Guidelines for the Verifications of the Paid-Up Capital (Cash) of Corporations

June 25, 1976 GUIDELINES FOR THE VERIFICATIONS OF THE PAID-UP CAPITAL (CASH) OF CORPORATIONS In order to be reasonably assured that the paid-up capital of newly-registered corporations, particularly those supposedly deposited in the banks, are actually received by and disbursed solely for legitimate purposes, the following guidelines for the examination thereof are hereby adopted: 1. A bank certificate, in accordance with the prescribed form certificate under oath by a responsible official of the bank must be submitted by the registrant; 2. A letter of authority, in accordance with the prescribed form, executed by the Treasurer, authorizing the Commission to examine not only the bank deposit, but also its books of accounts and supporting records to determine the existence and utilization of the paid-up capital must likewise be submitted. This letter of authority shall be binding upon the corporation even if there is a change of corporate officers; 3. Within thirty (30) days from date of registration of the articles of incorporation, the corporation must set up its books of accounts, duly registered with the Bureau of Internal Revenue, wherein the paid-up capital as well as other funds received and all disbursements made thereon are immediately recorded and must set up and register with the Commission its stock and transfer book. The paid-up capital must be disbursed only in connection with the business for which the corporation was organized, and no amount shall be disbursed as loans or advances to stockholders and officers of the corporation; * 4. The corporation must submit to the Commission a Statement of Sources and Application of Funds, certified by an independent Certified Public Accountant. Where the paid-up capital of the corporation is less than Fifty Thousand Pesos (P50,000.00), the Statement of Sources and Application of Funds may instead be certified under oath by the Treasurer of the corporation. The Statement of Sources and Application of Funds must be submitted together with the Income Statement and Balance Sheet covering its first year of operation, within the due date required for the submission of its financial statements are provided for under existing rules and regulations, and must show in sufficient detail the sources of funds and how they are utilized. If for valid reasons additional time is needed, an extension of not exceeding fifteen (15) days may be granted, provided a written request is filed on or before due date and upon payment of an extension fee of P50.00; 5. Upon receipt of the Statement of Sources and Application of Funds, the Commission shall examine the books of accounts as well as all supporting records and bank account to determine the utilization of the paid-up capital. The examination shall extend not only to the period covered by the Statement of Sources and Application of Funds but also to the period nearest to the date of examination; 6. The failure of the corporation to submit on time the Statement of Sources and Application of Funds shall not deter the Commission from conducting the examination of the books of accounts, supporting records and bank accounts to determine the utilization of the paid-up capital; and llcd 7. The Commission may subject the erring corporation, depository bank and/or certifying accountant to any of the following sanctions. A. After due notice and hearing, the registration of the Articles of Incorporation of any corporation may be revoked on any of the following grounds: 1. If the books of accounts, supporting records, and bank accounts are not made available for examination by the Commission without justifiable reasons; 2. If it was found that the paid-up capital or any amount thereof had been granted as loans or advances to stockholders and officers of the corporation; and 3. If the paid-up capital was proven to have been obtained as mere accommodation or loans or advances to the corporation. B. The failure of the company to set up its books of accounts and stock and transfer book within the prescribed period, and the non-submission or late submission of the statements required herein, shall be penalized by a fine of not more than one Thousand (P1,000.00) and an additional penalty of not exceeding Two Hundred Pesos (P200.00) per day every day of delay. C. In appropriate cases, the certifying accountant shall be suspended or barred from practicing before the Commission for such period of time as it may deem adequate. D. Banks and other corporations authorized to receive deposits who were proven to be extending accommodation loans used as paid capital of corporation shall be blacklisted and its certificate of deposits will no longer be honored by the Commission. This shall take effect immediately. (SGD.) ANGEL L. LIMJOCO, JR. Chairman Securities and Exchange Commission Footnotes * As modified by Memorandum Circular No. 2 (Monitoring Series, 1986) dated January, 1986.