Minimum public float doubled to 20%

MANILA, Philippines -  The Securities and Exchange Commission (SEC), the corporate regulator, will double the minimum public float for listed companies to 20 percent from the current 10 percent.

The new rule will take effect on July 1 and is contained in a proposed SEC memorandum circular which will be disseminated for public comment.

According to the circular, all companies filing a registration statement pursuant to Sections 8 and 12 of the Securities Regulation Code, and with intention to list their shares for trading at the exchange, must apply for registration with a public float of at least 20 percent of the companies’ issued and outstanding shares.

The public float refers to the portion of share of a corporation that are owned by public investors. It is freely available and tradable in the market and are non-strategic in nature, or those not meant for the purpose of gaining substantial influence on how the company is being managed.

According to the SEC, significant shareholdings of 10 percent or more of the total issued and outstanding shares of the company are considered strategic and thus, excluded in the public float of the company.

The minimum public ownership (MPO) of a company shall be measured by its minimum public float.

For those with existing registration statements filed with the SEC and whose shares are currently listed and traded in an exchange, they will be required to increase their public float to at least 15 percent in or before 2018, and then to at least 20 percent in or before 2020.

The SEC warned that non-compliance with the minimum public ownership requirements may result to publicly listed companies being subjected to the administrative sanctions provided under Section 54 of the Securities Regulation Code.

Furthermore, they may also be subject to higher tax rate.

This is because, according to the Bureau of Internal Revenue (BIR), all publicly listed companies are required, at all times, to maintain a minimum public ownership (MPO) as prescribed by the SEC to enjoy preferential tax treatment.

The BIR said the sale, barter, exchange, or other disposition of shares of stock of publicly listed companies that meet the MPO through the local stock exchange, other than the sale by a dealer in securities, is subject to stock transaction tax of one-half of one percent (1/2 of one percent) of the gross selling price.

However, the sale, barter, transfer and or assignment of shares of stock of publicly-listed companies that fail to meet the MPO is subject to final tax of five percent or 10 percent on the net capital gains, and documentary stamp tax (DST).

The SEC has long been planning to increase the minimum public float requirement for listed companies but has deferred this many times because of volatile market conditions.