Mr. Esteban U. Espina, Jr.

June 15, 1987 Mr. Esteban U. Espina, Jr. 2371 Vision St. Sta. Cruz, Metro Manila Sir : This refers to your letter dated May 19, 1987, requesting the opinion of the Commission on the queries posed therein. As manifested in your letter, a corporation engaged in the production of soft drinks would like to offer a promotion scheme wherein buyers would look under the crown of the soft drink bottles they buy and anyone who is lucky to find the words under the crown "you are a winner of ten (10) shares of stock" would be entitled to such corresponding number of shares of stock of the company free of charge upon presentation thereof. cdlex In this connection, your queries are: 1. Is the above promotion scheme legally feasible? 2. If so, what are the requirements of the Commission on the matter? The relevant provision of the Corporation Code provides thus: "SECTION 62. Consideration for stocks . Stocks shall not be issued for a consideration less than par or issued price thereof. Consideration for the issuance of stock may be any or a combination of any two or more of the following: 1. Actual cash paid to the corporation; 2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued; 3. Labor performed for and services actually rendered to the corporation; 4. Previously incurred indebtedness by the corporation; 5. Amounts transferred from unrestricted retained earnings to stated capital; and 6. Outstanding shares in exchange for stocks in the event of reclassification or conversion. When the consideration is other than actual cash or consists of intangible property such as patents or copyrights, the valuation thereof shall initially be determined by the incorporators or the board of directors, subject to approval by the Securities and Exchange Commission. xxx xxx xxx Shares of stock cannot be issued by a corporation gratuitously under an agreement that nothing at all shall be paid to the corporation for this would result in "watering of shares". As to the corporation, the issuance of "watered stock" is not merely "ultra-vires" but is illegal per se as it is a violation of the above quoted provision of the Corporation Code. LibLex Considering the foregoing, your first query is answered in the negative. We need not answer your second query for obvious reason. Likewise, your attention is invited to the provisions of the Revised Securities Act which provides thus: "SECTION 4. No securities, except of a class exempt under any of the provisions of Section five hereof or unless sold in any transaction, exempt under any of the provisions of Section Six hereof, shall be sold or offered for sale or distribution to the public within the Philippines unless such securities shall have been registered and permitted to be sold as herein provided. xxx xxx xxx Attached is a checklist of the requirements for the registration of securities of commercial and/or industrial corporation for your information and guidance. Please be guided accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Associate Commissioner