How to Increase Your Authorized Capital Stock Faster: Why the SEC Removed the Special Audit Report Requirement in 2026
Introduction: why the 2026 change matters
Corporations that need fresh funds often look to an increase in authorized capital stock (ACS) so they can legally issue additional shares to investors, founders, or affiliates. In the Philippines, however, capital increases are not effective just because the board and shareholders approve them; they generally require submission of documentary requirements and prior SEC approval. In 2026, the Securities and Exchange Commission (SEC) issued a circular that simplified the documentary route for many corporations that pay subscriptions in cash, reducing delays and costs tied to a separate special audit.
Governing law: what an “increase in authorized capital stock” legally requires
The principal statute is the Revised Corporation Code of the Philippines (Republic Act No. 11232, 2019). Under Section 37, a corporation cannot increase or decrease its capital stock unless it is approved by (1) a majority vote of the board of directors and (2) at least two-thirds (2/3) of the outstanding capital stock at a duly called stockholders’ meeting, with proper notice stating the time, place, and purpose of the meeting (Revised Corporation Code, 2019).
Section 37 also requires a signed certificate to be filed with the SEC and provides that the increase is deemed effective only upon SEC approval and issuance of the certificate of filing. For increases, the SEC will not accept the filing unless accompanied by a sworn statement of the treasurer showing that at least 25% of the increase has been subscribed and at least 25% of the amount subscribed has been paid in cash or property transferred to the corporation (Revised Corporation Code, 2019).
Why the SEC can impose documentary conditions beyond the statute
While the Revised Corporation Code sets baseline requirements, it also recognizes SEC rule-making authority in implementing corporate reportorial and approval processes. The Supreme Court has affirmed SEC authority to adopt regulatory measures within its jurisdiction to protect the integrity of corporate reporting and compliance, including requirements that operate as conditions for filings and submissions to the SEC (Securities and Exchange Commission v. 1Accountants Party-List, Inc., 2025).
What changed in 2026: removing the ₱50 million threshold for using a subscription contract
SEC Memorandum Circular No. 6, series of 2026 (published 24 January 2026) expanded the situations where a corporation may submit a notarized Subscription Contract instead of a Special Audit Report for applications to increase authorized capital stock when the subscription payment is in cash. The circular explicitly removed the prior rule that treated cash subscriptions of more than ₱50,000,000.00 differently, meaning more corporations can now proceed without waiting for a separate special audit engagement (SEC MC No. 06, s. 2026, 2026).
In effect, for many non-public, non-listed corporations, the SEC now accepts a notarized subscription contract as the principal proof of cash subscription and payment, subject to the standard corporate approvals and SEC filing requirements under the Revised Corporation Code.
Who benefits most from the streamlined process
The 2026 change is most relevant to closely held corporations and operating companies that need to close funding quickly, such as:
- Founder-led corporations with incoming investor funds paid in cash
- Family corporations formalizing new equity infusions
- Groups reorganizing capital structures to meet bank covenants or expansion budgets
Where a special audit used to add cost and a longer timeline, the subscription contract route generally aligns better with transaction closing schedules, provided internal approvals and documentation are complete.
Step-by-step: the streamlined SEC route for cash-funded capital increases (2026)
The legal approvals and SEC filing requirement remain grounded on Section 37 of the Revised Corporation Code (2019). What changes is the usual supporting document for proof of cash subscription, for covered corporations.
1) Corporate approvals and meeting notices
Prepare and secure:
- Board approval (majority vote) to propose the ACS increase (Revised Corporation Code, 2019)
- Stockholders’ approval of at least 2/3 of outstanding capital stock at a duly called meeting (Revised Corporation Code, 2019)
- Written notice stating time, place, and purpose of the meeting, served personally or via electronic means recognized in the bylaws and SEC rules (Revised Corporation Code, 2019)
2) Prepare the SEC certificate and treasurer’s sworn statement
Section 37 requires a certificate (signed and countersigned by the proper officers) stating, among others, that the statutory requirements were complied with, the amount of the increase, and the vote authorizing it. The SEC also requires the treasurer’s sworn statement showing compliance with the 25%-25% subscription and payment rule for the increase (Revised Corporation Code, 2019).
3) Use a notarized subscription contract for cash subscriptions (for covered corporations)
Under SEC MC No. 06, series of 2026, corporations applying for an ACS increase by way of cash submit:
- A notarized Subscription Contract executed by the subscriber(s), the President, and the Treasurer, stating the additional shares subscribed and paid for; and
- If the President and/or Treasurer are unavailable, a Board Resolution authorizing a director or officer to sign on their behalf (SEC MC No. 06, s. 2026, 2026).
This is the central “speed” benefit: many applicants no longer need to commission and wait for a separate special audit report solely because the cash infusion is large.
4) File with the SEC within the required period and await SEC approval
Section 37 requires SEC approval and provides that the application must be filed within six (6) months from the date of approval by the board and stockholders, subject to extension for justifiable reasons. The capital stock is deemed increased only upon SEC approval and issuance of the SEC certificate of filing (Revised Corporation Code, 2019).
When a Special Audit Report is still required despite cash payment
SEC MC No. 06, series of 2026 retains a Special Audit Report requirement for the following:
- Listed companies
- Public companies as defined under the Securities Regulation Code
- Companies that offer or sell securities to the public
- Companies with secondary licenses as regulated by the SEC (SEC MC No. 06, s. 2026, 2026)
The circular also states that this enumeration does not limit the SEC’s authority to require a Special Audit Report in other circumstances when necessary to prevent fraud in obtaining SEC approval (SEC MC No. 06, s. 2026, 2026).
Why the SEC removed the special audit threshold in 2026
SEC MC No. 06, series of 2026 explains that it is intended to improve administrative efficiency and promote ease of doing business, citing the SEC’s authority to issue standards and rules to carry out the Revised Corporation Code and related government policies on streamlining processes (SEC MC No. 06, s. 2026, 2026). From a regulatory design standpoint, the SEC maintained stricter requirements for entities that pose higher public investor protection concerns (listed, public, public-offering, and secondary-license entities) while reducing documentation for many closely held corporations.
Doctrinal context: increased ACS versus issuance of existing authorized but unissued shares
It is important not to confuse an increase in authorized capital stock with the issuance of shares from already authorized but unissued stock. The Supreme Court distinguished these acts in Nestle Philippines, Inc. v. Court of Appeals (1991), noting that once an increase in authorized capital stock has been approved, a corporation may later issue and sell shares from its already authorized but still unissued capital stock by board action, without needing stockholder or SEC approval for each issuance (Nestle Philippines, Inc. v. Court of Appeals, 1991). This matters because some funding goals can be met faster by issuing existing authorized but unissued shares, if available, instead of increasing ACS.
Common scenarios and examples
Scenario 1: Investor cash infusion requiring new shares beyond current authorized limit. If the corporation’s existing authorized capital is insufficient to issue the agreed shares, an ACS increase is necessary. Under the 2026 rule, many corporations paying in cash can proceed using a notarized subscription contract rather than a special audit report, subject to the exceptions (SEC MC No. 06, s. 2026, 2026; Revised Corporation Code, 2019).
Scenario 2: Corporation has sufficient authorized but unissued shares. If the authorized capital already covers the proposed issuance, the corporation may issue shares from the unissued portion by board vote (subject to other applicable rules), and does not need the ACS increase route (Nestle Philippines, Inc. v. Court of Appeals, 1991).
Scenario 3: SEC-regulated entity with a secondary license. Even if payment is cash, a special audit report remains part of the requirements under the 2026 circular (SEC MC No. 06, s. 2026, 2026).
Summary table: what documents typically matter most after the 2026 circular
| Item | What the law or SEC requires | Why it affects timeline |
|---|---|---|
| Board and stockholder approvals | Majority board; 2/3 OCS at duly called meeting with proper notice (Revised Corporation Code, 2019) | Meeting scheduling and documentation are often the first bottleneck |
| SEC filing and approval | SEC approval required; effectiveness upon SEC certificate of filing; filing generally within 6 months (Revised Corporation Code, 2019) | Incomplete submissions trigger SEC comments and re-submissions |
| Proof of cash subscription/payment | Notarized subscription contract in many cases; Special Audit Report still required for enumerated entities and when SEC deems necessary (SEC MC No. 06, s. 2026, 2026) | Removing the ₱50M threshold reduces time spent waiting for special audit engagement and report finalization |
Advice to avoid delays when using the subscription contract route
- Confirm you are not within the exceptions (listed, public, public offering, secondary license). If you are, plan for a special audit report (SEC MC No. 06, s. 2026, 2026).
- Check your authorized but unissued shares first. If sufficient, consider whether an issuance from existing authorized stock can achieve the funding goal without an ACS increase (Nestle Philippines, Inc. v. Court of Appeals, 1991).
- Align transaction documents with corporate approvals. Ensure the subscription contract terms match the board and stockholder resolutions and the SEC certificate details (Revised Corporation Code, 2019; SEC MC No. 06, s. 2026, 2026).
- Plan the 25%-25% compliance evidence early. The SEC will not accept the filing without the treasurer’s sworn statement that meets Section 37 standards (Revised Corporation Code, 2019).
- File within the statutory period. Late filings risk needing an extension justification and may disrupt closing timelines (Revised Corporation Code, 2019).
Conclusion: what the 2026 change accomplishes
SEC MC No. 06, series of 2026 shortens the documentation path for many corporations raising capital through cash subscriptions by expanding the use of a notarized subscription contract and removing the prior ₱50 million threshold. The fundamental legal structure remains the same: the Revised Corporation Code still requires proper corporate approvals and SEC approval before the increase becomes effective. For corporations not covered by the exceptions, the change can reduce both expense and waiting time, as long as internal approvals, the treasurer’s sworn statement, and the SEC filing package are prepared consistently and submitted promptly.
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