After reading “What is the power of the corporation to increase or decrease capital stock or incur, create, increase bonded indebtedness?”, read also “What is the Power of the Corporation to Extend or Shorten Corporate Term?”
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Section 37 of the Revised Corporation Code of the Philippines (RCCP) or the power of the corporation to increase or decrease capital stock or incur, create, increase bonded indebtedness, is procedural in nature.
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Bonded indebtedness is a long-term indebtedness secured by real or personal property that are covered by bond certificates.
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An endorsement or clearance from other agencies is obtained, if applicable, and the endorsement from the SEC must be submitted to consider the authorized capital stock/bonded indebtedness increased, incurred, or decreased.
Section37 of the Revised Corporation Code of the Philippines or the power of the corporation to increase or decrease capital stock or incur, create, increase bonded indebtedness, which is procedural in nature, is a special amendment because it requires an amendment of the Articles of Incorporation.
What are the procedural requirements for the increase or decrease of authorized capital stock? The law says:
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 and 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:
- That the requirements of this section have been complied with;
- The amount of the increase or decrease of the capital stock;
- 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 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;
- Any bonded indebtedness to be incurred, created or increased;
- The amount of stock represented at the meeting; and
- The vote authorizing the increase or decrease of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. (Section 37, Revised Corporation Code of the Philippines)
It is important to note that, the enumeration above is not exclusive and is dependent on the mode of payment to be used for the increase of authorized capital stock. The different allowable modes of payment are as follows:
- Cash
- Conversion of advances/liabilities to equity
- Stock dividends
- Land and building/condominium units
- Inventories/furniture/personal properties
- Heavy equipment and machinery
- Shares of stock
- Motor vehicle
- Sea vessel/aircraft
- Intangibles
- Net assets by way of conversion of single proprietorship/partnership into corporation or by spin off (2015 Amendment on Additional Requirements Depending on the Kind of Payment on Subscription)
What is bonded indebtedness?
A bond is always under the seal of the issuing corporation and usually issued for a term more than five (5) years, hence, classified as a long-term debt. Bonded indebtedness, therefore, is a long-term indebtedness secured by real or personal property that are covered by bond certificates.
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. (Section 37, Revised Corporation Code of the Philippines)
Hence, an endorsement or clearance from other agencies is obtained, if applicable, and the endorsement from the SEC must be submitted to consider the authorized capital stock/bonded indebtedness increased, incurred, or decreased.
Jurisprudence provides:
Prior to the approval of the SEC of the increase in the authorized capital stock, such payments cannot yet be deemed part of the corporation’s paid-up capital, technically speaking, because its capital stock has not yet been legally increased. Such payments constitute deposits on future subscriptions, money which the corporation hold in trust for the subscribers until it files petition to increase its capitalization and a certificate of filing of increase of capital stock is approved and issued by the SEC. (Central Textile Mills, Inc. vs. National Wages and Productivity Commission, G.R. No. 104102. August 7, 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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