Going Public: Sale, Barter, Exchange or Disposition Shares of Stocks through Initial Public Offering

Going Public: Sale, Barter, Exchange or Disposition Shares of Stocks through Initial Public Offering

What is Initial Public Offering?

Initial Public Offering (IPO) is when shares of stocks of a private corporation is offered to public. Through IPO, the public can invest in private stocks thereby allowing a private company to raise capital from public investors. When a corporation goes public, their privately owned shares will be converted to public share ownership.

To trade stocks publicly, a corporation must apply for a license with the Securities and Exchange Commission (SEC) and comply with the criteria set by the Philippine Stock Exchange (PSE) to be listed.

IPO General Criteria for Listing 

The PSE has provided for the following IPO listing requirements[1] for Main Board:

  1. Operating History Requirement

Three (3) years of engaging in materially the same business.

2. Board of Directors Requirement

Minimum of seven (7) directors, two (2) of which or twenty percent (20%) of the board have to be independent, and each director should have at least one (1) share in his name.

3. Profit Test

a. Cumulative net income, excluding non –recurring items, of at least Seventy-five Million pesos (Php75,000,000.00) for three (3) full fiscal years immediately preceding the application for listing; and

b. Minimum net income of Fifty Million Pesos (Php50,000,000.00) for the most recent fiscal year.

For this purpose, the Applicant Company shall submit to the Exchange audited consolidated financial statements for the last three (3) full fiscal years preceding the filing of the application. The financial statements must be accompanied by an unqualified external auditor’s opinion.

4. Stockholders’ Equity Requirement

Stockholders’ equity must be at least Five Hundred Million pesos (Php500,000,000.00) for the most recent fiscal year

5. Minimum Number of Stockholders upon Listing

At least One Thousand (1000) stockholders, each owning stocks equivalent to at least one (1) board lot

6. Minimum Public Offering

Twenty percent (20%) upon and after listing.

Tax on Sale, Barter or Exchange of Shares of Stocks through Initial Public Offering

Under Sec. 127 (B) of the NIRC, the sale, barter, exchange or any disposition of shares of stocks traded through initial public offering was subject to 4%, 2% or 1% percentage tax based on gross selling price or value in money of the shares of stocks sold, bartered, exchanged or otherwise disposed in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after the listing in the local stock exchange.

However, by virtue of Republic Act No. 11494 or the Bayanihan to Recover as One Act, the tax on the Initial Public Offering (IPO) of shares of stocks provided under Section 127 (B) of the NIRC of 1997, as amended, was repealed. Thus, every sale, barter, exchange or other disposition through IPO of shares of stock in closely held corporations shall no longer be subject to the tax imposed under Section 127(B) upon the effectivity of Republic Act No. 11494.

The removal of IPO tax is to encourage more companies to be listed in the stock market and to eliminate additional transaction costs that burden companies and prevent them from growing.

As the participation of the public in investing on shares of stocks of private companies is emerging, trade in the stock market also becomes stronger.  This is a mirror that Filipino traders are now more informed about the business world. It is a great advantage for companies which aim to progress further because public capital is now more accessible, competitive and open to spending.

[1] https://www.pse.com.ph/ipo-listing-requirements/

Written by: Atty. Michelle Ann Acuna

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