Villaraza and Cruz Law Offices

November 6, 1995 Villaraza and Cruz Law Offices 5th Flr.,LTA Building, 118 Perea St. Legaspi Village 1129 City of Makati S i r : This refers to your letter dated October 12, 1995, requesting opinion on whether or not a corporation organized under the Corporation Code can issue convertible redeemable US Dollar denominated preferred shares to finance a high priority economic project. It is your contention that RA 529, otherwise known as the Uniform Currency Law, as amended, which requires domestic obligations to be paid in Philippine legal tender or in an amount of money measured thereby, does not apply in the present case inasmuch as the project to be undertaken by its client corporation has been certified by the National Economic and Development Authority (NEDA) to be a high-priority economic project, pursuant to Section 1 of said Law. The NEDA Certification dated January 4, 1993, states: "This is to certify that the first 300-MW coal-fired power plant of Magellan Utilities Development Corporation (MUDC) was confirmed as a "high priority" project, pursuant to Section 1 of R.A. 529 NEDA Board in the Cabinet Meeting constituted into a NEDA Board Meeting held on December 22, 1992." With the foregoing NEDA Certification, you seek confirmation or opinion from this Commission that the Corporation may, in order to finance the Project, issue US Dollar denominated convertible redeemable preferred shares of stock, which provide for, among other things, the payment of dividends, the redemption and conversion of preferred shares to common shares, and issuance of share warrants based on an amount of Philippine currency measured by U.S. Currency. The UNIFORM CURRENCY LAW provides: "SECTION 1. Every provision contained in or made with respect to, any domestic obligation, to wit, any obligation contracted in the Philippines which provision purports to require payment in gold or in a particular kind of coin or currency other than the Philippine currency or in any amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null, void and of no effect, and no such provision shall be contained in or made with respect to, any obligation hereafter incurred. The above prohibition shall not apply to: xxx xxx xxx (b) transactions affecting high priority economic projects for agricultural, industrial and power development as may be determined by the National Economic Council which are financed by or through foreign funds;" (Emphasis supplied) The aforecited provisions deal only with the form of payment of domestic obligations, not on the capital structure of corporations. An analysis of the provisions of the CORPORATION CODE relating to corporate capitalization reveals that the required "payment of capital stock" and "amount of authorized capital stock" are covered by different provisions. The pertinent provision of the Corporation Code relating to payment of subscriptions reads in part: "SECTION 62. Consideration for stock . ...Consideration for the issuance of the stock may be any or 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; ...(Emphasis supplied) It is quite clear from the above provision that corporations are allowed to receive subscription payment for its capital stock not only in "cash" but also in the form of "property" .While "foreign currency" may not qualify as actual cash, still it would qualify as property payment under the aforecited provision of the Corporation Code. Therefore, there is no legal impediment for a corporation to validly accept "foreign currency" as consideration for stock subscriptions. Thus, recently, the Commission, in an En Banc Resolution dated August 4, 1995 ,allows foreign currency as consideration or payment for the issuance of shares of stock. ( Memorandum Circular No. 4, series of 1995 ) However, the above policy should not be construed to mean that the capital stock or capitalization of corporation can be denominated in foreign currency. The Corporation Code has separate provisions on the matter, quoted hereunder: "SECTION 14. Contents of articles of incorporation . All corporations organized under the Code shall file with the Securities and Exchange Commission articles of incorporation in any of the official languages, duly signed and acknowledges by all of the incorporators, containing substantially the following matters, except as otherwise prescribed by this Code or special law: xxx xxx xxx. 8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines .(Emphasis supplied) Further, Section 15 of the same Code provides: SECTION 15. Form of articles of incorporation . Unless otherwise prescribed by special law, articles of incorporation of all domestic corporations, form of articles of incorporation of all domestic corporations shall comply substantially with the following form: xxx xxx xxx. SEVENTH: That the authorized capital stock of the corporation is __________________ (P _______________) pesos in lawful money of the Philippines, divided into ____________________ shares with the par value of _____________________ (P __________________) pesos per share. (Emphasis supplied) The above provisions explicitly require that the amount of the authorized capital stock of a corporation must be denominated in lawful currency of the Philippines which is represented in "Pesos". Accordingly, while payment to subscriptions to capital stock in the form of "foreign currency" is allowable under existing law and SEC policy, the shares of stocks of domestic corporations cannot be denominated in terms of any currency other than in Pesos, the lawful money of the Philippines. Please be advised accordingly. (SGD.) FE ELOISA C. GLORIA Associate Commissioner