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

The Securities and Exchange Commission (“SEC”) in Opinion No. 22-12 dated 27 September 2022 discussed whether a corporation can issue shares at a premium without increasing the authorized capital stock (“ACS”). The SEC addressed the following queries from Fleet Marine Cable Solutions, Inc (“FMCSI”):

1. Whether a company may be allowed to issue shares of stocks at a premium; and
2. Whether a company is allowed to have a paid-up capital which is more than its ACS.

To give a brief background, FMCSI obtained a PHP 3,750,000.00 investment from an Indonesian national through subscription to 5,000 of its common shares with a par value of Php100.00 per share, for a subscription price of PHP 750.00 for each share. The Board of Investments found it irregular that FMCSI has a paid-up capital of PHP 13,250,000.00, which is more than its ACS of PHP 10,000,000.00.

A company may be allowed to issue shares of stocks at a premium.

The SEC cited the case of NTC v. CA and PLDT which confirms that the capital subscribed can be more than the par value of the shares, to wit:

“Briefly, capital refers to the value of the property or assets of a corporation. The capital subscribed is the total amount of the capital that persons (subscribers or shareholders) have 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 premiums, if any, in consideration of the original issuance of the shares.”

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

A company is allowed to have a paid-up capital which is more than its ACS.

ACS is defined as the amount fixed in the AOI to be subscribed and paid by the stockholders of the corporation, 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. Subscribed capital is that portion of the ACS that is covered by subscription agreements whether fully paid or not. 

The concept of paid-up capital under Section 13 of the old Corporation Code has settled technical meaning. Although Section 13 no longer appears in the Revised Corporation Code (“RCC”), the term “paid-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 v. National Wages and Productivity Commission, et al., the Supreme Court explained that paid-up capital is that portion of the authorized capital stock which has been both subscribed and paid. The Court added that not all funds or assets received by the corporation can be considered paid-up capital because the term has a technical signification in Corporation Law. Such must form part of the authorized capital stock, subscribed and then actually paid. 

On the other hand, paid-in capital is defined as the amount of outstanding capital stock and additional paid-in capital or premium over the par value of shares. 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. 

Stated differently, paid-up capital is the portion of the ACS actually subscribed and paid by the stockholders, while paid-in capital 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. 

Thus, the SEC opined that as the term “paid-up capital” is loosely used in the queries 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. 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.