Mr. German Capati

April 14, 2003 SEC OPINION NO. 12-03 Mr. German Capati P.O. Box 1081 Ras Tanura 31311 Saudi Arabia RE : OFW International Holdings, Inc. Dear Mr. Capati, This refers to your electronic mail dated January 14, 2003 through which you have made several inquiries. In connection with your opening query as to the authenticity of the stock certificates issued by OFW International Holdings, Inc.,we regret to inform you that we cannot make an absolute statement as to that regard primarily because we are unaware of the surrounding facts relating to such query. Consequently, we shall decline to make any comments or present any opinion on such issue. Nonetheless, please be informed that Section 64 of the Corporation Code states that: DTEIaC " Issuance of Stock Certificate No certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses (in case of delinquent shares),if any is due, has been paid." Thus, as a general rule, the corporation, through its corporate secretary, is dutybound to issue the certificate of stock once you have fully paid your subscription and complied with all the necessary conditions under the law. Alongside, a verification from our records discloses that OFW International Holdings, Inc. is not on the list of issuers of registered or listed securities. Therefore, it is not mandated by law to file a registration statement nor is it required to comply with the requirements of Section 8 (Requirement of Registration of Securities) and Section 12 (Procedure of Registration of Securities) of the Securities Regulation Code. Our records reveal that OFW International Holdings, Inc. was registered before this Commission on March 11, 2002 under SEC Registration No. A200203950. While it is true that Section 141 of the Corporation Code requires each corporation to submit its annual report of its operations together with a financial statement of its assets and liabilities, its General Information Sheet (GIS), and such other requirements as the Commission may require, we regret to inform you that we cannot furnish you a copy of all the required reports supposedly submitted by the subject corporation since it has not filed any. Additionally, SEC reportorial requirements of the subject corporation for the previous year are not yet due until the end of this month. Relative to your query on whether or not the corporation is required to submit its own Manual of Corporate Governance under SEC Memorandum Circular No. 2, Series of 2002, please note that said Memorandum Circular requires all corporations whose securities are registered or listed, corporations which are grantees of permits/licenses and secondary franchise from the Commission and public companies, and branches or subsidiaries of foreign corporations operating in the Philippines whose securities are registered and listed, to submit a Manual on Corporate Governance. Furthermore, Memorandum Circular No. 2 also defines a public company as any corporation with a class of equity securities listed in an exchange or with assets of Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more stockholders, each holding at least one hundred (100) shares of class of its securities. A perusal, however, of the primary purpose stated in the Articles of Incorporation of OFW International Holdings, Inc. discloses that the corporation is an ordinary holding company and that it "shall not engage in the business of an open-end investment company as defined in the Investment Company Act (R.A. 2629 ), without first complying with the applicable provisions of the said act; and without first engaging as a stock broker of general securities." Therefore, taking the coverage of SEC Memorandum Circular No. 2 and the primary purpose of the subject corporation into consideration, OFW International Holdings, Inc. is not one of those corporations contemplated by said Circular as required to submit a Manual on Corporate Governance. However, there is nothing that prevents an ordinary corporation, which is not required to submit a Manual of Corporate Governance, to adopt its own. With regard to your query on the supposed limit set on stock subscription, allow us to make the necessary distinction. Let it be noted that a subscription to the stock of a corporation has been generally defined as a contract by which the subscriber agrees to take a certain number of shares of the capital stock of a corporation, paying for the same or expressly or impliedly promising to pay for the same. 1 Simply stated, a stock subscription is a contract between a corporation on one side to sell a certain number of shares of its stock to the subscriber, and the subscriber on the other side to purchase the stock from the corporation. 2 In fact, our Corporation Code 3 defines a subscription contract as any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription, notwithstanding the fact that the parties refer to it as a purchase or some other contract. Capital, as applied to corporations, refers to the money, property or means contributed by stockholders as the form or basis for the business or enterprise for which the corporation was organized and generally implies that such money or property or means has been contributed in payment for stock issued to the contributors. 4 The term "capital" is also used synonymously with the words "capital stock," referring to the amount subscribed and paid-in and upon which the corporation is to conduct its operations. 5 It is the amount fixed in the articles of incorporation procured to be subscribed and paid-in and is unaffected by the profits or losses resulting in the operation of the corporation. 6 It is likewise synonymous with authorized capital stock. 7 Simply stated, it is the amount determined by the applicant corporation, through its incorporators, when it applies for registration with the SEC. In fact, stock corporations incorporated under the Corporation Code shall not be required to have any minimum authorized capital stock except as otherwise specifically provided for by special law, and subject to the provisions of Section 13 of the same Code. 8 On the other hand, subscribed capital stock refers to the portion of the capital stock subscribed whether fully paid or not. It implies a subscription contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed. 9 However, Section 13 of the Corporation Code mandates pre-incorporation subscriptions, which means that at least 25% of the amount of the authorized capital stock shall be subscribed at the time of incorporation and at least 25% of the total subscription must be paid except where the capital stock consists of no par value shares, in which case, the subscriptions, must be fully paid. The rationale behind the aforestated requirements on subscribed capital is to insure the sufficiency and adequacy of corporate capitalization. They serve as an assurance to (1) the State of the successful prosecution of the business of the corporation; and (2) to the creditors of the corporation of the means of obtaining satisfaction of their claims, at least to the extent of the payment of the required subscription. 10 The 25%-25% requirements are mandatory only during (1) the pre-incorporation period (Section 13 of the Corporation Code) and (2) when the corporation undertakes to increase its authorized capital stock (Section 38). Except in these two instances, the board of directors, in the honest and reasonable exercise of discretionary powers, has the power to fix the amount that would be considered sufficient downpayment on subscription to the unissued shares of the corporation, 11 which may be at 5%, 20% or none at all; and to prescribe the time and manner of payment of the subsequent subscriptions. Otherwise stated, the 25%-25% requirements do not extend to subsequent subscriptions to the unsubscribed shares of the corporation because the evil risks of insolvency against which the law intends to safeguard the public no longer exist. 12 Thus, as far as the remaining unsubscribed shares of the capital stock are concerned, the board of directors may treat the same as sale of stocks, for which it may issue the appropriate stipulations and conditions by requiring only 10%, 5% or even 1% payment on the remaining unsubscribed shares of the corporation, depending on the sound discretion of the board of directors. Hence, taking all these into consideration, OFW International Holdings, Inc. may well set a limit to the subscription of stock ownership for each investor, which it has set at a maximum amount of $10,000.00, as you have stated in your mail. This action should of course be grounded on a valid board resolution. Finally, to address your query relative to the connection of OFW Net Foundation and OFW International Holdings, Inc. our records reveal that Overseas Filipinos Worldnet Foundation (OFWNET) with SEC Registration No. A200108267 is separate and distinct from OFW International Holdings, Inc., with SEC Registration No. A20023950. OFWNET is a non-stock corporation. As such, it has no equity apportioned into shares of stock and does not distribute dividends to its members because it is not organized for private gain and profit but for some other purposes which may be charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service or similar purposes. 13 On the other hand, OFW International Holdings, Inc. is a stock corporation, the authorized capital of which is Sixteen Million Pesos (P16,000,000.00),divided into three million two hundred thousand (3,200,000) shares, with par value of five pesos (P5.00) per share. Being a stock corporation, OFW may declare dividends out of its surplus profits on the basis of shares held by each stockholder of record. Likewise, it is an entity primarily engaged in business for pecuniary purpose. We hope we have fully addressed your concerns. Very truly yours, (SGD.) VERNETTE UMALI-PACO General Counsel Footnotes 1. Rosario Lopez, The Corporation C od e, citing Grown vs. North Venture Road Development Co Cal App Rptr 568. 2. Ballantine, Law Dictionary, p. 1237. 3. Section 60. 4. Rosario Lopez, The Corporation C od e, citing Untie Grocers, Ltd. vs. United States F. Supp. 834, cited in 2 Fletcher Cyc. Corp. 1986 rev. ed..Sec. 5080 at 18). 5. 11 Fletcher Cyc. Corp. 1986 rev. ed.,Sec. 5080 at 15). 6. Ibid. 7. Rosario Lopez, The Corporation C od e, p. 104. 8. Section 12, Corporation Code of the Philippines. 9. Section 60, Corporation Code of the Philippines. 10. SEC Opinion dated May 4, 1977 addressed to Mr. Diosdado D. Pamintuan, Jr. 11. SEC Opinion dated November 6, 1970 addressed to Paredes, Poblador, Naxareno, Azada and Tomacruz Law Office. 12. SEC Opinion dated June 29, 1976 addressed to Mr. Rodolfo C. General. 13. Section 88, Corporation Code of the Philippines.