Published — July 4, 2022
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
After reading “What are the ways of increasing and decreasing capital stocks?”, read also “What is the power of the corporation to increase or decrease capital stock or incur, create, increase bonded indebtedness?”
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No corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of directors and by two-thirds (2/3) of the outstanding capital stock at a stockholders’ meeting duly called for the purpose.
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Written notice of the time and place of the stockholders’ meeting and the purpose for said meeting must be sent to the stockholders at their places of residence as shown in the books of the corporation served on the stockholders personally, or through electronic means recognized in the corporation’s bylaws and/or the Commission’s rules as a valid mode for service of notices.
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Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Commission and where appropriate, of the Philippine Competition Commission.
A corporation has the power to increase and decrease the authorized capital stock of the corporation (Section 37, RCCP). An increase or decrease in capital stock, being a corporate act, is binding and entitled to respect.
The law says:
Section 37 of the Revised Corporation Code of the Philippines (RCCP) provides that:
Section 37. Power to increase or Decrease Capital Stock; Incur, Create or Increase Bonded Indebtedness. – No corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of directors and by two-thirds (2/3) of the outstanding capital stock at a stockholders’ meeting duly called for the purpose. Written notice of the time and place of the stockholders’ meeting and the purpose for said meeting must be sent to the stockholders at their places of residence as shown in the books of the corporation served on the stockholders personally, or through electronic means recognized in the corporation’s bylaws and/or the Commission’s rules as a valid mode for service of notices.
A certificate must be signed by a majority of the directors of the corporation and countersigned by the chairperson and secretary of the stockholders’ meeting, setting forth:
(a) That the requirements of this section have been complied with;
(b) The amount of the increase or decrease of the capital stock;
(c) In case of an increase of the capital stock, the amount of capital stock or number of shares of no-par stock thereof actually subscribed, the names nationalities and addresses of the persons subscribing, the amount of capital stock or number of no-par stock subscribed, the names, nationalities and addresses of the persons subscribing, the amount of capital stock or number of no-par stock subscribed by each, and the amount paid by each on the subscription in cash or property, or the amount of capital stock or number of shares of no-par stock allotted to each stockholder if such increase is for the purpose of making effective stock dividend therefor authorized;
(d) Any bonded indebtedness to be incurred, created ot increased;
(e) The amount of stock represented at the meeting; and
(f) The vote authorizing the increase or decrease of capital stock, or incurring, creating or increasing of bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Commission and where appropriate, of the Philippine Competition Commission. The application with the Commission shall be made within six (6) months from the date of approval of the board of directors and stockholders, which period may be extended for justifiable reasons.
Copies of the certificate shall be kept on file in the office of the corporation and filed with the Commission and attached to the original articles of incorporation. After approval by the Commission and the issuance by the Commission of its certificate of filing may declare: Provided, That the Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by a sworn statement of the treasurer of the corporation accompanied by a sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twenty-five percent (25%) of the increase in capital stock has been subscribed and that at least twenty-five percent (25%) of the amount subscribed has been paid in actual cash to the corporation or that property, the valuation of which is equal to twenty-five percent (25%) of the subscription, has been transferred to the corporation: Provided, further, That no decrease in capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors.
Nonstock corporations may incur, create or increase bonded indebtedness when approved by a majority of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the Commission, which shall have the authority to determine the sufficiency of the terms thereof.
Capital stock may be increased through the following acts:
- By increasing the number of shares and retaining the par value; or
- By increasing the par value of existing shares without changing the number of shares; or
- By increasing the number of shares and increasing the par value.
On the other hand, capital stock may be decrease through the following acts:
- By decreasing the number of shares and retaining the par value; or
- By decreasing the par value of existing shares without changing the number of shares; or
- By decreasing the number of shares and decreasing the par value.
Section 37 of the RCCP prescribes the following requirements for increase and decrease of the capital stock in the following manner:
The increase or decrease must be approved by a majority vote of the Board of Directors. At the stockholders’ meeting duly called for the purpose, two-thirds (2/3) of the outstanding capital stock must approve the increase or decrease of the capital stock. A Written Notice containing the purpose of the meeting and the time and place of the meeting wherein the proposed increase or decrease in the capital stock will be presented for approval shall be sent to each named stockholder, addressed at his/her place of residence as appearing in the books of the corporation. Such written notice must be served personally or through registered mail complete with postage prepaid, or through any other electronic means recognized by SEC Rules and in the corporation’s bylaws as a valid means of service of notice.
A certificate must be signed by the majority of the directors of the corporation and counter signed by the chairperson and the secretary of the stockholder’s meeting, indicating that the requirements of Sec. 37 of the RCCP have been complied with, and the corresponding amount of the increase or decrease of the capital stock.
The application of the increase in capital stock to be filed with the SEC shall be accompanied by a sworn statement of the treasurer of the corporation, sitting in office at the time of such filing, setting forth 1) that at least twenty-five percent (25%) of the increase in capital stock has been subscribed, and 2) that at lease twenty-five percent (25%) of the amount subscribed has been paid in actual cash to the corporation, or 3) that there has been a transfer to the corporation property the valuation of which is equal to twenty-five percent (25%) of the subscription.
It should be noted that the twenty-five percent (25%) requirement under Section 37 of the RCCP shall be based on the additional amount by which the capital stock is increased and not on the total capital stock increased.
Jurisprudence says:
Does the increase or decrease in capital stock need further confirmation?
Section 37 or the RCCP provides that it is only upon the approval by the Securities and Exchange Commission (SEC) and the subsequent issuance by the SEC of certificate of filing that the capital stock shall stand increased or decreased.
“There is no increase in the authorized capital stock even if the stockholders have already paid the additional subscription if there is no approval of the SEC. Any payment by the shareholder of the subscription price before the filing of the application with the SEC shall be considered as deposits only on future subscriptions and the corporation will hold the same in trust until it files a petition to increase its capitalization and a certificate of filing of the increase of capital stock is approved and issued by SEC.” (Central Textile Mills, Inc. v. National Wages and Productivity Commission, G.R. No. 104102, August 07, 1996)
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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