Changes in registration rules
Three changes in registration procedures were adopted recently by the Securities and Exchange Commission to expedite the registration of corporations and the amendment of articles of incorporation.
The first involves the removal of the requirement that a “bank certificate of deposit” be submitted to prove that the incorporators have deposited in a bank their cash subscription.
Earlier, applications for registration of new corporations whose capital stock were paid in cash or a combination of cash and property were required to submit a bank certificate and treasurer’s affidavit attesting to the cash deposit.
These documents were meant to show that the incorporators have the financial resources to commence the business that the new corporation wants to engage in.
Initially, the SEC individually verified the genuineness of these certificates. This practice was discontinued when it became cumbersome as there were not enough personnel to do the job quickly. Worse, it became a source of graft.
In its stead, random checks were conducted on the certificates submitted. Except for isolated cases of falsified certificates, which resulted in the filing of criminal charges against the responsible parties, most certificates proved to be authentic.
Contribution
Like all transactions that require extra effort by bank personnel, certificates of deposit entail a fee for their issuance. If the bank branch happened to be a busy one, it sometimes took one to two days before the certificate could be issued.
The extra expense and delay are now things of the past.
To speed up the registration process, the SEC has done away with the bank certificate as a requirement, among others, for the registration of corporations with regard to the cash portion of the subscription.
The treasurer’s affidavit, which states essentially that he has received the cash contribution from the incorporators, will be sufficient for purposes of proving the existence of those funds.
Thus, if the capital stock is paid by a combination of cash and property, only the portion of the subscription paid by way of property will require the submission of supporting documents showing its ownership by the incorporator who contributed it and that the value ascribed to it is correct.
By removing the bank certificate requirement, the burden of ensuring that the company has in its coffers the cash contribution indicated in its Articles of Incorporation rests with the treasurer.
His affirmation, under oath, that he has received the cash contribution from the incorporator concerned will be relied upon by the SEC in deciding whether or not to grant the registration.
If it turns later, through independent verification, that the cash contribution was not in truth received, the treasurer could be in serious trouble for false affirmation.
Audit report
The approval process will likewise move faster for applications to increase the authorized capital stock of certain corporations.
Under present rules, among the requirements for the approval of the increase in capital stock where the additional subscription is paid in cash is the submission of a special audit report.
This report, which should be signed by an independent external auditor, attests to the remittance or payment of the cash contribution to the increase in capital stock. No accountant worth his salt will affix his signature on this report without conducting the proper examination and evaluation of the documents to prove such payment.
Like the bank certificate, this report is aimed at proving that the stockholders made the additional cash infusion that corresponds to the increase in capital stock.
The problem is, not all accountants can sign this report. The signing authority is limited to accountants accredited by the Board of Accountancy. Understandably, certain fees have to be paid for the effort.
Not anymore.
In lieu of this report, a subscription contract, under oath, entered into by the stockholder and treasurer stating the number of shares subscribed and amounts subscribed and paid will suffice.
Limitations
This privilege, however, is not of general application. It cannot be availed of by public companies, corporations listed on the stock exchange and corporations whose payment to the capital stock increase is P10 million or more.
The intended beneficiaries of this new rule are medium- and small-scale enterprises, or companies who can use some help by way of lesser costs and expenses in engaging the services of independent auditors.
Another registration requirement that has been eased relates to real property offered or assigned in consideration for shares of stocks in new registrations or increases in capital stock.
At present, before any such assignment of real property is allowed, it is essential that the corresponding deed of assignment be registered as a “primary entry” in the Register of Deeds of the place where the property is situated.
The entry is a protective mechanism to make sure all transactions involving real properties are duly recorded and monitored.
In times past, when our land registration system left much to be desired, this requirement was needed. Considering the safeguards already in place to maintain the integrity of real property ownership, the “primary entry” requirement has ceased to serve its purpose.
With the registration process made easier, real property can now be more efficiently deployed as contribution to the capital stock of companies that need land for their efficient operation.
(For feedback, write to <rpalabrica@inquirer. com. ph>.)
