CHAPTER 5: BASIC CONSIDERATIONS 6.

In large corporations, management and

control have been separated from
CORPORATION
ownership
- Artificial being created by operation of 7. Transferability of shares permits the
law, having the right of succession and uniting of incompatible and conflicting
the powers, attributes and properties elements in one venture
expressly authorized by law or incident to
its existence.
CLASSES OF CORPORATIONS

1. Stock Corporation – corporations which

ATTRIBUTES OF A CORPORATION have share capital dividend into shares
and are authorized to distribute to the
1. A corporation is an artificial being with a
holders such as shares, dividends, or
personality separate and apart from its
allotments of the surplus profits on the
individual shareholders or members
basis of the shares held
2. It is created by operation of law - It require
authority or grant from the State, either by a
2. Non-stock corporation – one where no
special incorporation law that creates the
part of its income is distributable as
corporation or by means of a general
dividends to its members, trustees, or
corporation law
officers. Any profit that a non-stock
3. Right of Succesion – a corporation shall
corporation may obtain as an incident to
have perpetual existence. The death,
its operation shall, whenever necessary or
withdrawal, transfer of ownership, insolvency
proper, be used for the furtherance of the
of the shareholders or members will not
purpose or purposes for which the
dissolve the partnership
corporation was organized.
4. It has powers, attributes and properties
expressly authorized by law or incident to
existence
COMPONENTS OF A CORPORATION

1. Corporators – are those who compose a

ADVANTAGES OF A CORPORATION corporation
2. Incorporators – stockholders or members
1. The corporation has the legal capacity to act
mentioned in the AOI as originally forming
as a legal entity
and composing the corporation and who are
2. Shareholders have limited liability
signatories to said articles of incorporation
3. It has continuity of existence
3. Shareholders/Stockholders – are
4. Shares of stock can be transferred without the
corporators in a stock corporation. It may be
consent of the other shareholder
natural or juridical persons
5. Shareholders are not general agents of the
4. Members – are corporators of a non-stock
business
corporation
6. Greater ability to acquire funds
5. Subscribers – are persons who have agreed
to take and pay for original, unissued shares
of a corporation formed or to be formed.
DISADVANTAGES OF A CORPORATION
*All incorporators are subscriber but a
1. A corporation is relatively complicated in subscriber need not be an incorporator*
formation and management 6. Promoter – a person who takes initiative in
2. There is a greater degree of government founding and organizing the corporation
control and supervision 7. Underwriters – investment bankers
3. It requires a relatively high cost of 8. Independent director – a person who is
formation and operation independent of management
4. It is subject to heavier taxation than other 9. Additional General Powers per RCCP –
forms of business organizations every corporation incorporated under the
5. Minority shareholders are subservient to RCCP is expressly given the power to enter
the wishes of the majority into a partnership, joint venture, or any
 commercial agreement with natural or 8. Redeemable shares – shares which may be
juridical persons purchased by the corporation from the
holders of such shares upon the expiration of
a fixed period, regardless of the existence of
CORPORATIONS GENERAL TERMINOLOGY unrestricted retained earnings in the books of
the corporation
Articles of incorporation

- Application for corporate charter 9. Treasury shares – a stock has been issued by
the corporation as fully paid and later
Corporate Charter
acquired but not retired
- Contract between state and incorporators
granting legal existence to corporation 10. Promotion shares – those issued to
promoters as compensation in promoting the
Corporate bylaws incorporation of a corporation, or for services
rendered in launching or promoting the
- Rules adopted by board of directors to welfare of the corporation
govern conduct of corporate affairs

Organization costs 11. Convertible shares – a stock which is

convertible or changeable from one class to
- Charge as outright expense another class
Ex. Legal and accounting costs

Domestic vs. Foreign Corporation ARTICLES OF INCORPORATION

- Depends on state in which chartered - a set of formal documents filed with a
government body to legally document the
creation of a corporation
CLASSES OF SHARES
HIERARCHY OF CORPORATE STRUCTURE
1. Par value shares - minimum issue price of
the shares Shareholders
Elect the
2. No-par value share - stock is issued without Board of Directors
a par value Elect the
- Minimum stated value of a no-par Officers
value share is P5.00 Hire
- Shares issued without a par value Employees
are deemed fully paid
RIGHT OF A SHAREHOLDER
3. Voting shares – issued with the right to vote
1. Right to be issued certificate of stock or other
4. Non-voting shares – those issued without evidence of share ownership and to transfer
the right to such shares
2. Right to vote via remote communication or in
5. Ordinary shares – these shares entitle the absentia at shareholder’s meetings
holder to an equal pro-rata division of profits 3. Right to elect and remove directors
without any preference 4. Right to adopt, amend, or repeal the bylaws
5. Preemptive right to buy new shares in
6. Preference shares - these shares entitle the proportion to shares already owned
holder to certain advantages or benefits over 6. Right to receive dividends when declared
the holders of ordinary shares 7. Right to inspect corporate books and
records, and to receive financial reports of
7. Founders’ shares – may be given certain the corporation’s operations
rights and privileges not enjoyed by the 8. Right to participate in the distribution of
owners of other stocks corporate assets upon dissolution
CHAPTER 6: SHARE CAPITAL debited for the total par value of the fully
collected subscription
SHARE CAPITAL

- The shares of stock issued

Outstanding Share Capital - issued shares
The share, contributed of paid-in capital is
which are in the hands of the shareholders at the
further divided into the following:
balance sheet date
Legal Capital – the portion of the contributed
- The number of outstanding shares will
capital or the minimum amount of paid-in
equal the difference between the issued
capital, which must remain in the corporation for
shares and the treasury shares
the protection of corporate creditors.

Share Premium (Additional Paid-In Capital) – the

Treasury Stock - these are issued shares
portion of the paid-in capital representing
acquired by the corporation but not retied are
amounts paid by shareholders in excess of par
therefore, awaiting to be reissued at a later date

- Number of shares the corporation has

TWO BASIC TYPE OF SHARES repurchased

Ordinary share – this share represent the basic

ownership class of the corpotation
SUBSCRIPTION OFSHARES
- Entity’s residual equity
Subscription Contract – legally binding contract
Preference Share – this share gives its owners which provides for the number of shares
certain advantages over ordinary shareholders subscribed, the subscription price, the terms of
payment, and other conditions of the transaction
- Priority on dividends when declared
before the ordinary shareholders or to
priority claims on assets in the event of
A subscriber becomes a shareholder upon
corporate liquidation
subscription but the stock certificates
- To generate more capital
evidencing ownership over shares of stocks are
not issued until full collection of subscription

TERMS RELATED TO SHARE CAPITAL

Authorized Share Capital - the maximum Subscription Receivables – debited for the total
number of shares the corporation can issue proceeds of the subscription to the ordinary
shares and credited for the collections on the
- This maximum number of shares when
subscriptions
multiplied by the par value of the share
will yield the authorized share capital

*Delinquent shares – subscribed shares are

declared delinquent shares when a subscriber
Issued Share Capital - number of shares that
fails to settle the subscriptions in full on the due
have been distributed to shareholders
date or in ‘’call’’ made by the board of directors.
- Share capital (ordinary or preference) is
credited for the total par value of the
shares subscribed and debited for the Highest bidder – where the shares delinquent
total par value of the fully collected will be sold
subscriptions
- Who is willing to pay the ‘’offer price’’
which includes the full amount of the
subscription balance plus accrued
Subscribed Share Capital - Is the portion of the
interest, cost of advertisement, and
authorized share capital that has been
expenses of auction sale in exchange for
subscribed but not yet fully paid
the smallest shares
- This account is credited for the total par
value of the shares subscribed and
*If there is no bidder, the delinquent shares will
be credited as paid in full books of the
corporation. These shares are considered as
treasury shares