Filipino Financial Corporation

October 1, 1982 Filipino Financial Corporation Filipino Merchants Bldg. De La Rosa St.,Legaspi Village Makati, Metro Manila Attention : Atty . Antonio P . Cabanas Sir : This has reference to your letter dated January 19, 1982, informing this Commission that the above-named corporation has recently reacquired 96,370 shares of stock as treasury shares and posing the following queries. "1. Should the corporation declare a stock dividend, can the treasury shares be distributed to the stockholders as stock dividend instead of issuing new shares from the unsubscribed portion of capital stock?" LexLib "2. Since treasury shares can be resold, can the corporation dispose of them at a price below their acquisition of par value thereby inquiring losses." Anent the first query, this Commission in a previous opinion, has ruled that "The distribution of cash or stock dividend out of treasury shares would be converting the corporation into both a debtor or creditor for the same amount at the same time, or requiring it to take money or stock from one of its pockets and putting it in another which is absurd." "Treasury shares being unrealized income, are not considered as part of earned or surplus profits, and therefore not distributable as dividends, either in cash or stock. But there are surplus profits arising from the business operations, treasury shares, being the property of the corporation, may properly be distributed as property dividend." ( Ltr. to Mr. Cristeto B. Angala dtd. Apr. 24, 1979 ) Hence, in accordance with the above-quoted ruling, query No. 1 is hereby answered in the negative. As regards your second query, the new Corporation Code provides thus: "SECTION 9. Treasury Shares . Treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of for a negotiable price fixed by the board of directors ." (Emphasis supplied) Thus, when stock has been issued and fully paid and reacquired by the corporation to be disposed of for its benefits, the corporation may dispose of the stock even at less than its par value or acquisition cost, provided the price is reasonable, as fixed by the Board of Directors. By "reasonable",it would mean that if it is issued at less than the par value or issued value, the consideration for their issuance plus whatever profit the corporation made in their acquisition shall not be below their par or issued value. Otherwise, they might still be classified as watered stock. (Balbin & Gloria, Corporate Organization: New Dimensions, p. 18-19). However, if such shares were reacquired in accordance with their redeemable features, these treasury shares are deemed retired and can no longer be re-issued unless otherwise provided for in the covering articles of incorporation. Subject therefore, to the aforecited provisions, your second query is answered in the affirmative. Very truly yours, (SGD.) JULIO A. SULIT, JR. Associate Commissioner