I.

ACCOUNTING FOR CORPORATION

1. Corporation

- Artificial being
- created by operation of law
- Having the right of succession, and the powers (Title IV Section 35 - 43),
attributes, and properties expressly authorized by law or incident to its existence.

2. RA11232
The Revised Corporation Code of the Philippines - the law governing the
corporations in the Philippines.

3. Securities and Exchange Commission (SEC)

The government agency regulating the corporation and other associations in the
Philippines. Shall have the right to remove from office any director or trustee.
Provided that such removal shall take place either at regular meeting of the
corporation or at a special meeting called for that purpose, and in either case,
after previous notice to stockholders.

4. Major Classifications

● Stock Corporation - are those which have capital stock divided into
shares and are authorized to distribute to the holders of such shares,
dividends, or allotments of the surplus profits on the basis of the
shares held.
● Non-stock Corporation - is one where no part of its income is
distributable as dividends to its members, trustees or
officers. Any profit accruing to the corporation, whenever necessary
or proper, be used for the furtherance of the purpose or purposes for
which the corporation was organized.
● Corporations Created by Special Laws or Charters. - created by
special laws or charters shall be governed primarily by the provisions
of the special law or charter creating them or applicable to them,
supplemented by the provisions of this Code, insofar as they are
applicable.

5. Other types of corporations

● As to the number of persons who compose them:

a. Corporation aggregate‐ corporation consisting of more than one

member or corporator;

b. Corporation Sole‐ religious corporation which consists of one

member or corporator only and his successor.
 C. One-person corporation (OPC) – corporation with a single
stockholder.

·
● As to whether they are for religious purpose or not:

a. Ecclesiastical corporation‐ one organized for religious purpose

b. Lay corporation‐ one organized for a purpose other than for religion.

● As to whether they are for charitable purpose or not:

a. Eleemosynary‐ one established for charitable purposes

b. Civil‐ one established for business or profit

● As to state or country under or by whose laws they have been

created:

a. Domestic‐ one incorporated under the laws of the Philippines

b. Foreign‐ one formed, organized, or existing under any laws other

than those of the Philippines and whose laws allow Filipino citizens and
corporations to do business in its own country or state. (Sec 123)

*License is necessary for;

1. Regulation purposes and
2. Access to local courts.

● As to their legal right to corporate existence:

a. De jure‐ one existing both in fact and in law

b. De facto‐ one existing in fact but not in law

● As to whether they are open to the public or not:

a. Close‐ one which is limited to selected persons or members of the

family. - Shares of stocks are held by few individuals and ownership is
not available to the public.(e.g. family corporations) (Sec 95‐ 104)

b. Open‐ one which is open to any person who may wish to become a
stockholder or member thereto. Shares of stocks are available to the
public. (e.g. corporations whose shares are available in the stock
exchange or over the counter security brokers)
 ● Public corporations - created for political or public purposes & connected
with the administration of government. (e.g. barangay, cities, provinces)

● Private Corporations are owned by individuals or other corporations for

private purpose and benefit. (e.g. private corporations and
government-owned and controlled corporations)

● One Person (Sole) Corporation – a corporation with a single stockholder.

Provided that only a natural person, trust, or an estate, may form a One
Person Corporation.

§ Publicly Listed Corporations - Shares are traded on an

organized stock exchange. (e.g. corporations whose shares are
traded in Philippine Stock Exchange)

§ Non-listed Corporations - Shares are not actively traded over

organized stock exchange. (e.g. corporations whose shares are traded
over the counter by brokers)

§ Corporation with perpetual term – perpetuity in existence until

dissolved
and liquidated. Its life can be shortened by amendment of the Articles of
Incorporation.

§ Corporation with specific term – exists until expiration of its

term. Can be shortened or extended thru amendment of Articles of
Incorporation.

● As to their relation to another corporation

a. Parent or Holding‐ one which is related to another corporation that it has

the power either, directly or indirectly to, elect the majority of the director of
such other corporation

b. Subsidiary ‐ one which is so related to another corporation that the

majority of its directors can be elected either, directly or indirectly, by such
other corporation

● As to whether they are corporations in a true sense or only in a limited

sense:

a. True‐ one which exists by statutory authority

b. Quasi ‐ one which exist without formal legislative grant.

i. Corporation by prescription ‐ one which has exercised corporate

powers for an indefinite period without interference on the part of the
 sovereign power and which by fiction of law, is given the status of a
corporation;

ii. Corporation by estoppel ‐ one which in reality is not a corporation, either

de jure or de facto, because it is so defectively formed, but is considered a
corporations in relation to those only who, by reason of theirs acts or
admissions, are precluded from asserting that it is not a corporation.

6. Steps in the Creation of a Corporation

● Promotion involves the process of bringing together the incorporators or

the persons interested in the business, procuring subscriptions or capital
that leads to the incorporation of the corporation.

- The “promoter” brings together persons interested in the business

enterprise and sets in motion the machinery that leads to the formation of
the corporation.

- “Promoter” is a person who, acting alone or with others, takes initiative in

founding and organizing the business or enterprise of the issuer and
receives consideration therefor.

- Those who invite potential subscribers to the corpo. , who source funding
for the formation of the corp. a promoter takes it upon himself to organize a
corpo, procures the necessary authority therefore (approval) for the
company’s creation, procure necessary subscribers, also sees to it that
pertinent documents are presented to the SEC so that the corresponding
registration will be secured.

- Underwriters - investment banking or stockbrokers often facilitate the

promotion and subsequent sale of shares to prospective investors.

● Incorporation involves filing the articles of corporation with the Securities

and Exchange Commission (SEC) together with treasurer’s affidavit,
statement of financial position, certificate of bank deposit, and certificate as
to the name of the corporation; payment of filing and publication fees; and
ultimately the issuance by the SEC of the certificate of incorporation.

Note: Generally, the corporation does not acquire its juridical personality until the SEC
issues to it its certificate of incorporation under its official seal.

● Formal organization and commencement requires the adoption of by-laws

and the election of the board of directors (BOD) and of administrative
officers including taking such other steps to enable it to transact the
legitimate business or accomplish the purpose for which it was created.
Note: If a corporation does not formally organize and commence the transaction of its
business within five (5) years from the date of its incorporation, its corporate powers
shall cease and the corporation shall be deemed dissolved.

- However, if a corporation has commenced its business but subsequently

becomes inoperative for a period of at least five (5) consecutive years, the
Commission may, after due notice and hearing, place the corporation under
delinquent status. A delinquent corporation shall have a period of two (2) years to
resume operations and comply with all requirements that the Commission shall
prescribe. Upon compliance by the corporation, the Commission shall issue an
order lifting the delinquent status. Failure to comply with the requirements and
resume operations within the period given by the Commission shall cause the
revocation of the corporation’s certificate of incorporation. A delinquent
corporation shall have a period of two (2) years to resume operations and comply
with all requirements that the Commission shall prescribe.

- Upon compliance by the corporation, the Commission shall issue an order lifting
the delinquent status. Failure to comply with the requirements and resume
operations within the period given by the Commission shall cause the revocation
of the corporation’s certificate of incorporation.

7. Why or why not a corporation?

● Advantages of a corporation

- Ease of raising capital resources

- Limited liability
- Ease of transfer of ownership
- Continuous life
- Centralized management

● Disadvantages of a corporation

- Difficult/costly to establish
- Strict government regulation

8. Contents of Articles of Incorporation

● Name of the corporation

● Purpose of the corporation
● Place of principal office (must be within the Philippines)
● Term of existence if corporation with a specific term
● Names, residences and addresses of the incorporators
 ● Directors or trustees
● The amount of share capital, its par value and the no. of shares into which
it is divided. If the share has no par value, the articles shall state only the
no. of shares but the fact that the shares is without par shall be stated
therein
● The amount of share capital or number of no-par shares subscribed with
indication of the amount or number of no-par shares subscribed and paid
by each.
● Such other matters consistent with law and which the incorporators may
deem necessary and convenient.

9. By-laws

● Rules of action adopted by the corporation for its internal

government and for the government of its officers, shareholders or
members.

● To be adopted and filed with the SEC within one (1) month from the
date of incorporation. Typical contents of by-laws are:

- Conduct of meeting of shareholders and directors

- Rules for directorship (i.e. owner of at least 1 share and majority are
residents of the Phil.)
- Rules for officership
- Rules for issuing shares
- Method of amending by laws
- Others

10. Organization Costs

● Preliminary expenses incurred upon forming a corporation including

legal fees, incorporation fees and share issuance costs.

● Generally, organization costs shall be expensed as incurred with the

exception for share issuance cost which shall be debited to share
premium arising from share issuance with any excess to retained
earnings.

11. Components of a Corporation

● Corporators - Corporators are those who compose a corporation,

whether as stockholders or shareholders in a stock corporation or as
members in a nonstock corporation.

● Incorporators - are those stockholders or members mentioned in the

articles of incorporation as originally forming and composing the
corporation and who are signatories thereto
 Note: Number and Qualifications of Incorporators. – Any person,
partnership, association or corporation, singly or jointly with others but
not more than fifteen (15) in number, may organize a corporation for any
lawful purpose or purposes: Provided, That natural persons who are
licensed to practice a profession, and partnerships or associations
organized for the share of the capital stock of the corporation. (6a)
purpose of practicing a profession, shall not be allowed to
organize as a corporation unless otherwise provided under special
laws. Incorporators who are natural persons must be of legal age. Each
incorporator of a stock corporation must own or be a subscriber to at
least one (1) share of the capital stock. A corporation with a single
stockholder is considered a One Person Corporation as described in
Title XIII, Chapter III of this Code.

● Shareholders/Members -shareholders are corporators in stock

corporations while members are corporators of a non-stock
corporation.

● Subscribers -are persons who have agreed to take and pay for
original, unissued shares of a corporation formed or to be formed.

● Director(s)/Trustee(s) - one (1) to fifteen (15). A one person

corporation shall have one (1) director/trustee. Every director must
own at least one (1) share of voting stock. Trustees may be more
than 15.

12. Rights of a Shareholder

1. Direct or indirect participation in management;

2. Voting rights (Section 6);
3. Right to remove directors (Sec. 27);
4. Proprietary rights:

a. Right to dividends;
b. Appraisal right (Sec. 80);
c. Right to issuance of stock certificate for fully paid shares (Sec.
63);
d. Proportionate participation in distribution of assets in liquidation
(Sec 139);
e. Right to transfer of stocks in corporate books (Sec 62);
f. Pre-emptive right (Sec38)

5. Right to inspect book and records (Sec 73);

6. Right to be furnished with the most recent financial statements/financial

reports Sec. 74);
 7. Right to recover stocks unlawfully sold for delinquent payment of
subscription.

8. Right to file individual suit, representative suit, and derivative suits.

13. Typical Records used by a corporation

● Minutes book - Contains the minutes of the meetings of the directors and
stockholders.
● Stock and transfer book - A record of the names of shareholders,
installments paid and unpaid by shareholders and dates of payment,
transfers of shares and dates thereof.
● Shareholder’s ledger - Subsidiary record of share capital issued
indicating the number of shares issued to each shareholder.
● Subscriber’s ledger - Subsidiary record of subscriptions made
indicating the individual subscriptions of the subscribers.

14. Classes of Shares in General

● Par value shares - one in which a specific amount is fixed in the articles
of incorporation and appearing on the certificate of stock. This amount is
the minimum issue price of the shares.

● Preference/preferred shares may be issued only as par value shares.

● No-par value shares - one without any value appearing on the face of the
certificate of stock. A no-par value share may have a stated value which
may be fixed in the articles of incorporation or by the board of directors or
the shareholders. However, the minimum stated value of a no-par share is
five pesos (P5.00) and is deemed to be fully paid when issued.

Note that the following are not permitted to issue no-par value shares:
(BPI-TB-PO)

a. Banks
b. Public utilities
c. Insurance companies
d. Trust Companies; and
e. Building and Loan Associations
f. Pre-need companies
g. Other corporations authorized to obtain or access funds from
the public, whether publicly listed or not.

● Voting and Non-voting shares

● Ordinary Shares - entitle the holder to an equal pro-rata division of profits

without any preference.
 ● Preference shares -entitle the holder to certain advantages or benefits
over the holders of ordinary shares.

● Treasury shares -A share that has been issued by the corporation

as fully paid and later reacquired but not retired.

Definitions and Classifications

● Authorized capital stock refers to the amount of capital stock as specified in

the articles of incorporation. It is synonymous with capital stock where the shares
of the corporation have par value, (see Sees. 14[8], 15 [seventh].)

● If the shares of stock have no par value, the corporation has no authorized
capital stock, but it has capital stock the amount of which is not specified in the
articles of incorporation as it cannot be determined until all the shares have been
issued. (Ibid.)

● Subscribed capital stock is the amount of the capital stock subscribed, whether
fully paid or not. It connotes an original subscription contract for the acquisition
by a subscriber of unissued shares in a corporation (see Sees. 60, 61.) and
would, therefore, preclude the acquisition of shares by reason of subsequent
transfer from a stockholder or resale of treasury shares. (Sec. 9.).

● Outstanding capital stock is the portion of the capital stock which is issued and
held by persons other than the corporation itself.

● Paid-up capital stock is that portion of the subscribed or outstanding capital

stock that is actually paid.27 (see Sec. 13.) The term actual capital stock is also
used to refer to the amount of the capital stock actually subscribed and paid for.

● Unissued capital stock is that portion of the capital stock that is not issued or
subscribed. It does not vote and draws no dividends.

● Legal capital is the amount equal to the aggregate par value and/or issued value
of the outstanding capital stock. When par value shares are issued above par,
the premium or excess is not to be considered as part of the legal capital, (see
Sec. 43.) In the case of no par value shares, the entire consideration received
forms part of legal capital and shall not be available for distribution as dividends,
(see Sec. 6, par. 3.)
 ● Stock or share of stock is one of the units into which the capital stock is
divided. It represents the interest or right which the owner has —

(1) in the management of the corporation in which he takes part through his right to
vote (if voting rights are permitted for that class of stock by the articles of
incorporation);

(2) in a portion of the corporate earnings, if and when segregated in the form of
dividends; and

(3) upon its dissolution and winding up, in the property and assets of the corporation
remaining after the payment of corporate debts and liabilities to creditors, (see 11
Fletcher, p. 18 [1971 ed.].)

● Certificate of stock is a written acknowledgment by the corporation of the

interest, right, and participation of a person in the management, profits, and
assets of a corporation.

Share of stock and certificate of stock distinguished.

(1) Share of stock is incorporeal or intangible property, while certificate of stock is

tangible property;
(2) Share of stock represents the right or interest of a person in a corporation, while
certificate of stock is the written evidence of that right or interest;
(3) Share of stock may be issued even if the subscription is not fully paid (Sec. 137.),
except in no par shares. (Sec. 6, par. 3.)

As a general rule, a certificate of stock may not be issued unless the subscription is
fully paid (Sec. 64.).

● Par value share is one with a specific money value fixed in the articles of
incorporation and appearing in the certificate of stock. The primary purpose of
par value is to fix the minimum subscription or issue price of the shares, thus
assuring creditors that the corporation would receive a minimum amount for its
stock, (see Sec. 62.)
 ● No par value share is one without any stated value appearing on the face of the
certificate of stock.
- A no par value share has, therefore, no par value but it has always an
"issued value," i.e., the consideration fixed by the corporation for its
issuance, (see Sec. 61, last par.)

Limitations on No-par shares

1. Such shares, once issued, are deemed fully paid and thus, non-assessable:
2. The consideration for its issuance should not be less than five (5) pesos;
3. Provided, further, That the entire consideration received by the corporation for its
no-par value shares shall be treated as capital and shall not be available for
distribution as dividends (Sec. 6).
4. They cannot be issued as preferred stock;
5. They cannot be issued by: BPI-TB--PO
1. Banks
2. Trust companies
3. Insurance companies
4. Pre-need companies
5. Public utilities
6. Building and loan associations
7. Other corporations authorized to obtain or access funds from the public, whether
publicly listed or not.

● Voting share is share with right to vote.

The rule is not "one stockholder, one vote" but "one share, one vote" because
representation in a corporation is commensurate to extent of ownership.

● Non-voting share is share without right to vote.

Only shares classified and issued as "preferred" or "redeemable" may be deprived of
voting rights. Article 6 expressly prohibits the depreciation of voting rights except only
as to said shares.

*Has only a limited right to vote.

General Rule: Shareholder owning non-voting shares has no right to vote.

Exceptions:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of bylaws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially
all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance
with the Corporation Code;
8. Dissolution of the corporation.
*The exceptions are exclusive; the list is a closed list.

● Convertible share is share which is convertible or changeable by the

stockholder from one class to another class (such as from preferred to common)
at a certain price and within a certain period.

Kinds of preferred shares:

They may be:
(1) Preferred share as to assets or share which gives the holder thereof preference
in the distribution of the assets of the corporation in case of liquidation. (Sec. 6, par.
2)
(2) Preferred share as to dividends or share the holder of which is entitled to receive
dividends on said share to the extent agreed upon before any dividends at all are paid
to the holders of common stock. (2 Fletcher, p. 44.)
(3) Redeemable or callable shares are shares, usually preferred, which by their
terms are redeemable at a fixed date or at the option of either the issuing corporation
or the stockholder or both at a certain redemption price.

They may be issued only when expressly so provided in the articles of incorporation.
Common shares are never "redeemed.“

● Treasury shares - shares which have been lawfully issued by the corporation
and fully paid for and later reacquired by it either by purchase, redemption (Sec.
8.), donation, forfeiture or other lawful means
.
● Only surplus earnings may be used for the purchase of treasury shares.