBC acquired the same and paid the stockholders entitled thereto the equivalent value thereof in cash. Your queries are: 1. Is RCBC entitled to the issuance of a stock certificate in its own name for the sum total of the fractional shares amounting to 144 common shares? 2. If not, how will the payment made by RCBC to its various stockholders for said fractional shares be recorded in its books? Shares of stock subsequently reacquired by the issuing corporation by lawful means are treated as treasury shares (Section 9, Corporation Code). They are no longer considered "outstanding capital stock" of the corporation (Section 137, Corporation Code). Treasury shares shall have no voting rights as long as such stocks remain in treasury (Section 57, Corporation Code). The only right which the corporation has over treasury shares is to reissue the same for valuable consideration. Thus, where the corporation reacquires its own stock, it does not become a subscriber thereof, and therefore, is not entitled to a stock certificate covering the same. Accordingly, your query is answered in the negative. Relative to your second query. the "SEC Rules Governing Redeemable Shares and Treasury Shares" provides: "2. Treasury shares do not revert to the unissued shares of the corporation but are regarded as property acquired by the corporation which may be reissued or sold by the corporation at a price to be fixed by the Board of Directors; ...." (Emphasis supplied) Hence, the price paid out of the retained earnings for the value of the reacquired shares should be treated in the corporate books as payment for the purchase of such property. Please be advised accordingly. Very truly yours, (SGD.) ARMANDO Z. GONZALES Associate Commissioner