Trans-Philippines Investment Corporation

March 18, 1987 Trans-Philippines Investment Corporation c/o Atty. Antonio R. Manabat SGV Building 6760, Ayala Avenue Makati, Metro Manila Sir : This refers to your letter dated July 3, 1986, requesting for an official stand of the Commission on the question as to whether treasury shares can be reverted back to the status of authorized unissued shares . prcd It appears that one of your affiliates is planning to declare cash dividends but could not do so due to the presence of treasury shares in its coffers which restrict its retained earnings, from being paid as dividends. While the company is aware that decreasing the authorized capital will remove the treasury shares, this alternative is not possible because of the corporation's commitment with various financial institutions not to decrease its capital stock. The company, is therefore, thinking of reverting the treasury shares to the status of authorized but unissued shares so as to remove the restriction. Hence, the present query. Under the rule generally prevailing, a corporation has the option, either to retire reacquired shares and restore them to the status of authorized but, unissued shares, or to carry them as "treasury stock",that is, treat them as being still issued and subject to resale. (11 Fletcher Cyclopedia Corporation Chapter 58, Sec. 5088 p. 38).In our jurisdiction, however , it is clear from the Corporation Code, that reacquired shares shall be treated as treasury shares. The Code provides, thus: "SECTION 9. Treasury shares . Treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through so other lawful means ." (emphasis supplied). Treasury shares have no effect on stated capital unless and until they are cancelled or retired, in which event stated capital is reduced by the amount then representing the shares. Treasury shares must be distinguished from the authorized but unissued shares in several respect: their acquisition does not reduce the number of shares or the amount of stated capital and their sale does not increase the number of issued shares or the amount stated capital .(11 Fletcher Cyclopedia Corporations, Chapter 58, Sec. 5088, p. 38) To settle all doubts on the status of treasury shares, Section III (2) of the "SEC Rules Governing Redeemable and Treasury Shares", which implements Section 9 of the Corporation Code, provides: " 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). Thus, it is very clear from the foregoing provisions that treasury shares cannot be reverted back to the unissued shares of the corporation. Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman