Module 1 – Shareholders’ Equity

(Issuance and reacquisition of Stocks)

Learning Outcomes:

• Identify the different sources of corporate capital

• Describe the features of the different classes of share capital
• Record properly subscription to share capital and issuance of share capital
• Record properly treasury share transactions and retirement of share capital
• Record dividend transactions
• Allocate cash dividends between preference and ordinary shares

Core Value/Biblical Principles:

Shareholders’ equity of a corporation consists of the investments of the shareholders. It is the obligation of the
management to protect this wealth in order to build trust between the investors. In line with this, here is a bible
verse that you can reflect on regarding this lesson:

Proverbs 13:11

Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.

(Stop and Think):

✓ When a corporation issues shares of stocks, how do they account for it? Do they simply issue stock certificates
and record the number of stocks belonging to shareholders? How about if they want to repurchase issued
shares to decrease the control of the shareholders? How about if they wanted to issue dividends? In this
module, you will encounter examples dealing with this situations and other scenarios.
 Introduction:
Corporations are characterized by absentee ownership and limited liability. They have a separate personality from
its owners. Meeting financial needs of a corporation involves generating funds from public investors. Protecting the
interest of this investors is the primary reason why corporations are subjected to government regulation and control.

Body:

Definition of terms:

Corporators – those who compose the corporation whether shareholders or members or both

Incorporators – those corporators mentioned in the articles of incorporation as originally forming and composing
the corporation

Shareholders/Stockholders – owners of shares in a stock corporation. Shareholders may be natural or artificial

persons, but only natural persons can become incorporators

Members – are corporators of a nonstock corporation

Directors – those entitled to exercise corporate powers, conduct all business, and control all properties of the
corporation. A director who ceases to own at least one (1) share of stock or a trustee who ceases to be a member of the
corporation shall cease to be such.

Stock Corporation - those which have capital stock divided into shares and are authorized to distribute to the holders
of such shares, dividends, or allotments of the surplus profits on the basis of the shares held

Nonstock corporation – those which do not maintain a capital stock divided into shares. Basic distinction of law is that
all corporations not falling under the classification of a stock corporation shall be considered nonstock corporation

As we have discussed on our Basic Accounting subject, the three forms of business organization are single
proprietorship, partnership, and corporation. Whereas the capital accounts of the said organizations are called:
Business Organization Capital Account
Sole Proprietorship Owner’s Equity (or simply Capital)
Partnership Partner’s Equity/Capital
Corporation Shareholders’ Equity

In a single proprietorship and partnership, the investment of the owner/s and the changes therein resulting from net
income or loss from operations are recorded in the capital accounts.
However, in a corporation, distinction is made between invested capital and earnings or losses accumulated in the
business.
Concept of a corporation
A corporation is an artificial being created by operation of law, having the right of succession, and the powers, attributes
and properties expressly authorized by law or incident to its existence
A corporation is a legal or juridical person with a personality separate and apart from the individual members or
shareholders who, as natural persons, are merged in one corporate body.
The corporation is not in fact and in reality, a person but the law treats it as though it were a person by process of
fiction.
The shareholders of the company compose the corporation, but they are not the corporation. This is the
concept of Corporate Fiction

Organization of a Corporation
A corporation is created by operation of law.
This means that a corporation cannot come into existence by mere agreement of parties as in the case of a business
partnership. A corporation requires the authority and grant from the state.

In the Philippines, the general law which governs the creation of private corporations is the Corporation Code Of the
Philippines – Batas Pambansa bilang 68, which was then further revised by Republic Act 11232 – Revised
Corporation Code of the Philippines.

Private corporations owned or controlled by the government or any subdivision or instrumentaility thereof are created by
special laws.

Legal requirement

RA 11232 Sec. 10 provides that

Any person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in
number, may organize a corporation for any lawful purpose or purposes: Provided, That natural persons who are licensed
to practice a profession, and partnerships or associations organized for the purpose of practicing a profession, shall not
be allowed to organize as a corporation unless otherwise provided under special laws. Incorporators who are natural
persons must be of legal age.

Each incorporator of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock.

A corporation with a single stockholder is considered a One Person Corporation as described in Title XIII, Chapter III of
this Code.
Contents of Articles of Incorporation

RA 11232 Sec. 13 provides that

All corporations shall file with the Commission articles of incorporation in any of the official languages, duly signed and
acknowledged or authenticated, in such form and manner as may be allowed by the Commission, containing
substantially the following matters, except as otherwise prescribed by this Code or by special law:

(a) The name of corporation;

(b) The specific purpose or purposes for which the corporation is being formed. Where a corporation has more
than one stated purpose, the articles of incorporation hsall indicate the primary purpose and the secondary
purpose or purposes: Provided, That a nonstock corporation may not include a purpose which would change or
contradict its nature as such;

(c) The place where the principal office of the corporation is to be located, which must be within the Philippines;

(d) The term for which the corporation is to exist, if the corporation has not elected perpetual existence;

(e) The names, nationalities, and residence addresses of the incorporators;

(f) The number of directors, which shall not be more than fifteen (15) or the number of trustees which may be
more than fifteen (15);

(g) The names, nationalities, and residence addresses of persons who shall act as directors or trustees
until the first regular directors or trustees are duly elected and qualified in accordance with this Code;

(h) If it be a stock corporation, the amount of its authorized capital stock, number of shares into which it is
divided, the par value of each, names, nationalities, and subscribers, amount subscribed and paid by each on the
subscription, and a statement that some or all of the shares are without par value, if applicable;

(i) If it be a nonstock corporation, the amount of its capital, the names, nationalities, and residence addresses
of the contributors, and amount contributed by each; and

(j) Such other matters consistent with law and which the incorporators may deem necessary and convenient.

The Articles of incorporation and applications for amendments thereto may be filed with the Commission in the
form of an electronic document, in accordance with the Commission's rule and regulations on electronic filing.
What are the differences of a Shareholder and a Director?
The basic concept is that the shareholders are the owners of a corporation. However, it is fairly common that a
corporation would have a large number of shareholders especially in the case of a listed corporation (those whose shares
are publicly traded in the Philippine Stock Exchange). Hence, it would be burdensome to gather all the shareholders and
agree on routine business decisions.

This is where the role of a director takes place. Board of Directors are established to act as the governing body of a
corporation, which is in charge of exercising corporate powers, conducting all corporate business, and controlling/holding
corporate property. The board of directors shall perform the duties enjoined on them by law and by the bylaws of the
corporation.

Grounds When Articles of Incorporation or Amendment May be Disapproved

RA 11232 Sec. 16 provides that

The Commission may disapprove the articles of incorporation or any amendment thereto if the same is not compliant
with the requirements of this Code: Provided, That the Commission shall give the incorporators, directors, trustees, or
officers as reasonable time from receipt of the disapproval within which to modify the objectionable portions of the
articles or amendment. The following are ground for such disapproval:

(a) The articles of incorporation or any amendment thereto is not substantially in accordance with the form
prescribed herein;

(b) The purpose or purposes of the corporation are patently unconstitutional, illegal, immoral or contrary to
government rules and regulations;

(c) The certification concerning the amount of capital stock subscribed and/or paid is false; and

(d) The required percentage of Filipino ownership of the capital stock under existing laws or the Constitution
has not been complied with.

No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institutions,
preneed, insurance and trust companies, NSSLAs, pawnshops and other financial intermediaries shall be approved by the
Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect
that such articles or amendment is in accordance with law.

Registration, Incorporation, and Commencement of Corporation Existence

After the filing of articles of incorporation, the corporation commences to have judicial personality and legal existence
only from the moment the Securities and Exchange Commission issues to the incorporators a Certificate of
Incorporation

RA 11232 Sec. 18 provides that

A person or group of persons desiring to incorporate shall submit the intended corporate name to the Commission for
verification. If the Commission finds that the name is distinguishable from a name already reserved or registered for the
use of another corporation, not protected by law and is not contrary to law, rules and regulation, the name shall be
reserved in favor of the incorporators. The incorporators shall then submit their articles of incorporation and bylaws to
the Commission.
If the Commission finds that the submitted document s and information are fully compliant with the requirements of this
Code, other relevant laws, rules and regulations, the Commission shall issue the certificate of incorporation.

A private corporation organized under this Code commences its corporate existence and juridical personality from the
date the Commission issues the certificate of incorporation under its official seal thereupon the incorporators,
stockholders/members and their successors shall constitute a body corporate under the name stated in the articles of
incorporation for the period of time mentioned therein, unless said period is extended or the corporation is sooner
dissolved in accordance with law.

Section 19. De facto Corporations. - The due incorporation of any corporation claiming in good faith to be a corporation
under this Code, and its right to exercise corporate powers, shall not be required into collaterally in any private suit to
which such corporation may be a party. Such inquiry may be made by the Solicitor General in a quo
warranto proceeding.

Section 20. Corporation by Estoppel. - All persons who assume to act as a corporation knowing it to be without the
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by its as a
corporation or on any tort committed by it as such, it shall not be allowed to use on any its lack of corporate personality
as a defense. Anyone who assumes an obligation to an ostensible corporation as such cannot resist performance thereof
on the ground that there was in fact no corporation.

Effects of Non-Use of Corporate Charter and Continuous Inoperation

RA 11232 Sec. 21 provides that:

If a corporation does not formally organize and commence its business within five (5) year from the date of its
incorporation, its certificate of incorporation shall be deemed revoked as of the day following the end of the five (5)-year
period.

However, if a corporation has commenced its business but subsequently becomes inoperative for a period of at least five
(5) consecutive years, the Commission may, after due notice and hearing, place the corporation under delinquent status.

A delinquent corporation shall have a period of two (2) years to resume operations and comply with all requirements that
the Commission shall prescribed. Upon the compliance by the corporation, the Commission shall issue an order lifting the
delinquent status. Failure to comply with the requirements and resume operations within the period given by the
Commission shall cause the revocation of the corporation's certificate of incorporation.

The Commission shall give reasonable notice to, and coordinate with the appropriate regulatory agency prior to the
suspension or revocation of the certificate of incorporation of companies under their special regulatory jurisdiction.

BY-LAWS

By-laws may be defined as the rules of action adopted by the corporation for its internal government and for the
government of its officers, shareholders, or members.

The by-laws shall be adopted and filed with the Securities and Exchange Commission within one month from the date of
incorporation. Failure to do so shall render the corporation liable for the revocation of its registration.
Contents of By-Laws

RA 11232 Sec. 46 provides that a private corporation may provide the following in its bylaws:

(a) The time, place and manner of calling and conducting regular or special meetings of the directors or trustees;

(b) The time and manner of calling and conducting regular or special meetings and mode of notifying the stockholders or
members thereof;

(c) The required quorum in meetings of stockholders or members and the manner of voting therein;

(d) The modes by which a stockholder, member, director or trustees may attend meetings and cast their votes;

(e) The form for proxies of stockholders and members and the manner of voting them;

(f) The directors' or trustees' qualifications, duties and responsibilities, the guidelines for setting the compensation of
directors or trustees and officers, and the maximum number of other board representations that an independent director
or trustee may have which shall, in no case, be more than the number prescribed by the Commission;

(g) The time for holding the annual election of directors or trustees and the mode or manner of giving notice thereof;

(h)The manner of election or appointment and the term of officers other than directors or trustees;

(i) The penalties for violation of the bylaws;

(j) In the case of stock corporations, the manner of issuing stock certificates; and

(k) Such other matters as may be necessary for the proper or convenient transaction of its corporate affairs for the
promotion of good governance and anti-graft and corruption measures.

COMPONENTS OF SHAREHOLDERS’ EQUITY

The following categories normally appear as components of the shareholders’ equity:

1. Legal Capital

Because of its limited liability, corporations are required by law to protect the interest of the shareholders by
requiring the corporation to maintain in its equity an amount at least equal to its legal capital.

For corporations that issue share capital with par value, legal capital represents the following:
• Share capital including Share dividends distributable
• Subscribed share capital
• Share dividends distributable
On the other hand, corporations that issue no par value shares, legal capital consist of the following:
• Share capital including Share dividends distributable
• Subscribed share capital
• Share premium – Excess over stated value
 2. Retained Earnings

This is called Accumulated Profits under IFRS and represents the following:
• Accumulated Profit/Loss
• Prior Period Adjustments
• Dividends declared
• Other transactions affective share capital

3. Other Comprehensive Income

• Revaluation Surplus
• Unrealized Gains/Losses on FVOCI
• Foreign Currency Translation Adjustment Gains and Losses
• Actuarial Gains and Losses on Defined Benefit Plan

4. Share Capital Subscriptions Receivable

This account is related to long-term unpaid amount of the subscribed share capital. This decreases the total
shareholders’ equity.

5. Treasury Shares

This is related to shares that were issued and repurchased by the company. This is recorded at cost and
decreases the total shareholders’ equity.

ORDINARY SHARE vs PREFERENCE SHARE

Ordinary share represents the residual ownership interest in the corporation. The ordinary shareholders bear the
ultimate risk of loss and receive the benefits of success of the corporation. Corporation law provides the basic rights of
ordinary shareholders, namely:

✓ Right to share proportionately in profits and losses

✓ Right to share proportionately in management (voting right)
✓ Right to share proportionately in corporate assets upon liquidation
✓ Right to share proportionately in any new issues of share capital of the same class (pre-emptive right)

On the other hand, preference shares are special class of shares that possesses certain preferential rights that are not
found in an ordinary share. They are usually issued with a par value and divided preference is expressed as percentage
of par value. For example, 10,000 10% Preference shares issued at P10 par value. Generally, preference shares do not
have a voting right. Most common features attached to preference shares are:

✓ Cumulative
• Entitled to any dividends that are not declared in the prior period, which is also called dividend in arrears,
such that when dividends declared are declared in the current period, dividends in arrears are to be satisfied
first.

✓ Participating
• Additional dividends are paid proportionate to ordinary shareholders on the basis of total par value in excess
of a fixed amount or rate

✓ Convertible
• Holders are entitled to exchange the preference share to ordinary share
 ✓ Callable
• Corporation have the right, not the obligation, to reacquire and retire the share at a fixed or determinable
call price. This is presented as part of equity.

✓ Redeemable
• These are shares that are required to be retired or reacquired by issuing corporation, at the option of the
shareholder, or in most cases, at a certain or determinable date.

AUTHORIZED SHARES, ISSUED SHARES AND OUTSTANDING SHARES

Authorized shares are the maximum number of shares that the corporation may issue as stated in the articles of
incorporation.

Issued shares represent the shares that the corporation has issued to its share holders as of a specific date. This is
indicated by the amount reported in the share capital account and expressed in terms of number of shares.

Outstanding shares are shares that have been issued and are still in the hands of the shareholders at a specific
date. This is computed as issued shares minus treasury shares.

Treasury shares represent shares that have been issued and reacquired, but not retired, by the corporation, either
by purchase or donation. A treasury share has no voting or preemptive right. It does not participate in any type of
dividends and no right to assets in the event of liquidation.

Subscribed shares are shares of stock that will be issued upon completion of deferred payment purchase contract
with an investor. Subscribed shares that are not delinquent shall have the rights of a shareholder including right to
dividends.

Issuance of Share Capital

Share Capital Issued for Cash

With Par value or no-par value with No par value, no stated value shares
stated value shares
Pro forma Cash xx Cash xx
Journal Entries Share Capital xx Share Capital xx
Share Premium xx

Example 200 P10 par value ordinary shares are 200 ordinary shares are issued for cash
issued for cash of 4,000 of 4,000. Shares have neither par value
nor stated value

Journal Entry: Journal Entry:

Cash 4,000 Cash 4,000

Share Capital 2,000 Share Capital 4,000
Share Premium 2,000
Share Capital Issued to non-employees for Consideration Other than Cash

Transactions should be measured in the order of priority:

1. Fair value of the property of the services/assets received

2. Fair value of the share capital issued

Example:

Building was bought by the Company by issuing 200,000, P50 par ordinary shares. Building is valued at P15,000,000 at
purchased date.

Building 15,000,000
Ordinary Share Capital 10,000,000
Share Premium-Ordinary 5,000,000

If there was no equivalent price for the building and land had no market but the shares are traded at 80 per share, the
land would have been recorded at P16,000,000.

Building 16,000,000
Ordinary Share Capital 10,000,000
Share Premium-Ordinary 6,000,000

If the shares are issued in consideration for goods or services received from an employee, IFRS 2, Share Based Payment,
requires that the transaction be recorded at the fair value of the equity instruments issued. Any excess of the fair value
over the par value of shares issued is credited to share premium.

Share Capital Sold on Subscription

A subscription is a legally binding contract between the corporation and the subscriber (investor) which provides that the
subscriber will buy a certain number of shares at an agreed proce with the payment spread over a specified period of
time or deferred at a later date. The contract usually requires down payment and may contain provisions for the handling
of any defaults by the subscriber.

At the time of subscription, Subscription Receivable account is debited for the full subscription of price and Subscriber
Share Captail is credited for the par or stated value of the subscribed shares with any excess reflected as share
premium. When amounnt due is collected, cash is debited and receivable is credited. Upon full collections, issuance of
shares is recorded by debit to subscribed share capital and credit to share capital.
Pro forma entries:

At the date of subscription:

a. Subscription price exceeds par value

Cash (for the down payment) xx

Subscription Receivable xx
Subscribed Share Capital (at par) xx
Share Premium ( excess of subscription price over par) xx

b. Subscription price exceeds stated value of no-par share capital

Cash (for the down payment) xx

Subscription Receivable xx
Subscribed Share Capital (at stated value) xx
Share Premium ( excess of subscription price over stated value) xx

c. Subscription of no par, no stated value share capital

Cash (for the down payment) xx

Subscription Receivable xx
Subscribed Share Capital (total subscription price) xx

Any balance in the Subscribed Share Capital is presented under Contributed Capital. Subscription Receivable is reported
as deduction from shareholders’ equity or may be shown as current asset if collection is expected within one year or less.

In case of delinquent subscriptions (i.e., when subscriber is unable to pay subscriptions due, the corporation can resort
to the following remedies:

• Sue the delinquent subscriber to enforce collection

• Sell the delinquent shares at a public auction to the highest bidder. The highest bidder is one who is willing
to receive the least number of shares and pay the unpaid subscriptions plus all costs related to the defaulted
shares.

Assume the following data for Friends Corporation. Joey subscribed to 1,000 shares of P100 par value ordinary shares at
par. A 25% down payment was given by Joey and the balance payable in two equal installments. Joey paid the first
installment but defaulted in the second. The unpaid subscription was offered for sale at a publci auction. Advertising
costs amounted to P5,000. Ross made a bid for 800 shares, Chandler for 700 shares and Phoebe for 600 shares.

Journal entries to reflect the foregoing as follows:

At downpayment:

Cash 25,000
Subscription Receivable 75,000
Subscribed Ordinary Share Capital 100,000

At collection of first installment:

Cash 37,500
Subscription Receivable 37,500

At default of the original subscriber:

Receivable from highest bidder 42,500

Subscription Receivable 37,500
Cash 5,000
Payment of highest bidder:

Cash 42,500
Receivable from highes bidder 42,500

Subscribed Ordinary Share Capital 100,000

Ordinary Share Capital 100,000

In the illustration, Phoebe is the highest bidder. Hence the 1,000 shares shall be distributed as follows, to Phoebe 600
shares, Joey, 400 shares.

If there were no bidder for the delinquent shares, the shares will be issued in the name of the corporation and be placed
in the treasury ( Sec. 68, Par. 4 Corporation Code of the Philippines). The cost assigned to the Treasury shares is the
cancelled balance of the Receivable from the Highest Bidder. Continuing from the illustration above, if there were no
bidder, entries for the issuance of shares in the name of the corporation are:

Treasury Shares 42,500

Receivable from Highest Bidder 42,500

Subscribed Ordinary Share Capital 100,000

Ordinary Share Capital 100,000

Shares Issued With other Securities

When two or more classes of equity securities are issued for a single payment, the lumpsum price is allocated
among the classes of securities issued on their relative fair values (proportional method).

To illustrate, assume B99 Corporation issued for a lumpsum price of P178,000, 1,000 ordinary shares with par value of
P100 and 500 preference shares with par value of P50. On the date of issuance, XYZ’s ordinary shares were selling at
135, while its preference shares were selling at P90. Based on published price quoatations, the fair values are as follows:

Class No. of shares Fair value per share Total fair values
Ordinary 1,000 135 P135,000
Preference 500 90 45,000
Total Fair Value 180,000

Allocated to ordinary shares = P178,000 x 135/180 = 133,500

Allocated to preference shares = P178,000 x 45/180 = 44,500

The entry for the issuance of shares is:

Cash 178,000
Ordinary Share Capital 100,000
Share Premium – Ordinary 33,500
Preference Share Capital 25,000
Share Premium Preference 19,500
Share Issue Costs and Stock Assessments

An entity typically incurs various costs in issuing its own equity isntruments. These costs might include registration
and other regulatory fees, legal fees, printing costs and stamp duties. The costs are accounted for as a deduction from
equity (net of any related income tax benefit), by a charge to share premium pertaining to that issue, if any. If there ais
no resulting share premium pertaining to that issue, share issue costs are recorded as expenses.

The amount of transaction costs accounted for as a deduction from equity in the period is disclosed separately in the
statement of changes in equity.

Reacquisition of Share Capital

A company may find it desirable to reacquire its own shares for variety of reasons such as: improve earnings of share by
reducing number of shares outstanding, to support market price of the shares, to increase ration of debt to equity or to
obtain shares for share option plans and conversion of other securities.

Shares reacquired for Immediate Retirement

If shares are reacquired then retired, Share capital is debited equal to the par (or stated value, in case of no par
with stated value) of the shares retired. Share Premium is debited equivalent to the amount of credit at the date the shares
were originally issued; and Cash is credited equal to the retirement price.

If retirement price is less than orginal issue price of the shares being retired, the difference is credited to a share
premium account appropriately described. If the reitrement price exceeds the original issue price, difference is debited to
the following accounts in the order given;

1. Share premium from previous retirement or treasury share transactions of the same class of share
2. Retained Earnings

Assume that an enterprise acquires 1,000 of its own P100 par value preference share. These shares were originally
issued at P110. Retirement of the preference shares would be recorded as follows:

a. Assume a retirement price of P105 per share

Preference Share Capital 100,000

Share Premium – Preference 10,000
Cash 105,000
Paid in Capital from Retirement of Preference Share 5,000

b. Assume a retirement price of P120 per share:

Preference Share Capital 100,000

Share Premium – Preference 10,000
Retained earnings* 10,000
Cash 120,000

*Share premium from previous retirement of preference shares, if any, is charged; any deficiency is charged to
retained earnings.
Treasury Shares Acquired by Purchase

When an entity reacquires its own equity instruments that are held for reissue, such instruments referred to as
treasury shares or treasury stock. Technically, a treasury share is a corporation’s own share that has been reacquired after
having been issued and fully paid but not retired.

A treasury share is not an asset, but a contra-account to shareholders’ equity. Similar to unissued share capital,
the holder does not have the right to vote, to exercise pre-emptive right as shareholder, to receive cash dividends, or to
receive assets upon corporate liquidation.

No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of entity’s own equity
instruments. The consideration paid or received shall be recognized directly in equity.

Upon acquisitin, treasury share is recorded at cost, irrespective of whether these are acquired above or below the
par value. Upon resale of the treasury shares, the Treasury Share account is credited at cost. If the issue price is less than
the cost of the treasury share, the difference is charged to a share premium account from treasury share transactions (to
the extent of the balance) and any remainder of the difference is charged to retained earnings account; whereas, if the
reissue price is greater than the cost of the treasury shares, the entiire excess is credited to share premium, not to retained
earnings.

Illustration:

1,000 shares of P100 par ordinary shares were reacquired at P150 per share. The entry to record the reacquisition is

Treasury Shares 150,000

Cash 150,000

Assume that 400, of the treasury shares were subsequently sold at P160 per share; and the remaining were later sold at
P140 per share. The resale of the 400 shares at P160 is recorded as follows:

Cash 64,000
Treasury Shares 60,000
Share Premium – Treasury Shares 4,000

The resale of the 600 shares at P140 at a later date is recorded as follows:

Cash 84,000
Share Premium – Treasury Shares 4,000
Retained Earnings 2,000
Treasury Shares 90,000

It will be noted that Share Premium account may be debited or credited for treasury share transactions. Retained Earnings
account, however, may be debited, but is never credited for treasury share transactions.
Limitation on Treasury Shares

Corporation can reacquire treasury shares provided that the corporation has unrestricted retained earnings in its
book to cover the shares to be purchased or acquired. Thus, when a corporation has treasury share recorded at cost, an
amount of retained earnings equal to such cost should be approporiated for that purpose. The appropriation is necessary
so as not to impair legal capital even with the purchase of the treasury shares.

The cost of treasury shares held by the Company is presented as deduction from total shareholders’ equity in the
statement of financial position.

Donated Treasury Share

Shares may be donated to enable the Company to raise capital by reselling the shares. Since donated shares are
acquired without any cost, the transaction does not affect the corporation’s assets, liabilities and shareholders’ equity.
Although the receipt of donated shares does not affect the total issued shares, it decreases the outstanding shares.

The donation is recorded by means of memorandum entry. In some instances that the fair value of the share
capital is kown at the time of donation, the receipt may be rcorded by debiting Treasury Shares and crediting Donated
Capital or Share Premium approporiately described for an amount equal to the fair value of donated shares.

If the receipt if the donated shares was recorded by memorandum entry, the entire proceeds from the subsequent
resale of these donated shares are credited to Donated Capital or Share Premium from Donated Shares. If the donated
shares were recorded at market value at time of receipt, only the excess of the reissue price over the previously recognized
amount for the Treasury Shares is credited to Donated Capital, Share Premium from Donated Shares.

Example:

Several shareholders of ABC Company donated to the corporation, a portion of their holdings totaling 1,000 shares of P100
par value ordinary shares. Subsequently, all donated shares were reissued at P130 per share. Journal entries are as follows:

(a) There is no available fair value for the shares at this time.

Memo. One thousand (1,000) shares of p100 par value ordinary shares were received as donation from various
shareholders.

Cash 130,000
Donated Capital 130,000

(b) Fair value for the donated ordinary share is known at P120 per share.

Treasury Shares 120,000

Donated Capital 120,000

Cash 130,000
Treasury Shares 120,000
Donated Capital 10,000

The total shareholders’ equity is not affected by the choice of the method used to account for the donated treasury shares.
SHARE SPLIT OR STOCK SPLIT

Stock Split (share split under IFRS) is the issuance by an enterprise of its own ordinary shares to its ordinary
shareholders without consideration and under conditions indicating that such action is prompted mainly by a desire to
increase the number of outstanding shares. The purpose of such acction is to effect a reduction in their unit fair value and
obtain wider distribution and improved marketability of the shares. This is accompanied by a reduction in the par value of
the share capital.

Reverse share split decreases the number of shares outstanding with a corresponding increase in the value of the
shares. This will raise the unit market price of the corporation’s shares of stock.

Share split and reverse share split are recorded as memo entry since shareholders’ equity component and total
shareholders’ equity are left unchanged effecting the split.
Basic Formula on Calculation of Total Shareholder’s Equity
Preference Share Capital xx
Ordinary Share Capital xx
Subscribed Share Capital xx
Subscription Receivable (xx)
Share dividends payable xx
Discount on Share Capital (xx)
Capital Liquidated (xx)
Share premium xx
Total Share Capital xx

Retained Earnings appropriated xx

Retained Earnings Unappropriated xx
Total Retained Earnings xx

Revaluation Surplus xx
Cumulative gain/loss on FVOCI Securities xx/(xx)
Translation differences of foreign operations xx/(xx)
Effective portion of Cash Flow Hedges xx/(xx)
Treasury Shares (xx)
Total Other Components xx

Total Shareholder's Capital* xx

*Sum of Share Capital, Retained Earnings, and Other Components

Take note that this is not the formal presentation of Shareholder’s Equity, but just an alternative visual presentation on how
you can compute for SHE

Components of Share Premium

• Excess over par or stated value
• Share Dividends (Small)
Note that small share dividends are accounted at fair value, while large dividends are accounted at par value
• Re-issuance and Retirement of Treasury Shares
• Donations from shareholder (Donations from third parties are accounted as income)
• Share Options & Share Warrants
• Recapitalization
• Quasi-Reorganization
Comprehensive Problem
Problem 1 Components of Shareholder’s Equity

A partial list of the accounts and ending account balances taken from the post-closing trial balance of AAA Corporation on
December 31, 2021 is shown as follows:

Accumulated profits - unappropriated 410,000

Bonds Payable 220,000
Ordinary shares subscribed 50,000
Long term investments in equity securities 210,000
Additional paid-in capital on ordinary shares 460,000
Premium on bonds payable 30,000
Authorized Ordinary Shares @ P10 par value 900,000
Preference shares subscribed 45,000
Additional Paid-in Capital on preference shares 112,000
Authorized preference shares @ P50 par value 400,000
Gain on sale of treasury shares 4,000
Unrealized increase in value of securities classified as
FVOCI 3,000
Ordinary share warrants outstanding 20,000
Unissued Ordinary Shares 500,000
Unissued Preference Shares 100,000
Cash Dividends Payable - preferences 50,000
Donated Capital 25,000
Reserve for bond sinking fund 220,000
Reserve for depreciation 150,000
Subscription Receivable - preference 15,000
Subscription Receivable - common 20,000

Requirements:
Compute the following:
1. Ordinary Shares Issued
2. Preference Shares Issued
3. Additional Paid-In Capital
4. Total Contributed Capital
5. Total Legal Capital
6. Total Shareholder's Equity
Problem 2 – Legal Capital

The equity section of ABC Co.'s statement of financial position showed the following information:
Ordinary Shares 3,200,000.00
8% Preference shares, P100 par Value 800,000.00
Share Premium - Ordinary Shares 1,200,000.00
Share Premium - Preference shares 200,000.00
Subscribed Ordinary Shares 400,000.00
Subscription Receivable 200,000.00
Retained Earnings 1,600,000.00

Determine the Legal Capital assuming:

a) The ordinary shares have a par value of P100
b) The ordinary shares are no-par value shares with stated value of
P100
c) The ordinary shares are no-par, no stated value shares

Problem 3 – Share Capital

Prepare the necessary journal entries for each independent situation:

a) Issued 10,000 shares of its P10 par value ordinary shares @ 15 per share
b) Issued 10,000 shares of its no par but with stated value of P20 per share for P30 per
share
c) Issued 10,000 shares no stated value common shares for P14 per share
d) Issued 10,000 shares of its 10 par value ordinary shares at P8 per share

Problem 4 - Valuation of Consideration received from issuance of share capital

BB Co. was authorized to issue 10,000 ordinary shares and 10,000 preference shares with par values of P100 and P150 per
share, respectively. The following were the transactions during 2020:

• Issues 1,000 ordinary shares for P150,000 cash

• Issues 1,000 preference shares for an equipment with a cash price equivalent of P155,000
• Issues 1,000 preference shares for an undeveloped land having an appraised value of P160,000.
The land's carrying amount was P140,000. At the time of exchange, there is no available market
place for the preference shares
• Issues 1,000 ordinary shares for land with fair value of P165,000 when the shares have a fair value
of P170/share
• Issues 1,000 ordinary shares to settle existing obligation amounting to P170,000
 • Issues 1,000 preference shares to settle existing obligation arising from services received. The fair
value of the services received amounted to P175,000
• Issues 1,000 ordinary shares and 750 preference shares for a lump sum price of 350,000. The
shares were quoted at P150 and P300 at the time of isuance

Required:
Determine the total increase in:
a) Ordinary shares
b) Preference shares
c) Share premium - ordinary shares
d) Share premium - preference
shares

Problem 5 - Organization and stock issuance costs

The following were transactions during 2020 of Puyat na Co.

• On the same date, the Company issued 1,000 shares with par value of P100 for P140 per share.
Issuance costs incurred that are directly attributable to the equity transaction amounted to P10 per
share
• On May 26, the Company issued 4,000 shares of its P100 par value common stock for P150 each,
and incurred direct issue costs of P30,000; management salaries and indirect costs of P15,000.
• On September 15, the Company issued 2,000 shares of its P100 par value common stock for P110
each, and incurred direct stock issue cost of P25,000.

Problem 6 – Treasury Share Transactions

The stockholders' equity of ABC as of December 31, 2020 are as follows:

Common stock, P10 par, authorized 300,000 shares; 250,000

shares issued and outstanding 2,500,000.00
Paid-In Capital in excess of par 3,750,000.00
Retained Earnings 1,800,000.00

On June 1 2021, ABC reacquired 40,000 shares of its common stock at P40 per share. The following transactions occurred
in 2021 with regard to these shares:

• July 1, Sold 15,000 shares @ P45

• August 1, Sold 17,000 shares @ P30
• September 1, Retired 1,000 shares
 Determine the following:
a) Treasury Stock
b) Common Stock
c) Paid In Capital In excess of Par
d) Paid in Capital from treasury stock
e) Retained Earnings

Problem 7 - Treasury Shares (Cost Method vs. Par Value Method)

On January 1, 2020, Kapeng Bara Co.'s statement of financial position shows the following information:

Ordinary Shares, P50 Par Value 250,000.00

Share Premium 40,000.00
Retained Earnings 100,000.00

During thte year, the following transactions occurred

• May 1 - bought 300 shares of ordinary shares as treasury shares at P62
• July 1 - sold 80 shares of treasury stock at P60
• September 1 - sold 40 treasury shares at P68
• December 1 - Retired 40 shares of treasury stock

Prepare the necessary Journal Entries for the above transactions using:
a) Cost Method
b) Par Value Method

Problem 8 – Delinquent Subscription

On January 1, ABC CO. issued subscription contracts for 5,000 shares of its P5 par value common stock at P25 per share to
CDE Corp. The terms of the subscription are 40% down payment and the balance at the end of six months. After paying the
40%, CDE defaulted on the remaining balance of the subscription on the call date. Because of this, ABC declared the
subscription as delinquent. On July 15, ABC organized an auction to sell the delinquent subscription at P80,000 which
includes accrued interest of P2,000 and estimated expense related to auction of P3,000.

Required:
Prepare the necessary journal entries and determine the number of shares to be received by CDE Corp under the following
independent situations:

a) The following persons participated in the respective bids are:

Arisu 3,200 shares
Usagi 3,100 shares
Chishiya 3,050 shares
 b) there are no public bidders in the auction
c) there are no public bidders and ABC is prohibited to acquire the shares

Problem 9 – Donation
The following donations were received by ABC CO. during 2020:
a) Cash of P100,000 was received from a shareholder
b) P500,000 from the government to purchase an equipment amounting to Php 1,000,000 . No
conditions are attached to the donation
c) Received 1,000 shares of BCD Corp. with a par value of P100 and a fair value of P150 per
share from a shareholder as donation
d) Received 1,000 ABC's own shares with par value of P100 and fair value of P120 from
shareholder as donation. Subsequently, ABC reissues the 1,000 donated shares at P130 per
share
SOLUTION

Problem 1
Authorized Ordinary Shares @ P10 par value 900,000.00
Unissued Ordinary Shares 500,000.00
Ordinary Shares Issued 400,000.00

Authorized preference shares @ P50 par value 400,000.00

Unissued Preference Shares 100,000.00
Preference Shares Issued 300,000.00

Additional paid-in capital on ordinary shares 460,000.00

Additional Paid-in Capital on preference shares 112,000.00
Gain on sale of treasury shares 4,000.00
Ordinary share warrants outstanding 20,000.00
Donated Capital 25,000.00
Total Additional Paid In Capital 621,000.00

Ordinary Shares Issued 400,000.00

Preference Shares Issued 300,000.00
Ordinary sales subscribed 50,000.00
Preference shares subscribed 45,000.00
Total Additional Paid In Capital 621,000.00
Subscription Receivable - preference (15,000.00)
Subscription Receivable - common (20,000.00)
Total Contributed Capital 1,381,000.00

Ordinary Shares Issued 400,000.00

Preference Shares Issued 300,000.00
Ordinary sales subscribed 50,000.00
Preference shares subscribed 45,000.00
Total Legal Capital 795,000.00
 Accumulated profits - unappropriated 410,000.00
Ordinary sales subscribed 50,000.00
Additional paid-in capital on ordinary shares 460,000.00
Authorized Ordinary Shares @ P10 par value 900,000.00
Preference shares subscribed 45,000.00
Additional Paid-in Capital on preference shares 112,000.00
Authorized preference shares @ P50 par value 400,000.00
Gain on sale of treasury shares 4,000.00
Unrealized increase in value of securities classified as
FVOCI 3,000.00
Ordinary share warrants outstanding 20,000.00
Unissued Ordinary Shares (500,000.00)
Unissued Preference Shares (100,000.00)
Cash Dividends Payable - preferences (50,000.00)
Donated Capital 25,000.00
Reserve for bond sinking fund 220,000.00
Reserve for depreciation 150,000.00
Subscription Receivable - preference (15,000.00)
Subscription Receivable - common (20,000.00)
Total Shareholder's Equity 2,114,000.00

Problem 2
Ordinary Shares 3,200,000.00
8% Preference shares, P100 par
Value 800,000.00
Subscribed Ordinary Shares 400,000.00
4,400,000.00 (a)

Ordinary Shares 3,200,000.00

8% Preference shares, P100 par
Value 800,000.00
Subscribed Ordinary Shares 400,000.00
Share Premium - Ordinary Shares 1,200,000.00
5,600,000.00 (b)
 Ordinary Shares 3,200,000.00
8% Preference shares, P100 par
Value 800,000.00
Subscribed Ordinary Shares 400,000.00
4,400,000.00 (c)

Problem 3
Situation A
Cash 150,000.00
Ordinary Share 100,000.00
Share Premium 50,000.00

Situation B
Cash 300,000.00
Ordinary Share 200,000.00
Share Premium 100,000.00

Situation C
Cash 140,000.00
Ordinary Share 140,000.00
no par, no stated value, hence the full consideration will be accounted as ordinary share

Situation D
Cash 80,000.00
Discount on Share Capital 20,000.00
Ordinary Share 100,000.00
Discount on share capital will be considered as contra-equity
account
Problem 4

No. Shares Issued FV Total

Ordinary Shares 1,000.00 150.00 150,000.00
Preference Shares 750.00 300.00 225,000.00
Total 1,750.00 375,000.00

A B (A - B)
Amount Allocated to: Allocated Price per Share Par Value Share Premium on Issuance
Ordinary Shares 350,000 x (150,000/375,000) 140,000.00 100,000.00 40,000.00
Preference Shares 350,000 x (225,000/375,000) 210,000.00 112,500.00 97,500.00

Problem 5
January 1
Cash 140,000.00
Ordinary Share Capital 100,000.00
Share Premium 40,000.00

Share Premium 10,000.00

Cash 10,000.00

May 26
Cash 600,000.00
Ordinary Share Capital 400,000
Share Premium 200,000

Share Premium 30,000

Salary Expense 15,000
Cash 45,000
 220,000.00

September 15
Cash
Ordinary Shares 200,000.00
Share Premium 20,000.00

Share Premium 25,000.00

Cash 25,000.00

Problem 6

TS bought

No. of Treasury Shares Bought 40,000

No. of Treasury Shares Sold 32,000
No. of Treasury Shares Retired 1,000
No. of Ending Treasury Shares 7,000
Multiply by: Cost per share
P4
0 Treasury Shares, End
P2
80,000
(a)

Common Stock

Beginning, at par 2,500,000

Shares Retired, at par 10,000
Ending, at par 2,490,000 (b)

Additional Paid-In Capital

Beginning Balance 3,750,000.00

July 1 Transaction 75,000.00

Aug 1 Transaction (75,000.00)

Retirement (15,000.00)

Additional Paid-In Capital, End 3,735,000.00 (c)

Journal Entries

Reacquisition of shares
Treasury Shares Cash 1,600,000.00
1,600,000.00

July 1 Transaction
Cash 675,000.00
Treasury Shares 600,000.00
Treasury Share - Premium 75,000.00

Aug 1 Transaction
Cash 510,000.00
Treasury Share Premium 75,000.00
Retained Earnings 95,000.00
Treasury Shares 680,000.00

Retirement
Ordinary Share Capital 10,000.00
Share Premium 15,000.00
Retained Earnings 15,000.00
40,000.00
Treasury Shares

Share premium on retirement is calculated as follows:

Beginning Share Premium 3,750,000.00

Divide by: Outstanding Shares 250,000.00

Share Premium per share 15.00

Multiply by: No. of shares retired 1,000.00

Share Premium on Retirement 15,000.00

Problem 7

Cost Method

May 1 Treasury Shares 18,600.00

Cash 18,600.00

July 1 Cash 4,800.00

Retained Earnings 160.00
Treasury Shares 4,960.00

September 1 Cash 2,720.00

Treasury Shares 2,480.00
Share Premium - Treasury Shares 240.00

December 1 Ordinary Shares 2,000.00

Share Premium 320.00
Share Premium - Treasury Shares 160.00
Treasury Shares 2,480.00

Par Value Method

May 1 Treasury Shares 15,000.00

Share Premium (Original Issuance) 2,400.00
Retained Earnings Cash 1,200.00
18,600.00

July 1 Cash 4,800.00

Treasury Shares 4,000.00
Share Premium – Treasury Shares 8,000.00

September 1 Cash 2,720.00

2,000.00
Treasury Shares

Share Premium – Treasury Shares 720.00

December 1 Ordinary Shares 2,000.00

21,000.00
Treasury Shares
Problem 8

a. Chishiya will be considered the highest bidder because he is the one willing to buy
the least number of shares at P80,000

Subscription Receivable 125,000

Subscribed Share Capital 25,000

Share Premium 100,000
to record initial subscription

Cash 50,000
Subscription Receivable 50,000
To record downpayment

Due from Highest Bidder 3,000

Cash 3,000
To record incurrence of auction-related expenses

Cash 80,000
Subscription Receivable 75,000
Due from highest bidder 3,000
Interest Income 2,000
The interest income will be considered as a financing transaction since its nature is to account for consideration of the late
payment.

Subscribed Share Capital 25,000

Share Capital 25,000
To record issuance of shares upon full payment of subscription

Follow-up question: How many shares will be issued to CDE Corp? 1,950 shares
 b. If there are no bidders and the Company has sufficient retained earnings, the
Company may, at its option, re-acquire the same and hold the shares in treasury.
Entry will then be as follows:

Due from Highest Bidder 3,000.00

Cash 3,000.00
to record incurrence of auction-related
expenses

Treasury Shares 78,000.00

Subscription Receivable 75,000.00
Due from Highest Bidder 3,000.00
To record reacquisition of delinquent subscription as treasury shares

Retained Earnings – Unappropriated 78,000.00

Retained Earnings - Appropriated 78,000.00
To appropriate retained earnings for the treasury shares acquired

Subscribed Share Capital 25,000

Share Capital 25,000
To record delinquent subscription as deemed fully paid

c. If there are no bidders and the Company is not allowed to reacquire the shares due
to lack of funds, the Company would just have to reverse the entries

Due from Highest Bidder 3,000.00

Cash 3,000.00
to record incurrence of auction-related expenses

Subscribed Share Capital 25,000

Share Premium 100,000
Subscription Receivable 75,000
Due from Highest Bidder 3,000
Share Premium – Delinquent Shares 47,000
Problem 9

Cash 100,000.00
Share Premium - Donated Capital 100,000.00

Cash 500,000.00
500,000.00
Deferred Income - Government Grant

Investment in BCD 150,000.00

Share Premium - Donated Capital 150,000.00

Memo entry upon donation

Cash 130,000.00
Share Premium - Donated Capital 130,000.00
COMPREHENSIVE PROBLEM:

The capital structure of Red Ribbon Corporation on December 31, 2019 follows:

Preference 12% Share Capital, P200 par, 30,000 P 6,000,000

Shares issued and outstanding
Ordinary Share Capital, P50 par, 100,000 shares 5,000,000
Issued and outstanding
Share Premium – Preference 1,800,000
Share Premium – Ordinary 1,500,000
Retained Earnings 2,200,000

During 2020, the following selected transactions occurred:

a. Purchased and retired 4,000 preference shares at P280 per share.

b. Purchased 8,000 shares of its own ordinary share at P80 per share

c. A 2-for-1 share split on the ordinary share was approved by the shareholders, thereby reducing the par value to
P25

d. Reissued 6,000 treasury shares at P45 each

e. Shareholders donated 4,000 ordinary shares when the market price was P46 per share

f. Two thousand of the donated shares were issued for P48 per share.

g. Declared the annual dividends on the preference shares and P1 per share dividend on the ordinary share.

h. The profit for 2021 was P2,000,000.

REQUIRED: Determine the following at December 31 2020.

a. Number of preference shares issued; number of preference shares outstanding

b. Number of ordinary shares issued; number of ordinary shares outstanding
c. Cost of remaining treasury shares (acquired by purchase)
d. The amount of total dividends declared during the year
e. Total shareholders’ equity

Solution:

Journal Entries:

a. Retained Earnings 80,000

Preference Share Capital 800,000
Share Premium – Preference 240,000
Cash 1,120,000
b. Treasury Shares-Ordinary 640,000
Cash 640,000

c. Memo entry. 2-for-1 share split with 200,00 shares outstanding and reducing par value to P25

d. Cash 270,000
Treasury Shares – Ordinary 240,000
Share Premium – Ordinary 30,000

e. Treasury Shares – Ordinary 184,000

Donated Capital 184,000

f. Cash 96,000
Treasury Shares – Ordinary 92,000
Donated Capital 4,000

g. Retained Earnings 812,000

Dividend Payable – Preference 624,000
Dividend Payable – Ordinary 188,000

h. Income Summary 2,000,000

Retained Earnings 2,000,000

Computation:

a.
Issued Preference Shares, beginning 30,000
Retired Preference Shares 4,000
Total shares issued and outstanding 26,000
b. and c.

Issued and outstanding ordinary shares, 01/01/2020 100,000

Purchase of treasury shares (b) (8,000)
Total outstanding ordinary shares before share split 92,000

2-for 1 share split affecting outstanding shares only

(92,000*2/1) 184,000
Reissuance of treasury shares (d) 6,000
Donation of ordinary shares (e) (4,000)
Reissuance of donated shares (f) 2,000
Total outstanding shares, 12/31/2020 188,000

Ordinary Shares Outstanding 188,000.00

Treasury Shares – Ordinary* 12,000.00
Ordinary Shares Issued 200,000.00

# of shares Cost of shares

Beginning balance - -
(b) 8,000 x P80 8,000.00 640,000.00
(c) 8,000 sh x 2/1 ; P40 cost per share 16,000.00 640,000.00
(d) 6,000 sh x P40 (6,000.00) (240,000.00)
Treasury shares acquired by purchase 10,000.00 400,000.00
(e) 4,000 sh x P48 4,000.00 184,000.00
(f) 2,000 sh x P48 -2,000 -92,000
*Total treasury shares, 12/31/2020 12,000.00 492,000.00

c.
Dividend for Outstanding
Ordinary shares
(188,000 shares x P1) 188,000

Dividend for Outstanding

preference shares
(12% x P200 par x 26,000) 624,000

d.
Ordinary Share Capital 5,000,000
Preference Share Capital 5,200,000
Treasury Shares (492,000)
Retained Earnings 3,308,000
Share Premium - Ordinary 1,530,000
Share Premium - Preference 1,560,000
Donated Capital 188,000
Total Shareholders' Equity 16,294,000
APPENDIX 1

Form of Articles of Incorporation

Section 14. Form of Articles of Incorporation. - Unless otherwise prescribed by special law, the articles of incorporation
of all domestic corporations shall comply substantially with the following form:

Articles of Incorporation
of

_____________________

(Name of Corporation)

The undersigned incorporators, all of legal age, have voluntarily agreed to form a (stock) (nonstock) corporation under
the laws of the Republic of the Philippines and certify the following:

First: That the name of said corporation shall be "_________________", Inc. Corporation or OPC";

Second: That the purpose or purposes for which such corporation is incorporated are: (If there is more than one
purpose, indicate primary and secondary purposes);

Third: That the principal office of the corporation is located in the City/Municipality of _______________, Province of
______________________, Philippines;

Fourth: That the corporation shall have perpetual existence or a term of ___________ years from the date of issuance of
the certificate of incorporation;

Fifth: That the names, nationalities, and residence addresses of the incorporators of the corporation are as follows:

Name Nationality Residence

________________________ ________________________ ________________________

________________________ ________________________ ________________________

________________________ ________________________ ________________________

________________________ ________________________ ________________________

________________________ ________________________ ________________________

Sixth: That the number if directors or trustees of the corporation shall be ___________________; and the names,
nationalities, and residence addresses of the first directors or trustees of the corporation are as follows:
Name Nationality Residence
________________________ ________________________ ________________________

________________________ ________________________ ________________________

________________________ ________________________ ________________________

________________________ ________________________ ________________________

________________________ ________________________ ________________________

Seventh: That the authorized capital stock of the corporation is ____________________ PESOS (₱______), dividend
into ____ shares with the par value of ___________________ PESOS (₱_____________) per share. (In case all the
shares are without par value): That the capital stock of the corporation is __________________ shares without par
value.

(In case some shares have par value and some are without par value): That the capital stock of said corporation consists
of ________________________________ shares, of which _______________________ shares have a par value of
___________________________PESOS (₱_______) each, and of which ____________________ shares are without
par value.

Eight: That the number of shares of the authorized capital stock-stated has been subscribed as follows:

Name of No. of Shares Amount

Nationality Amount Paid
Subscriber Subscribed Subscribed

(Modify No. 8 if shares are with no-par value. In case the corporation is nonstock, Nos. 7 and 8 of the above articles may
be modified accordingly, and it is sufficient if the articles may be modified accordingly, and it is sufficient if the articl es
state the amount of capital or money contributed or donated by specified persons, stating the names, nationalities, and
residence addresses of the contributors or donors and the respective amount given by each.)

Ninth: That _______________________ has been elected by the subscribers as Treasurer of the Corporation to act as
such until after the successor is duly elected and qualified in accordance with the bylaws, that as Treasurer, authority
has been given to receive in the name and for the benefit of the corporation, all subscriptions, contributions or donations
paid or given by the subscribers or members, who certifies the information set forth in the seventh and eighth clauses
above, and that the paid-up portion of the subscription in cash and/or property for the benefit and credit of the
corporation has been duly received.

Tenth: That the incorporators undertake to change the name of the corporation immediately upon receipt of notice from
the Commission that another corporation, partnership or person has acquired a prior right to the use of such name, that
the name has been declared not distinguishable from a corporation, or that it is contrary to law, public morals, good
customs or public policy.
Eleventh: (Corporations which will engage in any business or activity reserved for Filipino citizens shall provide the
following):

"No transfer of stock or interest which shall reduce the ownership of Filipino citizens to less than the required percentage
of capital stock as provided by existing laws shall be allowed or permitted to be recorder in the proper books of the
corporation, and this restriction shall be indicated in all stock certificates issued by the corporation."

IN WITNESS WHEREOF, we have hereunto signed these Articles of Incorporation, this ______ day of _____, 20___ in
the City/Municipality of _________________, Province of ________________, Republic of the Philippines.

_____________________________ _____________________________

_____________________________ _____________________________

_____________________________ _____________________________

_____________________________ _____________________________

_____________________________ _____________________________

(Names and signatures of the incorporators)

____________________________
(Name and signature of Treasurer)