THE SECURITIES and Exchange Commission (SEC) announced on Thursday its plans to introduce new guidelines for companies that intend to create or increase their paid-in capital.
“The commission recognizes the necessity of issuing clear guidelines to supervise, review, and monitor the creation of additional paid-in capital (APIC) in order to prevent stock watering,” the SEC stated in a draft memorandum.
APIC refers to any amount paid or contributed by stockholders over the par value of the shares or in excess of the stated value in the case of no-par shares, according to the commission.
The proposed memorandum covers firms that will issue shares for cash at a value exceeding their current par value, resulting in the creation of additional paid-in capital (APIC), as well as the creation of APIC without the issuance of shares.
The SEC emphasized that all corporations are required to obtain regulatory approval if they intend to issue shares in exchange for cash consideration, resulting in the recording of APIC.
Furthermore, the SEC said that corporations must secure approval from the SEC each time they create or increase APIC.
Firms are required to submit documents to the Financial Analysis and Audit Division (FAAD) of the Company Registration and Monitoring Department (CRMD) or any extension offices.
“The FAAD or the EE shall not accept any application that fails to submit all the required documents. Once the applicant corporation completes the required documents, the handling officer will evaluate the submission and issue the Payment Assessment Form, which includes the applicable fees,” it said.
The regulator warned that noncompliance would lead to fines equivalent to a basic penalty of 1/10 of 1% of the total amount of APIC created or Php10,000.00, whichever is higher.
Additionally, corporations that fail to comply with this requirement will be subject to a filing fee penalty imposed by the commission.
Companies are also obliged to disclose all issuances of shares with APIC and the creation or increase of APIC in their annual financial statements.
Exemptions from the proposed guidelines include APIC already recorded in the corporation’s books and records, as well as firms that have filed their applications with the commission prior to the memorandum’s effective date. — Adrian H. Halili
