Atty. Aaron B. Bautista

May 24, 1988 Atty. Aaron B. Bautista Nubla, Pedrosa & Associates 2nd Floor, Pan Asia Building 575 Nueve de Febrero Street Mandaluyong, Metro Manila Sir : This refers to your letter dated May 5, 1988, requesting opinion on the following queries: 1. May a corporation increase its present authorized capitol stock even if the some is not yet fully subscribed? 2. May the equivalent of 25% subscription on the increase in the authorized capital stock be paid by way of stock dividend declaration? Anent your first query, please be informed that there is no prohibition in the Corporation Code for a corporation to increase its authorized capital stock even if the same is not yet fully subscribed. However, the legal formalities prescribed under Section 38 of the Corporation Code shall be complied with. Relative to your second query, quoted hereunder are the pertinent provisions of Section 62 of the Corporation Code: "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 two or more of the following: xxx xxx xxx 5. Amounts transferred from unrestricted retained earnings to stated capital ." xxx xxx xxx (Emphasis supplied) From the foregoing, it is clear that the 25% subscription to the increase of capital stock may be paid by way of stock dividend declaration. However, the validity of the dividend declaration is subject to the existence of sufficient retained earnings to cover the same. Section 43 of the Corporation Code provides, thus: "SECTION 43. Power to declare dividends . The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock, held by them. Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus cost and expenses, while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid. Provided, further, That no stock dividend shall be issued without the approval of the 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 ". ...(Emphasis supplied) Please be advised accordingly. Very truly yours, (SGD.) JESUS J. VALDES Associate Commissioner