Rules Governing the Distribution of Excess Profits of Corporations

August 13, 1973 RULES GOVERNING THE DISTRIBUTION OF EXCESS PROFITS OF CORPORATIONS In the interest of investors and of the general public, the Commission, pursuant to the powers vested in it by law, particularly Presidential Decree No. 270 and Republic Act No. 1143, hereby promulgates the following rules and regulations: 1. All corporations which have surplus profits in excess of necessary requirements for capital expansion and reserves shall declare and distribute the excess profits as dividends to stockholders. * 2. Where the financial statements of the corporation show surplus profits in excess of 100% of paid-up capital, it shall explain by footnotes why the same has not been declared as dividends. If the explanation is not satisfactory, the Commission shall direct the corporation to distribute the excess as dividends. The Commission will consider as sufficient justification for non-distribution of dividends, the following: A. The corporation has definite expansion plans approved by the Board of Directors and Stockholders, and whenever necessary, by the proper government authority. The amounts appropriated for such purpose shall be segregated from the free surplus. Upon completion of the expansion program, the reserves established shall be declared as stock dividends. B. The corporation is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its/his consent, and such consent has not yet been secured. C. The non-distribution of dividends is consistent with the policy or requirement of a government office. Should an examination of the affairs of the corporation be necessary to determine the validity of the explanation given, an examination fee of not exceeding five hundred (P500.00) pesos shall be charged and collected from the corporations. 3. It shall be the policy of all corporations whose securities are listed in any operating stock exchanges or registered and licensed under the Securities Act to maintain and distribute an equitable balance of cash and stock dividends, consistent with the needs of stockholders and the demands for growth or expansion of the business. 4. Any declaration of dividend, whether cash or stock, shall be reported to the Commission within fifteen (15) days from date of declaration; Provided that, in the case of corporations whose securities are listed in any operating stock exchange or registered and licensed under the Securities Act, the report shall be filed with the Commission before or simultaneously with the release or publication of the notice of declaration of dividends to stockholders. 5. Any and all appropriations out of surplus profits for reserves shall have prior approval of the board of directors and stockholders. The specific purpose and justification for each reservation shall be clearly stated in the financial statements by footnotes. 6. These rules will be implemented taking into account the particular type of industry involved. 7. Any violation of these rules or of any requirement thereunder shall be punished by suspension or revocation of the license or permit to sell securities issued to the corporation or by fine in such sum as the Commission may impose under R.A. 1143. Any person who may be found guilty of misrepresentation, fraud or misstatement of material facts in making explanations to the Commission, shall be held criminally liable as provided under the law. 8. These rules and regulations, which shall be published in one newspaper of general circulation in the Philippines and in the Official Gazette, shall take effect immediately. (SGD.) ARCADIO E. YABYABIN Securities and Exchange Commissioner Approved: August 13, 1973 (SGD.) TROADIO T. QUIAZON, JR. Acting Secretary of Trade Footnotes * As amended by Section 43, Corporation Code of the Philippines.