Lex Rex Ph


These are surplus corporate profits (coming from unrestricted retained earnings) which are [SDD] set apart, declared, and ordered to be distributed to stockholders.

  • Profits are not dividends. As long as a profit is not set apart, declared, and distributed, it shall never be considered dividends.
  • No matter how big is the profit, if the directors do not declare them, stockholders do not have a claim to them.
  • They can be distributed in the form of cash, property, or stocks through the discretion of the Board of Directors (Sec. 42 RCCP)


  1. If cash dividends, it must first be applied to the unpaid subscription of a stockholder, if there’s any.
  2. If stock dividends, approval of the shareholders at least 2/3 of OCS is required; and also the amount of unsubscribed shares is sufficient (otherwise, amend the AoI).

What is the source of dividends and what happens after the deduction of dividends?

Corporate profits go to a “surplus account” -> this is where stock dividends are taken from. The remainder goes to the capital account by virtue of the Trust Fund Doctrine or for the protection of the corporate creditors. The remainder will now increase the legal capital.

When is the retention of dividends prohibited?

If it exceeds the equivalent of 100% of the paid-in capital. However, the retention is justified if the dividends are subject to:

  1. Definite corporate expansion projects as approved by the Directors;
  2. or limited by foreign or local creditors/financial institutions and the latter’s consent has not been secured.
  3. or if retention is necessary under special circumstances.

Other Content You May Be Interested In:

Arenas vs. Raymundo Digest

March 13, 1911 Facts Arenas et al delivered their jewelry to Perello for the latter to sell on commission. Instead of selling, Perello pledged the jewelry to the pawnshop of Raymundo, and

Read More »

Ninal v Bayadog Digest

Cohabitation as an exception to marriage license must be without legal impediments. The validity of a void marriage may be questioned even after the death of either of the parties. 328 SCRA

Read More »

Unrestricted Retained Earnings (URE)

Unrestricted Retained Earnings (URE) are the accumulated profits and gains realized out of the normal and continuous operations of the company after deducting therefrom the distributions of stockholders (legal capital) and transfers

Read More »

Law school inspiration quotes

Law School Inspiration Quotes Quotes from different sources that may keep you going. Love the process. Not just the outcome. Do not rush things. Great things take time. When you become a

Read More »

Chan vs. Maceda Digest

G.R. 142291https://lawphil.net/judjuris/juri2003/apr2003/gr_142591_2003.html Lesson: If the facts are bereft of any record of the existence of a contract of deposit, oral or written, there is no obligation for the depositary to return the

Read More »

Ombudsman v. CA and Binay Jr. Digest

GR 217126-27, 10 Nov 2015 Facts Ombudsman Conchita issued a preventive suspension order (PSO) against Binay Jr. et al of Plunder and violation RA 3019 in connection with the Makati Parking Building.

Read More »