Mr. Alejandro M. Villamil

April 18, 1995 Mr. Alejandro M. Villamil Luzon Colleges Perez Blvd.,Dagupan City 2400 S i r : This refers to your letter of March 25, 1995 requesting opinion on the following: 1. May the minimum 25% subscription requirement for increase of capital stocks be composed only of preferred shares, even if the capital stocks of the corporation are classified into founders and preferred shares? 2. May the minimum 25% subscription requirement for increase of capital stock be composed of uneven distribution of the two classes of shares: that 75% be subscribed on preferred stocks and only 25% be subscribed on founders stock? 3. In the minimum subscription on the increased capital stock, how may the corporation dispose of marginal shares? May the corporation acquire said marginal shares in accordance with Section 41 of the Corporation Code to eliminate fractional shares arising out of stock dividends? If the corporation is allowed to acquire the said marginal shares, how may the corporation dispose of said shares? Section 38 of the Corporation Code provides in part: " ...Provided, That the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twenty-five (25%) of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) of the subscription: ...." (Emphasis supplied) From the phrase " of such increased capital stock ",it can be deduced that the 25% subscription requirement refers to the total subscription (not to individual subscriptions) and regardless of class of shares .Thus, when the corporation has several classes of shares, the 25% subscription requirement may be applied only to one class of shares or it may distribute it to all classes of shares, equally or unevenly. Take note, however, that founders' shares are normally issued at the time of incorporation to incorporating stockholders or organizers of the corporation, and assuming that there are still remaining unissued founders' shares of the corporation, the rights and privileges attached to said shares shall be subject to the limitations under Section 7 of the Corporation Code. Anent your third query, the corporation, pursuant to Section 41 of the Corporation Code, may, after the approval of the increase, acquire fractional shares arising out of the stock dividends declared in payment for the increase of capital stock, provided that it has the necessary unrestricted retained earnings in its books to cover the shares to be purchased or acquired. In the absence of unrestricted retained earnings, fractional scrip certificate, which will entitle the stockholders owning the fractional shares to the payment of the cash value thereof when the company is in the position to do so, may be issued to them instead of stock certificates covering such fractional shares; or the stockholders concerned negotiate for the sale or purchase of their fractional shares with other stockholders also owning fractional shares, so as to convert them into full shares ( SEC letter to Republic Telephone Company dated August 1, 1961 ). Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner