Rules Governing Redeemable and Treasury Shares

April 26, 1982 CCP * NO. 1 RULES GOVERNING REDEEMABLE AND TREASURY SHARES (1982) The following rules governing redeemable shares (Section 8, CCP) and treasury shares (Section 9 and 41, CCP) are hereby promulgated: SECTION 1. General Provisions . The outstanding capital stock of a corporation, including unpaid subscriptions, shall constitute a trust fund held by the corporation for the benefit of its creditors which shall not be returned to the stockholders by repurchase of shares or otherwise, except in the manner as provided for under the Corporation Code and these rules. SECTION 2. Definitions . The following terms shall have the respective meanings when used in these rules: a. Treasury shares Treasury shares are shares of stock which have been issued and fully paid, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. b. Redeemable shares . Redeemable shares are shares of stock issued by a corporation which said corporation can purchase or take up from their holders as expressly provided for in its articles of incorporation and certificates of stock representing said shares. c. Unrestricted retained earnings . Unrestricted retain earnings refer to the undistributed earnings of the corporation which have not been allocated for any managerial, contractual or legal purposes and which are free for distribution to the stockholders as dividends. d. Sinking Fund . Refers to a fund set up by the corporation where cash is gradually set aside in order to accumulate the amount necessary to meet the redemption price of redeemable shares at special dates in the future. SECTION 3. Redeemable Treasury Shares . 1. No corporation shall redeem, repurchase or reacquire its own shares, of whatever class, unless it has an adequate amount of unrestricted retained earnings to support the cost of the said shares, except: a. When the shares are reacquired in the redemption of redeemable shares of the corporation or pursuant to the conversion right of convertible shares of the corporation, in accordance with the provision expressly provided for in its articles of incorporation and certificates of stock representing said shares of the corporation, in accordance with the provisions expressly provided for in its articles of incorporation and certificates of stock representing said shares; b. When the shares are reacquired to effect a decrease in the capital stock of the corporation as approved by the Securities and Exchange Commission; c. When the share are reacquired by a close corporation pursuant to the order of the Securities and Exchange Commission acting to arbitrate a deadlock as provided for under Section 104 of the Corporation Code of the Philippines. 2. Treasury shares do not revert to the unissued shares of the corporation but are regarded as property acquired by the corporation which may be reissued or sold by the corporation at a price to be fixed by the Board of Directors; provided, however, that in the case of redeemable shares reacquired, the same shall be considered retired and no longer issuable, unless otherwise provided in the Articles of Incorporation. 3. In the case of a close corporation, any stockholder may, for any reason, compel the corporation to purchase his shares at a value not less than their par or issued value, provided that the corporation has, after the withdrawal of the stockholder, sufficient assets in its books to cover its debts and liabilities exclusive of capital stock. SECTION 4. Retained Earnings . 1. The amount of unrestricted retained earnings equivalent to the cost of the treasury shares being held, other than those acquired in accordance with the exceptions provided in Section 3(1) of these rules, shall be restricted from being declared and issued as dividends. 2. The dividend restriction on retained earnings on account of the treasury shares being held shall be lifted only after the treasury shares causing the restriction are reissued or retained. Retirement of treasury shares shall be effected by decreasing the capital stock of the corporation in accordance with Section 38 of the Corporation Code of the Philippines for the purpose of eliminating the treasury shares. SECTION 5. Other Provisions . 1. A corporation may reacquire its own shares for a legitimate corporate purpose or purposes in accordance with these rules, including but not limited to the following cases: a. To eliminate fractional shares arising out of stock dividends; b. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquent sale, and to purchase delinquent shares sold during said sale; and c. To pay dissenting or withdrawing stockholders entitled to payment of their shares under the provisions of the Corporation Code of the Philippines. 2. Treasury shares shall have no voting rights as long as such stocks remains in treasury. 3. Treasury shares may be declared as property dividend to be issued out of the retained earnings previously used to support their acquisition, provided that the amount of the said retained earnings has not been subsequently impaired by losses. Any declaration and issuance of treasury shares as property dividend shall be disclosed and properly designated as property dividend in the books of the corporation and in its financial statements. 4. All corporations which have issued redeemable shares with mandatory redemption features are required to set up and maintain a sinking fund. The fund shall be deposited with a trustee bank and not be invested in risky or speculative ventures. 5. Redeemable shares may be redeemed, regardless of the existence of unrestricted retained earnings, provided that the corporation has, after such redemption, sufficient assets in its books to cover debts and liabilities inclusive of capital stock. SECTION 6. Violation of these Rules . Any violation of these rules shall be penalized by a fine of not less than One Thousand (P1,000.00) Pesos or not more than Ten Thousand (P10,000.00) Pesos and such other sanctions as provided for under Section 144 of the Corporation Code of the Philippines. SECTION 7. Effectivity of Rules . These rules shall take effect fifteen (15) days after their publication in two (2) newspapers of general circulation in the Philippines. prcd (SGD.) MANUEL G. ABELLO Acting Chairman Approved: (SGD.) CESAR E.A. VIRATA Minister of Finance CIRCULAR NO. 7 December 27, 1982 TO : All Certified Public Accountants All financial statements to be submitted by corporations to the Securities and Exchange Commission which are required to be certified by an independent Certified Public Accountant, shall in addition to the report of the certifying CPA, be accompanied by the following statement: "TO THE SECURITIES AND EXCHANGE COMMISSION: In connection with my examination of the financial statements of client-corporations, which are to be submitted to the Commission, I hereby represent the following: 1. That said financial statements are presented in conformity with generally accepted accounting principles in all cases where I shall express an unqualified opinion; Except that in case of any departure from such principles, I shall indicate the nature of the departure the effects thereof, and the reasons why compliance with the principles would result in a misleading statement, if such is a fact. 2. That I shall fully meet the requirements of independence as provided in Section 14 of the Code of Professional Ethics for CPAs: 3. That in the conduct of the audit, I shall comply with the generally accepted auditing standards promulgated by the Board of Accountancy: in case of any departure from such standards or any limitation in the scope of my examination, I shall indicate the nature of the departure and the extent of the limitation, the reasons therefor and the effects thereof on the expression of my opinion or which may necessitate the negation of the expression of an opinion; and 4. That relative to the expression of my opinion on the said financial statements, I shall not commit any acts discreditable to the profession as provided in Section 23 of the Code of Professional Ethics for CPAs. As a CPA engaged in public practice, I make these representations in my individual capacity and as a partner in the accounting firm of ___________ Signature _________ Printed Name _______ CPA Cert. No. ________ TAN __________ Date: __________ The above statement of representation shall be required starting January 1, 1983, to be filed only once with the Commission, and shall be considered as forming part of all financial statements presented to the Commission, bearing the signature of the CPA practitioner. This Circular is pursuant to the provisions of Sec. 141 of the Corporation Code of the Philippines, Batas Pambansa Bilang 68. Any CPA who, after due notice and hearing, is found by the Commission to have violated the above Statement of Representation, may, in addition to the penalties imposed in Sec. 144 of Batas Pambansa Bilang 68, be held liable under other applicable laws, without prejudice to any action that may be taken against him at the Professional Regulation Commission. This Circular repeals SEC Circular dated October 28, 1981 which requires an Affidavit of Representation. Please be guided accordingly. MANUEL G. ABELLO Chairman MEMORANDUM OF AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Memorandum Agreement made and entered into at Metro Manila, this 3rd day of June, 1983, by and between: Securities and Exchange Commission, a government instrumentality and/or entity duly organized under and created pursuant to the laws of the Philippines, with principal office at the SEC Building, EDSA, Greenhills, Mandaluyong, Metro Manila, duly represented in this Agreement by its Chairman, MANUEL G. ABELLO, hereinafter called the SEC. cdll - and - Bureau of Domestic Trade, a government instrumentality and/or entity organized under and created pursuant to the laws of the Philippines, with principal office at 361 Buendia Avenue Extension, Makati, Metro Manila, duly represented in this Agreement by its Director, LILIA B. DE LIMA, hereinafter called the BDT. WITNESSETH THAT: WHEREAS, the Securities and Exchange Commission (SEC) under the Corporation Code of the Philippines and PD 902-A, is vested with the function of registration of corporations and partnerships; WHEREAS, the Bureau of Domestic Trade (BDT),under the Business Names Law, has the jurisdiction over the registration of business names; WHEREAS, both agencies are aware that some corporations/partnerships desire to use business names or styles other than their corporate/partnership names and there is always the possibility of registration with the SEC of corporations/partnerships using business names or styles already registered with the BDT or vice-versa, thus creating confusion to the public; WHEREAS, both agencies recognize that coordination of both agencies is necessary to avoid such a situation; WHEREAS, both agencies also recognize that the mode of coordination if clearly spelled out would not only greatly benefit the public but will enable both agencies to exercise better regulatory powers. NOW, THEREFORE, for and in consideration of the foregoing premises, The SEC and BDT, through their respective heads, have agreed on the following: 1. Business name or styles need not be stated in the articles of incorporation or partnership of existing companies. For purposes of record, BDT will just furnish the SEC with the triplicate original of the certificate of registration of business names or styles of corporations/partnerships approved by the former from time to time which shall be attached to the Corporate or partnership records of said entities on file with the Commission. However, if a corporation/partnership insists on the inclusion of a business name or style other than its corporate/partnership name, the applicant shall be informed that before it can use the proposed business names or styles, registration thereof must first be effected with the BDT under R.A. 3883. The BDT, however, shall not register business names or styles of proposed corporations/partnerships, unless their articles of incorporation/partnership are registered with the SEC. 2. The SEC shall be furnished of the names of different corporations/partnerships using business names or styles registered with the BDT in order to prevent the use of similar names. 3. Computer output and/or SEC Bulletin reflecting the names of all registered corporations/partnerships in the SEC shall be furnished to the BDT. 4. List of dissolved corporations/partnerships using business names or styles other than their corporate/partnership names shall likewise be furnished to BDT for information purposes. This Agreement shall take effect upon signing. cdll Done in Metro Manila, Philippines, the 3rd day of June, 1983. SECURITIES & EXCHANGE COMMISSION By: MANUEL G. ABELLO Chairman BUREAU OF DOMESTIC TRADE By: LILIA B. DE LIMA Director CIRCULAR NO. 4 October 23, 1984 TO : All Certified Public Accountants As provided for in Circular No. 7 dated December 27, 1982, all financial statements filed with the Commission are required to be prepared in accordance with generally accepted accounting principles. For this purpose, the Commission recognizes that the Statements of Financial Accounting Standards issued by the Accounting Standards Council when approved by the Professional Regulation Commission become part of the Rules and Regulations governing the practice of Accountancy in the Philippines. Therefore, these Statements constitute the generally accepted accounting principles in the Philippines. cdlex Please be guided accordingly. Mandaluyong, Metro Manila, Philippines. MANUEL G. ABELLO Chairman MEMORANDUM OF AGREEMENT This Memorandum of Agreement, entered into this 3rd day of December, 1985 by and between: The SECURITIES AND EXCHANGE COMMISSION, EDSA, Mandaluyong, Metro Manila, herein represented by its Chairman, Commissioner MANUEL G. ABELLO; LexLib - and - The PROFESSIONAL REGULATION COMMISSION, P. Paredes corner N. Reyes Sts.,Sampaloc, Manila, herein represented by its Chairman Commissioner ERIC C. NUBLA. WITNESSETH: WHEREAS, the Securities and Exchange Commission is vested with the jurisdiction and authority to determine and certify that articles of incorporation and corporate by-laws, and amendments thereto, comply with requirements of, and are not inconsistent with the Corporation Code; WHEREAS, the Professional Regulation Commission is mandated to administer, implement and enforce the regulations of the State with regards to the regulation and licensing of the various professions and occupations under its jurisdiction, including the accreditation of professional organizations as the official spokesmen and representatives of the profession; WHEREAS, one of the requirements for the accreditation of a professional organization is its incorporation as a non-stock corporation; WHEREAS, the cooperation and assistance of the Securities and Exchange Commission have been requested by the Professional Regulation Commission in the exercise of the latter's duty to oversee the professional associations which have been duly accredited as the official representatives of stated professional discipline; WHEREAS, coordination by and between the Securities and Exchange Commission and the Professional Regulation Commission in the context of the foregoing premise is highly desirable; NOW, THEREFORE, premises considered, the parties have agree, as the hereby agree, as follows: That the Securities and Exchange Commission shall refer the by-laws or any amendment thereto of any accredited professional organization to the Professional Regulation Commission for a determination of whether such by-laws or amendments are in accordance with its policies, rules and regulations. That the Professional Regulation Commission shall furnish the Securities and Exchange Commission a list of all duly accredited professional organization for its guidance and for the purpose of implementing this Memorandum of Agreement. That this Memorandum of Agreement shall not in any manner diminish the powers of either Commission or deprive it of its corresponding jurisdiction and authority under existing laws. cdll IN WITNESS WHEREOF, the parties hereto set their hands this 3rd day of December, 1985 in Mandaluyong, Metro Manila. SECURITIES AND EXCHANGE COMMISSION By: MANUEL G. ABELLO Chairman PROFESSIONAL REGULATION COMMISSION By: ERIC C. NUBLA Chairman Signed in the Presence of: