Rural Bank of Iligan City, Inc.

March 11, 1981 Rural Bank of Iligan City, Inc. Iligan City Attention : Ms . Lourdes P . Roque Gentlemen: This refers to your letter dated 1 February 1980 requesting the opinion of this Commission on whether the abovenamed rural bank can increase its capital stock from P400,000.00 to P1,000,000.00 without requiring additional subscriptions therefor based on the following grounds: 1) that on the basis of the increased authorized capital stock of P100,000.00, the 20% subscription requirement, as well as the 25% paid-in requirements, are already complied with and even exceeded by the Rural Bank's present fully paid-up capital stock of P400,000.00; and 2) the increase in the authorized capital stock is for the purpose of making effective future stock dividends therefore authorized, as provided by Section 17 of the Corporation Law. It seems that you based the 20% subscription and 25% paid-in requirements (now 25-25% under the Corporation Code of the Philippines) on the proposed P1,000,000.00 increased capital stock instead on that part of the capital stock representing the increase, i.e. P600,000.00. Relative thereto, Article 38 of the Corporation Code of the Philippines, partly quoted hereunder expressly provides: "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 the 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." (Emphasis supplied) As to the second ground, if the actual capital is increased by accumulated profits and such accumulated profits are distributed to the stockholders in the form of stock dividends, the amount corresponding to the stock dividends declared may be used to cover the required 25% subscription to the authorized capital stock and, if sufficient, will obviate the necessity of taking in new subscription. This is implicitly allowed under Section 38 (3) of the Corporation Code, which enumerates the contents of the certificate to the increase of capital stock to be filed with the Securities and Exchange Commission. We quote: "(3) If an increase of the capital stock, the amount of capital stock or number of shares of no-par stock thereof actually subscribed, the names, nationalities and residences of the persons subscribing the amount of capital stock or number of shares of no-par stock subscribed by each, and the amount paid by each on his subscription in cash or property, or the amount of capital stock or number of shares of no-par stock allotted to each stockholder if such increase is for the purpose of making effective stock dividend therefor authorized"; Note that if the increase of the authorized capital stock is for the purpose of making effective stock dividends theretofore authorized, the certificate of increase need only state the amount of capital stock or number of shares of no-par stock allotted to each stockholder. Thus, if the amount of your surplus profit is equivalent to or more than the twenty-five percent (25%) of your proposed increase of capital stock, the same may be effected by way of declaration of stock dividends without the need of putting up new payment in the subscription to the increase. As to the documents to be submitted relative thereto, you may prepare and accomplish the following for our appropriate action: 1. Certificate of authority from the Central Bank re increase 2. Certificate of increase of capital stock 3. Treasurer's sworn statement 4. Directors' certificate attesting to the correctness of the amended articles of incorporation and their approval as well as the stockholders' of the proposed amendment 5. SEC general information sheet 6. Central Bank examiner's verification report on increase of capital stock 7. Bank's amended articles of incorporation 8. Balance sheet and Statement of Income and Expenses duly certified by an independent Certified Public Accountant which was used as basis in declaring the stock dividend. 9. Detailed or Long-Form Report of the certifying Auditor cdll 10. Analysis of Retained Earnings. Please be guided accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Director Corporate and Legal Department