Atty. Custodio O. Parlade

September 23, 1987 Atty. Custodio O. Parlade AGP Industrial Corporation SGV Bldg.,6760 Ayala Ave. Makati, Metro Manila Sir : This refers to your letter dated August 27, 1987 requesting the opinion of this Commission on the query posed therein. LibLex It appears that the Board of Directors of the AGP Industrial Corporation, a publicly listed company, proposes to offer to its stockholders an option to acquire 500,000 "A" and "B" shares of the corporation for the purpose, among others, of raising operating capital. Since the current price of "B" shares is higher by more than ten percentage than the "A" shares, the Board is considering prices for such shares close to current stock market prices. Therefore, the "B" shares will be offered to "B" stockholders at much higher prices than "A" shares offered to "A" stockholders. A stockholder, however, believes that the Corporation cannot sell "A" and "B" shares at different prices, both classes of shares having the same par value. You claim, however, that offering both classes of shares at the same price at whatever price will be will favor "B" stockholders, many of whom are foreign nationals, at the expense of the "A" (Filipino) stockholders. Besides, if these shares are sold at a price higher than the current market price for "A" shares but lower than the current market price for "B" shares, you believe that only the "B" stockholders will buy "B" shares. The corporation will then be unable to raise needed operating capital. Your query is: May AGP Industrial Corporation legally grant to its stockholders assignable option to subscribe to 500,000 Class "A" and "B" shares of the corporation at different prices to be fixed by the Board, although all such shares have the same par value. The par value of a share is simply an amount fixed as the nominal value of the interest so specified, which amount likewise indicates the sum of money or value of property or services which a subscriber is represented as having contributed to the corporation in exchange for such share in its ownership. (13 Am. Jur. sec. 176).The primary function of the par value is to fix a minimum subscription price of the shares, or original issue price of the shares. (Ballantine on Corp.,sec. 200). In relation to your query, the Corporation Code of the Philippines provides thus: "SECTION 62. Consideration for stocks . Stocks shall not be issued for a consideration less than the par or issued price there of." ... It is implied from the above statute that the corporation may issue its shares at any price provided the price thereof is not less than par. It is worth mentioning that par value is not a "value" in any sense. It does not reflect the true value of the shares which will constantly fluctuate and cannot be set by the articles or the share certificate. (Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines).Generally, a new issue of capital stock may be issued at a fixed price above par, provided the old stockholders are given the right to purchase their proportionate part of the new issue. (11 Fletcher, Ch. 58, Sec. 5138.1, citing Stokes v. Continental Trust Co. of City of New York, 186 N.Y. 285, 78 N.E. 1090; etc.) Thus, an agreement by subscribers to pay more than par for their stock is not ultra vires as an attempt to increase the par value of the stock, but it is valid and enforceable according to its terms. (11 Fletcher, Ch. 5183, citing Grove v. Economic Life Ins. Co. (Del. Ch.) 80 Atl. 809; Ergen v. Smith, 113 Iowa 25, 84 NW 954). In view of the foregoing, it is opined that AGP Industrial Corporation may legally grant to its stockholders an option to subscribe to 500,000 Class "A" and "B" shares of the corporation at different considerations higher than the par value as may be fixed by the Board. prcd Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman