Britanico, Panganiban, Benitez, Africa & Linsangan Law Office

August 9, 1984 Britanico, Panganiban, Benitez, Africa & Linsangan Law Office Suite 606, Associated Bank Bldg. 666 T. M. Kalaw Street Ermita, Manila Attention : Atty . S . Katherine Luczon Barinaga Gentlemen: This has reference to your letter dated July 30, 1984 requesting confirmation on the following opinions which you rendered to some of your clients, to wit: prcd 1. Additional subscriptions out of unissued shares of stocks may be made by incorporators who have not yet fully paid on their original subscriptions; provided they pay a minimum of 25% of their additional subscriptions and provided that the unpaid subscriptions are not delinquent; and that 2. Stock dividends may be declared out of retained earnings even if there are still unpaid subscriptions. Anent your first opinion, please be informed that there is nothing in the Corporation Code or the Revised Securities Act which prohibits a corporation from issuing shares from the unsubscribed portion of its capital stock before the original subscriptions are fully paid. However, as regards payment to the additional subscription, the Commission, in a previous opinion, has held that, the Board of Directors, in the honest and reasonable exercise of the discretionary powers vested in them by the charter and by-laws of the corporation, may fix the amount that would be considered sufficient downpayment on the subscription to the unissued shares of the corporation. ( Letter to Paredes, Poblador, Nazareno, Azada and Tomacruz Law Offices dated Nov. 6, 1970 ). In this regard, such subsequent subscriptions should be distinguished from pre-incorporation subscription and subscription to an increase in capital stock under Sections 13 and 38 of the Corporation Code of the Philippines which reads in part as follows: "SECTION 13. Amount of capital stock to be subscribed and paid for purposes of incorporation . At least twenty-five (25%) percent of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation, and at least twenty-five (25%) percent of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by the board of directors: ...." "SECTION 38. Power to increase or decrease capital stock; ...Provided that the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the Treasurer of the corporation lawfully holding office at the time of filing of the certificate, showing that at least twenty-five (25%) percent of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the subscription: ..." Except therefore in these two (2) instances, the Board has the authority to determine the amount as well as the time and manner of such subscription. (SEC Opinion, Ibid.) This Commission affirms your second opinion in toto to the effect that stock dividends may be declared out of retained earnings even if there are still unpaid subscription. In support thereof, 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 costs and expenses, while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid: ...." Please be advised accordingly. prcd Very truly yours, (SGD.) MANUEL G. ABELLO Chairman