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BDB Laws Tax Law For Business appears in the opinion section of Business Mirror every
Thursday.


Compliance with SEC reportorial requirements


THE observance and submission of the reportorial requirements prescribed by various
government agencies is an inherent obligation imposed on any business venture or
undertaking. It is of such duty that noncompliance therewith may result in the imposition of
applicable penalties, which may be as simple as an interest or fine or at worst, the
revocation of its business registration or an institution of a criminal case.

For instance, the nonfiling or even a mere delay in the filing of returns or reports with the
Bureau of Internal Revenue (BIR) may result in a civil penalty of 25-percent surcharge
and/or 20-percent interest per annum, aside from the criminal penalty attached to such
nonfiling.

Other than the BIR, businesses particularly corporations are, likewise, duty bound to comply
with the requirements prescribed by the Securities and Exchange Commission (SEC).
Specifically, the SEC, as the designated administrative agency under Republic Act (RA)
8799, or The Securities Regulations Code, is tasked to ensure the compliance of issuers of
securities with the periodic submission of reports as may be required thereof. Corollarily, the
SEC is empowered to impose sanctions for violation of such requirement.

Under the SRC, securities to be sold or offered for sale or distribution within the Philippines
shall be required to be registered with the SEC. Accordingly, the issuer, which may be the
originator, maker, obligor or creator of such security, shall be required to file and submit
periodic reports with the SEC as set forth under Section 17.1 of the SRC. The required
reports for submission include, among others:

a) A balance sheet, profit-and-loss statement and statement of cash flows, for such
last fiscal year, certified by an independent certified public accountant, and a management
discussion and analysis of results of operations; and

b) Such other periodical reports for interim fiscal periods and current reports on
significant developments of the issuer as the commission may prescribe as necessary to
keep current information on the operation of the business and financial condition of the
issuer.

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Section 17.5 of the SRC further provides that those required to file the foregoing reports with
the SEC shall also be required to furnish each holder of such equity security an annual
report in such form and containing such information as the SEC shall prescribe.

Relying on the foregoing provision, the SEC, in one case decided by the Supreme Court (GR
191995, dated August 3, 2011), imposed penalty on a certain bank for failure to comply with
such requirements. The bank, however, argued that it has no responsibility to provide the
SEC with such reports as it is not a public company as it is a private company whose
shares of stock are available only to a limited class of sectors, i.e., to World War II veterans,
and not to general public. Moreover, the bank contends that compliance with the
requirement to furnish each stockholder of its Information Statement shall result to an
expense of around P40 million for the reproduction and mailing of such reports to its 400,000
stockholders nationwide.

In its resolution, the Supreme Court applied Section 17.2 of the SRC and Rule 3(1)(m) of the
Amended Implementing Rules and Regulations of the SRC, which defined a public
company as any corporation with a class of equity securities listed on an exchange or with
assets in excess of P50 million and having 200 or more holders, at least 200 of which are
holding at least 100 shares of a class of its equity securities.

The High Tribunal held that a public company contemplated by the SRC, is not limited to a
company whose shares of stock are publicly listed; even companies like the bank, whose
shares are offered only to a specific group of people, are considered a public company,
provided they meet the requirements enumerated above.

Perusal of the banks records showed that it has assets exceeding P50 million and has
395,998 shareholders. Accordingly, it is considered a public company that must comply with
the reportorial requirements set forth in Section 17.1 of the SRC.

Last, the SC further reiterated that the banks obligation to provide its stockholders with
copies of its annual report is actually for the benefit of the stockholders, as it gives these
stockholders access to information on the banks financial status and operations, resulting in
greater transparency on the part of the bank. While compliance with this requirement will
undoubtedly cost the bank money, the benefit provided to the shareholders clearly
outweighs the expense. xxx

Indeed, the requirement to submit reports as prescribed by various government agencies
plays a significant role in ensuring transparency among our public corporations. It is
expected, therefore, that these companies endeavor to keep its utmost compliance with such
requirements as it seeks ultimately to afford protection and assurance to its investing public.

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The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law), a
member-firm of World Tax Services (WTS) Alliance.

The article is for general information only and is not intended, nor should be construed as a
substitute for tax, legal or financial advice on any specific matter. Applicability of this article
to any actual or particular tax or legal issue should be supported therefore by a professional
study or advice. If you have any comments or questions concerning the article, you may e-
mail the author at deo.saludario@bdblaw.com.ph or call 403-2001 local 320.