One option available to a corporation that seeks to increase its capital is by selling its shares of stock to the public. The SEC regulates these transactions. It is important to note that the mere registration of the Corporation before the SEC for incorporation purposes does not include a license to sell its shares to the public.
A corporation must first apply for a license with the SEC in ord er to trade stocks publicly. Once the SEC grants a license, a corporation that seeks to be listed in the Philippine Stock Exchange (“PSE”) must then comply with the criteria set by the PSE.
A. Criteria for Being Listed in the Philippine Stock Exchange
Since 2013, the Philippine Stock Exchange (“PSE”) has been operating a system that consists of two boards: the Main board and the Small Medium and Emerging (SME) Board. Generally, the boards are distinguished by its minimum capitalization requirement. Corporations listed under the main board are required to have an authorized capital stock of at least PhP 500 million, while corporations that seek to be listed on the SME Board are required to have an authorized capital stock of GOING PUBLIC at least PhP 100 million, at least 25% of which is subscribed and fully paid. The two boards are also distinguished by more specific criteria as discussed below.
1. General Criteria (Applicable to Both Boards)
1. Positive Stockholder’s Equity in the fiscal year immediately preceding the filing of its application;
2. Operating history of the corporation: 3 years prior to its listing;
3. All subscribed shares of the same type and class applied for shall be paid in full;
4. Minimum offering to the public for initial listing are as follows:
| Market Capitalization | Public Offer |
| Not exceeding PhP 500M | 33% or PhP 50M, whichever is higher |
| Over PhP 500M to PhP 1B | 25% or PhP 100M, whichever is higher |
| Over PhP 1B to PhP 5B | 20% or PhP 250M, whichever is higher |
| Over PhP 5B to PhP 10B | 15% or PhP 750M, whichever is higher |
| Over PhP 10B | 10% or PhP 1B, whichever is higher |
5. When required by PSE, the corporation shall engage the services of an independent appraiser accredited by the SEC to determine the value of its assets;
6. The Corporation shall have an investor relation program. Such program shall include, at the minimum, a corporate website which contains, the following information:
a. Corporation information
b. Corporation news
c. Financial report
d. Disclosures
e. Investor FAQs
f. Investor Contact
g. Stock Information
2. Specific Criteria
| MAIN BOARD | SME BOARD |
| a. The applicant should have a cumulative consolidated earnings before interest, taxes, depreciation and amortization (EBITDA), excluding non-recurring items, of at least PhP 50M for three (3) full fiscal years immediately preceding the application for listing; | a. The applicant should have a cumulative EBITDA, excluding non-recurring items, of at least PhP 15M for three (3) full fiscal years immediately preceding the application for listing; |
| b. The applicant should have a minimum EBITDA of PhP 10M for each of the 3 fiscal years; | b. The applicant must have a positive EBITDA, generated in at least two of the last 3 fiscal years, including the fiscal year immediately preceding application; |
| c. The applicant must be engaged in materially the same business/es and must have a proven track record of management throughout the 3 years prior to the application.This admits of the following exceptions:
1) if the applicant has been operating for at least 10 years and has a cumulative EBITDA of at least PhP 50M for at least two of the three fiscal years prior to the application; 2) the applicant is a newly formed holding company which uses the operational track record of its subsidiary. |
c. The applicant must be engaged in materially the same business and must have a proven track record of management throughout the last 3 years prior to the application;The Applicant Company shall demonstrate its stable financial condition and prospects for continuing growth by providing a business plan indicating the steps that have been taken and to be undertaken in order to advance its business over a period of five (5) years. |
| d. The applicant must have a minimum authorized capital stock of PhP 500M, with at least 25% being subscribed and fully paid. The minimum Market Capitalization is PhP 500M. | d. The applicant must have a minimum authorized capital stock of PhP 100M, with at least 25% being subscribed and fully paid. |
| e. Upon listing, the minimum number of shareholders should at least be 1,000 with each owning stocks equivalent to at least one board lot. | e. Upon listing, the minimum number of shareholders should at least be 200 with each owning stocks equivalent to at least one board lot. |
| f. No divestment of shares in operating subsidiary; | f. No holding, portfolio and passive income companies; |
| g. N/A | g. No change in the primary purpose and/or secondary purpose for a period of 7 years following its listing; |
| h. No secondary offering for companies invoking exemption of track record. | h. No offering of secondary securities for companies exempt from track record and operating history requirements |
| i. Lock-up Requirements. The applicant shall cause its existing shareholders who own at least 10% of the issued and outstanding shares to refrain from selling, assigning or disposing the shares for a period of 180 days after listing – if track record requirement is met; otherwise, 365 days. | i. Lock-up Requirements. The applicant shall cause its existing shareholders to refrain from selling, assigning or disposing the shares for a period of: 1 year after listing. |
| Note: In case, there is an issuance/transfer within 180 days prior to the offering period and transaction price is lower, all shares shall be subject to a lock up period of 365 days.This lock-up shall be stated in the AOI of the applicant. | Note: In case, there is an issuance/transfer within 6 months prior to the start of the offering and transaction price is lower, all shares shall be subject to a lock up period of 1 year.This lock-up shall be stated in the AOI of the applicant. |
B. Advantages of Going Public
Getting a corporation publicly listed is a good way to raise capital for the company. In 2014, the initial public offering (“IPO”) of the technology firm, Xurpas Inc., raised about PhP 1.36 Billion for the company when it sold about 1/5 of its stocks to the public. It was reported that by the time the public offering started, the offering was oversubscribed by 6.5 times the offer price.16 Xurpas Inc.’s share price has since more than doubled its IPO price.
Another advantage of having a corporation’s shares public listed is the beneficial rate of stock transaction tax (0.5% of the gross selling price), as opposed to 5-10% rate of capital gains tax imposed on shares not listed with the Philippine Stock Exchange. Listing is also used by companies to boost public awareness and interest for a company and its products.
