Luzon Mahogany Corporation

September 8, 1982 Luzon Mahogany Corporation 9584 Kamagong Street Makati Metro Manila Attention : Mr . H . F . Consunji Gentlemen: This has reference to your letter, dated September 2, 1982, requesting confirmation that the Commission's approval is not required for the declaration of stock dividends out of retained earnings of a local corporation. A declaration of dividend (cash and/or stock) requires the concurrence of two (2) things, namely: 1) unrestricted retained earnings and 2) some formal act of the corporation, declaring the corporate policy of paying a portion or all of such surplus profits to the stockholders. The declaration of stock dividend is well defined in, and regulated by Section 43 of the Corporation Code of the Philippines, the pertinent provisions of which reads as follows: prcd " ...The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable ...in stock to all stockholders on the basis of outstanding stock held by them: ...Provided, further that no stock dividend shall be issued without the approval of stockholders representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. xxx xxx xxx." The approval of the Commission is not a requisite for the declaration of stock dividend. However, pursuant to the rules and regulations implementing PD No. 270 adopted by the Commission on August 3, 1973," any declaration of dividend, whether cash or stock, shall be reported to the Commission within fifteen (15) days from date of declaration: Provided that in the case of corporations whose securities are listed in any operating stock exchange or registered and licensed under the Securities Act, the report shall be filed with the Commission before or simultaneously with the release or publication of the notice of declaration of dividends to stockholders." Moreover, in those cases where payment on subscriptions to the increase of capital is made by way of stock dividend allotment, the Commission steps in by requiring the corporation concerned to submit its balance sheet as of the date of the declaration of the dividend or thereabouts, the related profit and loss statement, as well as statement of its surplus. Statements certified by an independent certified public accountant are preferred. The purpose of these financial statements and the examination being made thereof is to determine the existence of adequate surplus profits to cover the stock dividend declared. Generally, dividend declared from any source other than unrestricted retained earnings is contrary to law. Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Associate Commissioner