Opinion No. 22-12 Re: Issuance of Shares of Stocks at a Premium Without Increasing the Authorized Capital Stock

Securities and Exchange Commission

OFFICE OF THE GENERAL COUNSEL

Authorized Capital Stock SEC-OGC Opinion No. 22-12 Re: Issuance of Shares of Stocks at a Premium Without Increasing the

27 September 2022

34 Rizal Avenue, Batangas City 4200 FLEET MARINE CABLE SOLUTIONS,INC. c/o MAYO LAW OFFICE

Attention: Atty. Vicente Bernardo V.Mayo, Jr.

Dear Atty. Mayo:

whether Fleet Marine Cable Solutions, Inc.FMCSI" can issue shares at a premium to Mr. Iskandar Shah "Mr. Shah" without increasing its authorized capital stock (ACS) This refers to your letter dated 30 March 2022 requesting the Commission's opinion on

and Seven Hundred Fifty Thousand Pesos (PHP3,750,000.00 in FMCSI, by subscribing five share,for a subscription price of Seven Hundred Fifty Pesos (PHP750.00) for each share Investor's Resident Visa (SIRV) issued by the Board of Investments (BOI), invested Three Million thousand (5,000 of its common shares,with a par value of One Hundred Pesos (PHP100.00) per As stated in the letter, Mr. Shah, an Indonesian national who is a holder of a Special

application for an indefinite SIRV,the BOI found it irregular for FMCSI to have a paid-up capital of Thirteen Million and Two Hundred Fifty Thousand Pesos (PHP13,250,000.00,which is more than its ACS of Ten Million Pesos (PHP10.000,000.00) However, upon BOI's validation of Mr. Shah's investment in FMCSI relative to his

matters: Specifically, FMCSI is requesting for an opinion from the Commission on the following

1 "Whether or not a company may be allowed to issue shares of stocks at a premium;

and 2.Whether or not a company is allowed to have a paid-up capital which is more than Its ACS.

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First Query

shares of stock at a premium. We answer the first query in the affirmative. A company may be allowed to issue

and PLDT, confirms that the capital subscribed can be more than the par value of the shares. to wit: The Supreme Court in Salido vs Aramaywan Metals Development Corp.1,citing NTCvs. CA

agreed to take and pay for which need not necessarily be, and can be more than, the par value of the shares In fine, it is the amount that the corporation receives, inclusive of the subscribed is the total amount of the capital that persons (subscribers or shareholders) have premfums if any,in consideration of the original issuance of the shares. Briefly, capital refers to the value of the property or assets of a corporation The capital

value of the shares as stated in its Articles of Incorporation (AOI), and for the subscribers of a or regulation that prohibits the same. corporation to pay more than the par value of the shares they subscribed as there is no law,rule From the foregoing it is legal for a company to issue shares at a premium or over the par

Second Query

We answer the second query in the affirmative.

Subscribed capital is that portion of the ACs that is covered by subscription agreements stockholders of the corporation,2 or the "minimum amount of capital which the corporation will receive when it issues all its shares" which"is the product of the par value of each share and the total number of shares that the corporation is authorized to issue under its charter.* whether fully paid or not. ACS is defined as the amount fixed in the AOI to be subscribed and paid by the

Code (RCC), the termpaid-up capital"survives and is still applicable relative to the increase of capital stock,found in Section 37 of the RCC. In MSCI-Nacusip Local Chapter vs. National Wages Settled technical meaning. Although Section 13 no longer appears in the Revised Corporation and Productivity Commissionet al.,the Supreme Court said The concept of paid-up capital under Section 13 of the old Corporation Codes has a

of this amount namelyP62,500.00 must be paid up per Secton 13.The ltter,P62.500.00.is the paid-up capital or what should more accurately be termed as paid-up capital stock stock of the corporationsubscribed and then actually paid.(Emphasis supplied) Stock which has been both subscribed and paid To illustrate, where the authorized capital stock of a corporation is worth P1 million and the total subscription amounts to P250.000.00, at least 25% Not all funds or assets received by the corporation can be considered paid-up capital, for this term has a technical signification in Corporation Law. Such must form part of the authorized capital "By express provision of Section 13. paid-up capital is that portion of the authorized capital X

Paid-In Capital(APIC) were discussed in a previous opinion7 We quote: Consistent with this, the concepts of paid-up capital, paid-in capital, and Additional

Meanwhile,paid-in capital is defined under Section 2 of SEC Memorandum Circular No.11,Series of 2008,as follows SECTION 2.Definition of Terms XXX

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Paid-In Capital - the amount of outstanding capital stock and additional paid-in capital or premium over the par value of shares." (Emphasis ours) Additional Paid-In Capital (APIC is any contribution of stockholders over the par value of shares Incidentally, share premium is also defined as the amount received by a firm over the par value of its share.

the APIC, or the excess or premfum paid over the par value of such shares.(Emphasis supplied Thus, paid-up capital differs from paid-in capital such that the former refers to shares actually subscribed and paid while the latter is the sum of the amount paid for shares of stocks issued, plus

and paid by the stockholders of the corporation. On the other hand, paid-in capital of the corporation is the sum of the amount paid for shares of stocks issued,plus the APIC,or the excess or premium paid over the par value of such shares. Based on the foregoing paid-up capital is the portion of the ACS actually subscribed

so as to cover any amount paid for the issuance of shares, including the excess or premium paid over the par value of such shares. In this case, the paid-up capital" of the corporation would possibly be more than or exceed the ACS fixed in its AOI,especially if the capital stock is fully subscribed Given the context ofyour letter,the termpaid-up capital"is loosely used in your queries

facts, circumstances and documents disclosed/submitted, and should be considered relevant solely to the particular issue raised therein It shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon the courts whether of similar or dissimilar circumstances. If upon investigation,it will be disclosed that the facts relied upon are different this opinion shall be rendered null and void. It shall be understood that the foregoing opinion is rendered solely on the basis of the

lery truly yours mvwbU smm

ROMUALD C.PADILLA General Counsel

Scct10n 7.SE0 200 2003 14/F The SEC Head +63288185348/(+63288185418 www.sec.gov.ph(ogc.picosec.gov.ph edo VgeBel-airMakati 7907Makati Avenu