Subject : Registration of subscriptions to theunissued shares of a corporation

February 5, 2004 SEC OPINION NO. 06-04 Subject : Registration of subscriptions to the unissued shares of a corporation Atty. Saklolo A. Leano Platon Martinez Flores San Pedro & Leano 6th Floor, Tuscan Building, 114 Herrera Street, Legaspi Village, Makati City Gentlemen : This refers to your request for opinion on the issuance of 2,346 shares out of the unissued portion of the authorized capital stock of your client, Tabac, Inc. (Tabac). As stated, Tabac has an authorized capital stock of 40,000 shares with a par value of P100.00/share. On May 12, 2000, Tabac issued 2,346 shares from the unissued portion of its authorized capital stock and assigned the said shares to four(4) new stockholders. The respective shareholdings of the new stockholders in Cigar Merchants Inc. were given as the consideration for the assignment of shares in Tabac. In addition, the four new shareholders assigned to Tabac Inc. their "Deposit for Future Subscriptions" listed in the books of Cigar Merchants Inc. amounting to Two Million Pesos. This was formally recognized in the subsequent Deed of Assignment dated May 6, 2003, which was an amendment to the Deed of Assignment dated May 12, 2000. As a result of the aforesaid assignment of shares, the issued and paid shares of Tabac, Inc. should have increased from 20,000 to 22,336. However, these changes were not reflected in the Financial Statements of the company for the years 2000, 2001, and 2002 and the General Information Sheets for the years 2000 and 2001. The General Information Sheet for the year 2002 is yet to be filed. Also, Tabac has not yet issued stock certificates to the four new stockholders and the said transactions are not yet reflected in the stock and transfer book of the corporation. We answer your queries in seriatim. First. Under the Revised Securities Act, "subscriptions to the unissued shares of the corporation are not considered exempt per se . Consequently, appropriate request for exemption from the registration requirements is necessary and any issuance from the unissued shares without SEC approval is subject to the penalties prescribed by its regulations." 1 In the case of your client, it issued the subject shares without the prior request for exemption, hence should be penalized. The fact that the issuance is not yet reflected in the Financial Statement of the corporation does not in any way affect the effectivity of the issuance. At the time of the subscription of the shares, the said shares are already deemed issued." Since a subscription agreement shall exist upon meeting of the minds, i . e . consent, it would necessarily mean that the covered shares have therefore been issued by the corporation at that point in time, since subscription and issuance as to a particular share of stock happen exactly at same point in time, being merely opposite sides of the same coin." 2 Second. Since the transaction may be covered by the SRC, there is no need to file a request for exemption covering the subject shares but only a notice to the Commission of said transaction. IEHScT Third. The procedure or manner of issuance of stock certificates for fully paid subscription is within the discretion of the corporation subject to the provisions of the Corporation Code of the Philippines ("Code"). The same has to be provided for in its by-laws, in accordance with Sections 47(9), 63 and 64 of Code. Parenthetically, the transfer/assignment of shares and the corresponding subscription must be duly entered in the stock and transfer book to make the said processes valid and binding as against the corporation. Very truly yours, (SGD.) VERNETTE UMALI-PACO General Counsel Footnotes 1. De Leon, Corporation C od e of the Philippines, 1993 ed., p. 761. 2. Villanueva, Philippine Corporate Law, 2001 ed.,p. 366.