Module 1 - Shareholders' Equity (PDF)

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...

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)