Mr. Diosdado C. Daug

August 23, 1990 Mr. Diosdado C. Daug Analogic Omictin, Inc. 246 J. P. Rizal Project 4, Quezon City S i r : This refers to your letter dated July 18, 1990 requesting opinion on the legality of issuing bonus shares in exchange for previously rendered services. cdll You stated therein that Analogic Omictin, Inc. was organized as a corporation on July 8, 1987. It has an authorized capital stock of P500,000.00 at a par value of P1.00 per share and at present outstanding paid-up capital of P208,305.00. In one of its meeting after a few months it was organized as a corporation, a resolution was passed setting aside 100,000 shares as bonus shares for the services rendered by four incorporators and founders who continuously work in the building up the company for at least three years from the time of incorporation without remuneration ,but the corporation has to put the resolution into effect only if the corporation has sufficient amount of accumulated retained earnings. Considering that the time at which the required number of years has been attained, you now ask for the opinion of the legalities of this transaction. The Corporation Code expressly allows labor or services to be used in payment for shares of stock. The pertinent provision of the Code provides thus: "SECTION 62. Consideration for stocks . Stocks shall not be issued for a consideration less than the par or issued price, thereof. Consideration for the issuance of stock may be any or a combination of any or two or more of the following: xxx xxx xxx 3. Labor performed for or services actually rendered to the corporation ; ..." (Emphasis supplied) It is clear from the aforecited provision that a corporation is allowed to receive as payment for the issuance of its stocks not only money and property but also labor and services. However, the labor and services given for such payment must have been performed for or actually rendered to the corporation. This transaction can be done even in the absence of retained earnings, provided that the services are fairly and adequately valued in relation to the par value of the stock to be issued and considering that the payment is not in the form of cash, the valuation thereof ,as initially determined by the board of directors of the corporation is still subject to the approval by the Commission pursuant to Section 62 of the Corporation Code, quoted hereunder: "Where 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 of the board of directors, subject to the approval by the Securities and Exchange Commission ." (Emphasis supplied) The following are the requirements for the issuance of shares out of the unissued capital stock where payment is in the form of labor or services: 1. Letter petition requesting for exemption from the registration requirement under the Revised Securities Act for the issuance of shares out of the unissued capital stock indicating the following: a. names of purchasers b. issue value c. nature of payment (labor performed or services actually rendered to the corporation); 2. Resolution of the Board of Directors authorizing the issuance of shares from the unissued portion of the capital stock; 3. Description and valuation of the services rendered, and justification on how the valuation thereof was arrived at; 4. List of stockholders on records as of the date of the Board meeting approving the issuance; 5. Certificate of waiver of preemptive right of non-subscribing stockholders; 6. Filing fee of 1/10 of 1% of the total issue value not less than P200.00. LibLex Please be guided accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman