Can an unlisted corporation validly issue cash and stock dividends to its stockholders without prior approval of the Securities and Exchange Commission (SEC)?
The issuance of cash and stock dividends is a matter within the business judgment of the corporation. More so, it does not even require the prior approval of the Commission. However, a corporation needs to comply with the following requirements under Paragraph 1, Section 42 of the Revised Corporation Code (RCC), which provides that: “The Board of Directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, property, or in stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholders until their unpaid subscription is fully paid: Provided, further, That no stock dividend shall be issued without the prior approval of stockholders representing at least two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose.”
Based on the aforementioned provision, it is not mandatory for a corporation to seek prior approval/advice from the Commission to declare cash and stock dividend provided the following requirements are complied with: 1) For cash dividend declaration, the board of directors’ approval of the cash dividend declaration and sufficient unrestricted retained earnings as of the last fiscal or calendar year; and 2) For stock dividend declaration, there is a need for the approval of the board of directors of the stock dividend declaration and prior stockholders’ approval representing at least two-thirds (2/3) of the outstanding capital and sufficient portion of the present authorized capital. In addition, in the case of a stock dividend declaration, there should be sufficient unrestricted retained earnings as of the last fiscal or calendar year.
However, it is somewhat different if corporations, at their option, apply for acknowledgment notice of its cash and/or stock dividend declaration out of the unissued portion of their previously approved authorized capital stock. Should they avail of such option, they are required to submit the documentary requirements stated in the SEC’s website (Other Applications – Documentary Requirements), at http://www.sec.gov.ph/services-2/company-2/other-applications/, and pay the applicable filing fee.
Further, if the stock dividend declaration requires an increase of authorized capital stock, an application is mandated to be filed with the commission pursuant to Section 37 of the RCC. For such an application, corporations can now proceed to the Financial Analysis and Audit Division of the commission’s Company Registration and Monitoring Department.
In sum, unlisted corporations may validly issue cash and stock dividends to its stockholders without prior approval of the commission provided there is compliance with the requirements as discussed above.
Kelvin Lester K. Lee is a Commissioner of the Securities and Exchange Commission (SEC). He is the co-chairperson of the SEC Committee on Memorandum Circulars To Operationalize Revised Corporation Code Provisions. The views and opinions stated herein are his own. You may email your comments and questions to firstname.lastname@example.org.