Everything You Need to Know About Your Company’s Capital Structure

While filling out your company’s Articles of Incorporation, you’ll notice that Article 7 requires information about your company’s Authorized Capital Stock (ACS), while Article 8 requires you to further break this down to the amount of shares subscribed and paid by each shareholder. 

If this is your first time registering a business, you might find this confusing. What does Authorized Capital Stock mean? How is it different from the shares that are “subscribed” and “paid”? What are the values you should be putting in these blanks?

This article will answer all of those questions by taking a look at your company’s capital structure, and the differences between the three types of capital.

 

What is Authorized Capital Stock?

Authorized Capital Stock refers to the amount of shares your company is allowed to issue if the shares have par value and sell to investors for subscription. It is different from how many have already been issued or sold, as the ACS pertains to the maximum number of shares that the company is able to offer.

This means that the ACS is decided by the company itself, though it is by no means a random number. You’ll have to consider how much of your capital will be reserved for any potential investors where you can reach a favorable deal, so your capital must not be too low. However, a higher ACS means you’ll have much larger filing fees when registering with the SEC, so it must also not be too high.

 

What is Par Value?

You may have noticed that in filling out the details for ACS, you were asked about par value. This figure refers to the value of a single share of your company, which is determined by dividing the ACS by the number of shares your company offers. 

For example, Company X has an ACS of Php100 million distributed among one million shares. This means that the par value would be Php100 per share. 

Deciding on your company’s par value goes hand in hand with deciding on its ACS. However, most companies go with a par value of Php1 per share or Php100 per share, so that it’s easy to compute how much a certain number of shares is worth.

While the par value determines how much an investor has to pay in order to purchase or subscribe to one (1) share of the company, that same investor can choose to increase the price when they sell their shares to a third party or even the general public. In those cases, the par value will remain the same, and the selling price of the shares will be its market value. 

 

What is Subscribed Capital Stock?

While Authorized Capital Stock refers to the total amount of shares a company can sell, Subscribed Capital Stock refers to the shares that are issued to the company’s shareholders, which means that those shares already belong to them. Under the Revised Corporation Code, there is no more minimum requirement for Subscribed Capital Stock during incorporation. 

In the Articles of Incorporation, this is represented in Article 8 by the columns “Number of Shares Subscribed,” which varies depending on the shareholder, and “Amount Subscribed,” which refers to those shares multiplied by the par value. 

In the example above, if Company X has already issued 500,000 shares to their shareholders by the time they incorporate, this makes up the Subscribed Capital Stock of the company, which is worth Php50 million.

 

What is Paid-Up Capital Stock?

Just as Subscribed Capital Stock is a subset of Authorized Capital Stock, Paid-Up Capital Stock is a subset of Subscribed Capital Stock. As the name implies, this refers to the number of shares that have not only been issued to and sold to shareholders, but have also been paid for. If the company has already received the payment for shares that a certain investor has purchased, that will fall under Paid-Up Capital Stock.

In the Articles of Incorporation, this is represented in Article 8 by the column “Amount Paid,” which refers to how much each shareholder has paid for their shares. 

For Company X, if only half of the 500,000 shares have been paid for, then its Paid-Up Capital Stock would consist of 250,000 shares worth Php25 million. The founders of Company X will then have to disclose in their GIS that their Authorized Capital Stock is worth Php100 million, their Subscribed Capital Stock is worth Php50 million, and their Paid-Up Capital Stock is worth Php25 million.

 

A Footnote on Non-Stock Corporations

The different types of capital stock discussed above only apply to stock corporations, or companies that are designed to sell their shares. Non-stock corporations don’t have to break down their capital structure this way when registering with the SEC.

We hope this article was helpful. If you have any further questions, click here to chat with UNA, and check out the other articles of Unawa Explainer for more information on company incorporation.


Step-by-step Guide to Incorporating a Company with the SEC

If you’re reading this article, chances are that you’re taking your first steps to turning your great idea into an actual company. Congratulations! Not a lot of people take the plunge, so we at Unawa are here to help you take care of your regulatory requirements so you can focus on growing your business.

The first real hurdle of every new startup’s journey is incorporating with the Securities and Exchange Commission (SEC). This involves a lot of time and effort, so we’ve laid out everything you need to know about registering your company in this article. Make sure to bookmark this while you’re going through the incorporation process!

Here’s how to incorporate your company with the SEC: 

1. Prepare all the documentary requirements

Time: As fast as 1 day, depending on how quickly you get the documents completely filled out, signed and notarized

Fees: Payment for notarization, varies depending on where it is notarized

Before actually going to the SEC office, there are several documents that you have to prepare that will be submitted for your application. These are:

  • Articles of Incorporation*
  • By-laws
  • Name Verification Slip
  • Treasurer’s Affidavit*
  • Clearance from Other Government Agencies (for certain companies)

*Need to be notarized when you submit to the SEC

The name verification process can partially be done online (for companies with five (5) incorporators), and the clearance from other government agencies will only apply for businesses in specific industries.

For more information on each of these requirements, check out this document checklist for SEC incorporation.

 

2. Get your company name validated and reserved 

Time: 2-3 days

Fees: Php100 reservation fee for 30 days

The Name Verification Slip listed above can only be obtained within an SEC office, which will be your next step for this process. You must go to the Name Reservation Unit at any SEC office to propose several business names, which will then be verified and validated by the agency. This will take around two to three days.

Once the SEC approves your company name, they will ask you to pay Php100 as a reservation fee. Your reservation is only valid for 30 days, which means that you will have to pay an additional fee should the entire company registration process take longer.

Want to make sure that your company name will be approved? Check out our company naming guide for more information on what the SEC considers when validating proposed company names.

 

3. Submit the documents and pay the necessary fees

Time: At least 2-3 weeks, depending on the examiner and the completeness of your documents

Fees: Minimum total of Php3,580, which includes the filing fee, by-laws fee, legal research fees, and the registration of the stock and transfer book

After getting your company’s name approved, you may now submit all of the documents listed in Step 1 to the SEC. The examiner who receives your documents will then have to review them prior to the issuance of the Certificate of Incorporation, which will take at least two to three weeks.

Once all of your documents have been approved, you will be asked to pay the necessary fees at the SEC cashier, which includes:

  • Registration Fee for By-laws, worth Php1,010
  • Filing Fee for Articles of Incorporation, which is worth ⅕ of 1% of the company’s authorized capital stock; however, this amount must not be less than Php2,000
  • Legal Research Fee, which is worth 1% of the Filing Fee outlined above

You will also be required to have a Stock and Transfer Book and have it registered with the SEC. This will require an additional fee of around Php550.

If you have the finalized value of your company’s authorized capital stock, you can compute for the total fees you will have to pay through the SEC’s registration calculator. Note that this calculator does not include the registration fee for the Stock and Transfer Book.

 

4. Obtain your Certificate of Incorporation

Time: 1 day

Fees: None

After your documents have been approved and paid for, and the SEC has approved your application for registration, you will be able to obtain your Certificate of Incorporation, which means that your startup is officially a registered company! This certificate contains your SEC Registration Number, which you will have to put in all of your future filings and disclosures.

You will also receive a Unified Registration Record, which contains all the important registration numbers you will be using when registering your business in other government agencies. Make sure to keep this in hand, as you will need this information in the near future.

 

5. Get the necessary requirements from other government agencies

Time: Varies

Fees: Varies

If you’ve reached this step, then congratulations, you have successfully registered your company with the SEC! However, there are several other steps you have to take before you can start operating as a legal entity, which involves paying the relevant tax on the original issuance of shares in the new corporation, going through several other government agencies and getting the necessary permits.

For a full step-by-step guide on what you have to do after registering with the SEC, click here.

We hope this article was helpful. If you have any further questions, click here to chat with UNA, and check out the other articles of Unawa Explainer for more information on company incorporation.


What’s in a (Company) Name?

As entrepreneurs, you’ve probably heard of the comparison that running a business is just like raising a baby. You have to put in a lot of time and effort to develop it and help it grow, until it becomes old enough to function with minimal supervision. 

Turns out, the comparison extends to the regulatory aspect. Just like a baby, the first thing you have to do to register your business is to think of its name.

To get the incorporation process started, the Securities and Exchange Commission (SEC) requires that you have a name for your business. Unfortunately, this doesn’t mean you can pick any name you want. There are several steps you have to take in order to ensure that your company name will be approved by the SEC, which we’ve outlined in this article.

 

Difference Between Corporate Name and Trade Name

Before we go through the step-by-step of securing your company’s name, we feel that it’s important to make the distinction between the two different names you’ll have to think for your company: its corporate name and its trade name.

The corporate name is what your company is officially called in the eyes of the SEC. If you see a company name that ends in “Inc.” or “Corp.”, it is most likely the corporate name, such as “Golden Arches Development Corp.” On the other hand, the trade name is what your company uses when it promotes and sells its offerings to the public. It’s what you’ll often see front-and-center in the company’s logo, storefront, or website, such as “McDonald’s.” 

In a sense, if your company were a baby, its corporate name is what’s written on the birth certificate, while its trade name functions as its nickname. For this article, we’ll focus on how to validate your company’s corporate name, as that is what the SEC requires for the incorporation process.

 

Which Company Names Are Allowed?

Just like other aspects of your startup, your company name also has to be approved by the SEC. All of the rules and regulations that the SEC follows in validating a company name are found in this Memorandum Circular, but we’ve outlined the most important points below:

  • It must not already be used by another company. Duplicate corporate names are not allowed.
  • It must not be similar to another existing corporate name. Similarity in this case would mean that a person can easily mistake one for the other when searching for either company.
  • It must not be used by a known international organization, or be similar to it, unless the company is a subsidiary of that organization.
  • It must not have any words that are only allowed for certain types of businesses. The word “bank”, for example, can only be used by businesses in the banking industry and under the governance of the Central Bank.

If you’re registering a company with at least five incorporators, you can use the SEC’s online Company Registration System (http://crs.sec.gov.ph/) to verify your name. Note that you will still have to validate your company name with an SEC officer even if you’ve accomplished this step.

 

Validating your name with the SEC

Once you’ve chosen your business name, you will have to go to an SEC office near you to have the name validated. You can have up to three business names validated at one time, so we suggest submitting three names to minimize your chances of having to go through the process again.

Validating your proposed business names will take around 2-3 days. If none of your proposed names get approved, you will have to go through the validation process again.

If the SEC validates your company name, you will then have to pay Php100 to reserve that name. The reservation only lasts for 30 days, so make sure you proceed to the next step of the incorporation process so you don’t have to renew your reservation. 

We hope this article was helpful. If you have any further questions, click here to chat with UNA, and check out the other articles of Unawa Explainer for more information on company incorporation.