Seatwork 1 - Basic Considerations of Corporation

NAUL, KHIMBERLY C.
Accounting 111E
Partnership and Corporations Accounting
Chapter 5: Accounting for Corporations - Basic Considerations

Textbook: Partnership and Corporations Accounting by Ballada
1. Define corporation. What are the essential attributes of corporations?

- Corporation is a legal entity created by individuals, stockholders or shareholders with a purpose
of operating profit.
THE ESSENTIAL ATTRIBUTES OF CORPORATIONS ARE:
• It is an artificial being.
• It is created by operation of law.
• Enjoys the right of succession or it have a perpetual existence.
• The powers, attributes, and properties expressly authorized by law.
2. Give five advantages and four disadvantages of forming a corporation.

ADVANTAGES DISADVANTAGES
• Has the legal capacity to act as a legal • Complex in formation and management.
entity.
• Limited liability. • Subject to heavier taxation
• Continuity of existence. • Requires high cost in formation and operation.
• Greater ability to acquire funds. • Greater degree of government control and
supervision.
• Management is centralized.
3. Differentiate a stock corporation from a non-stock corporation.

- Stock Corporation have shares capital divided into shares and is authorized to distribute its to
income to the holders such shares and dividends based on shares held while the non-stock
corporation do not have shares to be issued and is not authorized to distribute its profits as
dividends to its members, trustees or officers.
4. Give the components of a corporation.
• Corporators
• Incorporators
• Shareholders
• Members
• Subscribers
• Promoter
• Underwriters
• Independent director
• Additional General Powers
5. Identify the kinds of corporations as to nationality and purpose.

AS TO NATIONALITY:
• Domestic Corporation
• Foreign Corporation
AS TO PURPOSE:
• Ecclesiastical Corporation
• Eleemosynary Corporation
• Civil Corporation
6. Differentiate a public from a private corporation.

- Public corporation issued their shares into the public and is formed for the government of the
state while, the Private corporation is a smaller corporation where there is a limited numbers of
shareholders and it is created for private purpose. Also, their shares are not issued to the public.
7. What are the steps involved in the creation of a corporation?

STEPS IN THE FORMATION OF A CORPORATION
• Register name with the Department of Trade
• Apply for city of municipal license from the
• Local government Apply for VAT or Non-VAT account from the Bureau of Internal Revenue
• Register the corporate books of accounts, the invoice, and the official receipts with the BIR
8. What is an article of incorporation?
• Articles of Incorporation is a set of documents filed to the government, specifically to the SEC,
to legally document the creation of the corporation.
9. What are the rights of a shareholder?

RIGHTS OF THE SHARE HOLDERS:
• Voting Right
• Pre-emptive Right
• Power of Inspection
• Right to Information
• Right to Dividends
• Appraisal Right
10. Distinguish par value stock from no-par value stock.

- Par value stock is those who have fixed amount stated in the articles of incorporation and
appearing on the certificate of shares. It is the minimum issue price of the shares. No-par value
stock are ones without any value that appears in the certificate of shares. But it may have a stated
value that is fixed in the articles of incorporation or by the board of directors. Also, the price may
change from time to time based on the book value of the corporation’s shares.
11. What is the purpose of having an independent director in the board?

- Independent directors of a company are often seen as key to a firm's corporate credibility. They
are supposed to ensure that executives are acting in the best interest of shareholders and help
guide and monitor the management of the company.
12. What is the amount of share capital to be subscribed and paid for the purpose of incorporation?
- According to the law, the total capital stock subscribed at the time of incorporation must be at
least 25% of the corporation's authorized capital stock. At least 25% of the authorized capital
stock must be subscribed at the time of incorporation, and at least 25% of that subscribed
stock must be paid-up. Subscriptions must be paid in whole if the capital stock consists of no-
par value shares. P5,000 is the required minimum paid-up capital.

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NAUL, KHIMBERLY C.

Chapter 5: Accounting for Corporations - Basic Considerations

1. Define corporation. What are the essential attributes of corporations?

2. Give five advantages and four disadvantages of forming a corporation.

3. Differentiate a stock corporation from a non-stock corporation.

5. Identify the kinds of corporations as to nationality and purpose.

6. Differentiate a public from a private corporation.

7. What are the steps involved in the creation of a corporation?

9. What are the rights of a shareholder?

10. Distinguish par value stock from no-par value stock.

11. What is the purpose of having an independent director in the board?

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