(Philippine legal article; general information, not legal advice.)

1) Why this topic matters

Raising equity is one of the most common corporate actions in Philippine practice—whether to fund expansion, comply with minimum-capital rules of a regulator, improve bankability, or regularize shareholder advances. Under Philippine law, however, “equity” is not one single number. You increase it through specific levers, each with distinct corporate approvals, documentation, SEC filings, and consequences.

This article focuses on two related but different targets:

Capital subscription (how many shares have been subscribed/committed to be taken by investors); and
Paid-up capital (how much of those subscriptions has actually been paid and therefore forms part of the company’s contributed capital).

Understanding the difference is the key to doing the correct corporate action—and avoiding void issuances, “watered stock” liability, and tax/registration problems.

2) Core concepts and definitions (the capitalization “stack”)

Philippine corporate practice generally uses these concepts:

A. Authorized capital stock (ACS)

For a stock corporation, this is the maximum number/value of shares the corporation is permitted to issue as stated in the Articles of Incorporation (AOI). You cannot validly issue shares beyond what is authorized in the AOI.

B. Issued shares

Shares that have actually been issued by the corporation (usually upon payment, or as otherwise permitted). Issuance is a corporate act documented in the stock and transfer book and supported by board action.

C. Subscribed capital / capital subscriptions

A subscription is a commitment to take shares (often documented by a subscription agreement). Subscriptions may be:

Original subscriptions (formation stage), or
New/additional subscriptions (later capital raising).

Subscriptions may be fully paid or partly paid.

D. Paid-up capital (strict sense)

Traditionally: the paid portion of the subscribed share capital (often measured at par/stated value of shares that have been paid). Many financial statements also present additional paid-in capital/share premium separately.

E. Additional paid-in capital / share premium

If shares are issued above par/stated value, the excess goes to share premium (a form of capital surplus). This increases contributed equity, but it is not always what people mean by “paid-up capital” in the narrow sense—so always be precise in board/SEC documents and contracts.

F. Unissued shares

Authorized but not yet issued. This is your “headroom” to raise equity without amending the AOI—if you still have room.

3) Governing legal framework (high level)

Your main sources are:

Revised Corporation Code of the Philippines (RCC) (Republic Act No. 11232): rules on amendments to AOI, issuance of shares, consideration for shares, delinquency, stock dividends, and fundamental corporate approvals.
Securities and Exchange Commission (SEC) regulations, forms, and filing requirements (practical gatekeeper for increases in authorized capital and AOI amendments).
Special laws/regulators, if applicable (e.g., banks, insurance, financing companies, real estate developers with public sale, certain foreign ownership regimes, and other regulated industries).
Tax laws affecting share issuances (especially Documentary Stamp Tax).

Because approvals and filing formats are practical necessities, you should always structure the transaction so the corporate acts and documents line up cleanly with what must be filed/recorded.

4) The big decision tree: what exactly are you increasing?

Before drafting anything, determine which of these scenarios applies:

Scenario 1 — You want to raise paid-up capital without changing the AOI

Common when you already have subscriptions that are unpaid, or you have authorized but unissued shares available.

Typical actions

Collect payment for existing unpaid subscriptions (via a call).
Accept new subscriptions and collect payment, using unissued shares still within the existing authorized capital.
Issue shares for cash/property/services as allowed (and properly valued), within existing authorized capital.
Convert shareholder advances/loans to equity by issuing shares (again, within existing authorized capital).

Scenario 2 — You want to increase capital subscription but are running out of authorized shares

If the corporation has already subscribed/issued most or all of the authorized shares, then to raise more equity you usually must first increase authorized capital stock via amendment of the AOI.

Scenario 3 — You want to raise “paid-up capital” because a regulator or bank wants a higher capitalization number

This often requires:

Actual payment and proper recording of the payment; and
Sometimes proof (treasurer’s affidavit, bank certificates, audited financial statements, etc.), depending on context.

5) How to increase capital subscriptions (the commitment to take shares)

Method A: Accept new subscriptions from existing shareholders and/or new investors (within existing authorized capital)

If you still have authorized but unissued shares, you can increase capital subscriptions simply by causing investors to subscribe to those shares.

Key legal/practical points

Board action: The board typically approves the terms of issuance/subscription (number of shares, price, timetable, who may subscribe).
Pre-emptive rights: Existing shareholders may have a statutory pre-emptive right to subscribe to new issuances unless:
- the AOI validly denies/limits it; or
- the issuance falls within recognized exceptions (often tied to shares issued in exchange for property needed for corporate purposes, or other statutory exceptions). Handle pre-emptive rights carefully: if you ignore them when they apply, you invite disputes and rescission claims.
Subscription documentation: Use a subscription agreement or subscription offer and acceptance, stating:
- investor identity, number/class of shares, issue price (par plus premium, if any);
- payment terms;
- representations (eligibility, beneficial ownership, foreign ownership compliance);
- conditions precedent (approvals, tax, regulatory clearances);
- remedies for default (calls/delinquency, set-off if applicable).
Consideration rules / watered stock risk: Shares must not be issued for less than their par/stated value, and non-cash consideration must be properly valued and received/transferable. Issuing shares for inadequate consideration exposes directors/officers and the subscriber to watered stock liability and can distort the corporation’s capital structure.

When this method is best

You want a straightforward capital raise;
You have enough authorized-but-unissued shares;
You want minimal SEC filings (no AOI amendment).

Method B: Rights offering to existing shareholders

A rights offering is a structured way to honor (and operationalize) pre-emptive rights: each shareholder is offered the right to subscribe in proportion to their holdings.

Best practices

Set a record date, subscription period, and rules for oversubscription.
Clarify whether rights are transferable (common in larger deals).
Ensure all board and stockholder disclosures are consistent (avoid claims of oppressive conduct).

Method C: Private placement / negotiated subscription with select investors

Common in startups and closely held corporations.

Watch-outs

Ensure compliance with pre-emptive rights or secure waivers where appropriate.
If securities are being offered in a way that could be deemed a public offering, consider securities law implications (registration/exemptions).

Method D: Capitalize shareholder advances by subscription (debt-to-equity structure)

If shareholders have advanced funds (as loans or advances), the corporation can accept a subscription where the “payment” is by:

offsetting the subscription price against the corporation’s debt to the subscriber (set-off), and/or
converting the debt into equity under agreed terms.

Critical

Document the debt clearly (promissory notes/loan agreements, schedules).
Ensure corporate approvals support the conversion and pricing.
For related-party transactions, document fairness and avoid conflicts.

6) How to increase paid-up capital (getting actual value in)

Method 1: Collect payment on existing subscriptions (board call; delinquency mechanics)

If you already have subscribed shares that are partly unpaid, your most direct route is to collect.

Typical steps

Board resolution making a call on unpaid subscriptions (specifying amount due and due date).
Notice to subscribers as required by law and the subscription agreement/bylaws.
Receipt of payment (cash, property, or other allowed consideration).
Issuance/recognition of the shares as paid, update corporate books, issue stock certificates when appropriate.
If default: Apply the delinquency process (leading potentially to a delinquency sale and transfer to the highest bidder or the corporation if allowed).

Why this matters

Banks, investors, and regulators often distinguish between “subscribed” and “paid” capital.
Collecting reduces uncertainty and strengthens the trust-fund nature of capital.

Method 2: Issue shares and require full payment upon issuance (cash equity raise)

A clean approach: accept subscriptions with immediate payment (or staged payment) and treat shares as issued/fully paid upon receipt.

Practical tips

Specify whether shares are issued only upon full payment (common), or whether partial payment triggers issuance subject to restrictions.
Coordinate the timing of payment, board acceptance, issuance, and updates to the stock and transfer book.

Method 3: Issue shares for non-cash consideration (property, assets, etc.)

You can raise paid-in equity by transferring property to the corporation in exchange for shares—commonly equipment, IP assignments, real property, or receivables.

Key risks

Valuation must be supportable. Poor valuation is a classic trigger for watered stock claims.
Transferability and title must be clear (e.g., deeds, assignments, registrations).
Regulated assets may need additional approvals.

Method 4: Declare stock dividends (capitalization of retained earnings)

Stock dividends convert unrestricted retained earnings into share capital by issuing additional shares to shareholders.

Corporate approval

Requires board action and the required stockholder approval threshold for stock dividends.

Effect

Increases share capital/paid-in equity without new cash entering the company (it’s a reclassification of equity).
Often used to “match” high retained earnings with an expanded capital base or to meet certain structural objectives.

Caution

Stock dividends are not “fresh money.” If the objective is liquidity, this won’t help.

Method 5: Issue shares above par (create share premium)

Issuing at a premium increases total contributed equity.

Why it’s popular

It lets the corporation raise more money without changing par value or creating a misleadingly huge number of shares.
Share premium is generally treated as part of capital that is not freely distributable like ordinary dividends (subject to corporate and accounting rules).

7) Increasing authorized capital stock (when you need more “headroom”)

If the corporation has no sufficient authorized-but-unissued shares left for the planned raise, you must increase authorized capital stock by amending the Articles of Incorporation.

A. The core approval concept

An increase in authorized capital stock is an AOI amendment that generally requires:

Board approval, and
Stockholder approval by the required supermajority (commonly two-thirds (2/3) of outstanding capital stock for AOI amendments and capital stock changes, in line with the RCC’s framework).

B. Typical documentary and filing flow (practical SEC process)

While exact filing checklists vary by SEC requirements, the process typically includes:

Board resolution
- Approving the increase in authorized capital stock
- Calling a stockholders’ meeting (or using written assent if permitted and properly documented)
- Approving the form of the Articles of Amendment and authorizing signatories
Stockholders’ approval
- Proper notice (unless validly waived)
- Vote/assent reaching the statutory threshold
- Minutes and/or secretary’s certificate
Prepare Articles of Amendment
- Setting out the new authorized capital structure (number of shares, par/stated value, classes, etc.)
Treasurer’s affidavit
- Commonly required to support the increase and confirm receipt of at least the legally/SEC-required paid-in amounts (if applicable) and/or the subscription/payment status.
SEC filing and payment of fees
- Filing fees are typically computed in part based on the increase.
SEC issuance of a Certificate of Filing/Amendment
- The increase becomes effective upon SEC approval/issuance of the appropriate certificate (the practical moment you can safely treat the increased ACS as operative).
Post-SEC actions
- Update corporate books and cap table
- Issue shares pursuant to the increased authorization
- Reflect changes in disclosures (e.g., corporate records, annual SEC reporting)

C. Common pitfalls

Issuing shares before SEC approval of the AOI amendment (risk: void/defective issuance).
Not aligning subscription documents with the timing of effectiveness (structure subscriptions to become effective only upon SEC approval, if needed).
Failing to manage pre-emptive rights and waivers properly.
Misstating capitalization figures across resolutions, affidavits, and filings.

8) Special contexts that change the analysis

A. One Person Corporation (OPC)

An OPC’s equity changes can be simpler in internal approvals (single stockholder), but the same fundamentals apply:

You cannot issue beyond authorized shares.
AOI amendments still require SEC filing when changing authorized capital.
Documentation must be clean because there are fewer “checks” from multiple stakeholders.

B. Foreign ownership limits and nationality compliance

If the corporation operates in a partially nationalized activity (constitutional/statutory limits), equity issuances must preserve compliance:

Track beneficial ownership and citizenship documents.
Ensure the post-issuance cap table remains compliant.
Consider share classifications (voting/non-voting, preferred) carefully.

C. Regulated industries with minimum capital rules

Banks, insurers, certain financing and lending entities, and other regulated sectors may require:

specific minimum paid-up capital;
proof of infusion;
pre-approval by the primary regulator before SEC filings (or parallel filings).

Always treat “regulatory capital” as its own checklist distinct from the RCC/SEC baseline.

D. Securities law considerations for wider fundraising

If offering shares to a broad group, securities regulation issues may arise (public offering registration, exemptions, disclosure obligations). Even if a corporation law action is valid, a non-compliant securities offering can create separate liabilities.

9) Practical checklists

Checklist 1 — Increasing subscriptions and paid-up capital using existing authorized-but-unissued shares

Confirm available unissued shares within authorized capital
Board approval of issuance terms and offer process
Handle pre-emptive rights (offer, waiver, or AOI limitation)
Execute subscription agreements
Receive payments / transfer non-cash consideration
Board acceptance/issuance resolutions
Update stock and transfer book; issue certificates as appropriate
Pay applicable taxes (including DST) and maintain receipts
Update internal cap table and disclosures

Checklist 2 — Increasing authorized capital stock (then raising equity)

Board resolution calling stockholders’ meeting and approving amendment
Stockholder supermajority approval
Articles of Amendment prepared and executed
Treasurer’s affidavit and supporting documents
SEC filing and fees
Await SEC certificate of amendment/final approval
Only then: accept/close subscriptions for newly authorized shares (or activate conditional subscriptions)
Issue shares, update books, pay DST, update records

10) Tax and bookkeeping notes (high-level)

Documentary Stamp Tax (DST): Original issuance of shares (including stock dividends in many cases) typically triggers DST, computed based on par value or actual consideration, depending on the share type and tax rules. Coordinate payment timing and evidence for due diligence and audits.
Accounting classification: Subscription receivables, share capital, and share premium must be booked properly; misclassification can later create problems in dividend declarations, audits, and investor reporting.
Capital is “trust fund”: Philippine doctrine treats capital as a fund for creditors; avoid structures that look like returning capital disguised as dividends.

11) Model transaction structures (what practitioners commonly do)

Structure A: “Increase ACS → then private placement”

Best when you need more authorized headroom. Use conditional subscription agreements that only become effective upon SEC approval, then close immediately after.

Structure B: “Call on unpaid subscriptions”

Fastest if the money is already committed and relationships are stable. Useful when paid-up capital needs to be demonstrated.

Structure C: “Debt-to-equity conversion”

Best when the corporation has been funded informally by shareholder advances and wants to regularize the balance sheet.

Structure D: “Stock dividend”

Best when the goal is capital structure hygiene (not cash) and retained earnings are high.

12) Key takeaways

Capital subscription is the commitment to take shares; paid-up capital is the actual paid value received for shares.
If you have enough authorized-but-unissued shares, you can raise equity without amending the AOI—subject to board action, pre-emptive rights, proper consideration, and documentation.
If you lack headroom, you must increase authorized capital stock through an AOI amendment with board + supermajority stockholder approval and SEC filing/approval.
Always manage: pre-emptive rights, valuation/watered stock risk, SEC timing, and DST/tax documentation.

If you want, I can also provide (1) sample board and stockholder resolutions, (2) a subscription agreement template tailored for par vs. no-par shares, and (3) a step-by-step closing checklist you can hand to your corporate secretary.