corporation

• Corporation


  An artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence
• Attributes of a corporation

  • It is an artificial being with a personality separate and apart from its individual shareholders or members
  • It is created by operation of law
  • It enjoys the right of succession
  • It has the powers, attributes and properties expressly authorized by law or incident to its existence
• Advantages of a corporation

  • The corporation has the legal capacity to act as a legal entity
  • Shareholders have limited liability
  • It has continuity of existence
  • Shares of stock can be transferred without the consent of the other shareholders
  • Its management is centralized in the board of directors
  • Shareholders are not general agents of the business
  • Greater ability to acquire funds
• Disadvantages of a corporation

  • It is relatively complicated in formation and management
  • There is a greater degree of government control and supervision
  • It requires a relatively high cost of formation and operation
  • It is subject to heavier taxation than other forms of business organizations
  • Minority shareholders are subservient to the wishes of the majority
  • In large corporations, management and control have been separated from ownership
  • Transferability of shares permits the uniting of incompatible and conflicting elements in one venture
• Classes of corporations


  • Stock corporation
  • Non-stock corporation
• Other classifications of corporations

  • According to number of persons: Corporation aggregate, Corporation sole
  • According to nationality: Domestic corporation, Foreign corporation
  • According to whether for public or private purpose: Public corporation, Private corporation
  • According to whether for charitable purpose or not: Ecclesiastical corporation, Eleemosynary corporation, Civil corporation
  • According to their legal right to corporate existence: De jure corporation, De facto corporation
  • According to degree of public participation with regard to share ownership: Close corporation, Open corporation, Publicly-held corporation
  • According to their relation to another corporation: Parent or holding corporation, Subsidiary corporation
• Steps in the creation of a corporation

  1. Promotion

  2. Incorporation

  3. Formal organization and commencement of business operations
• Contents of articles of incorporation

  • The name of the corporation
  • The specific purpose or purposes for which the corporation is formed
  • The principal place of business which must be within the Philippines
  • The term of existence
  • The names, nationalities and residences of the incorporators
  • The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15)
  • The names, nationalities and residences of the persons who shall act as directors or trustees until the first regular directors or trustees are elected and qualified
  • If it be a stock corporation: Amount of authorized share capital in pesos, Number of shares into which it is divided, In case the shares are par value shares: the par value of each share, names, nationalities and residences of the original subscribers, the amount subscribed and paid by each subscriber on his subscription, In case of no par value, the articles need only state such fact, and the number of shares into which said share capital is divided
  • If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of the contributors and the amount contributed
• Contents of by-laws


  • The time, place and manner of calling and conducting regular or special meetings of the directors or trustees
  • The time and manner of calling and conducting regular or special meetings of the shareholders or members
  • The required quorum in meetings of shareholders or members and the manner of voting therein
  • The form for proxies of shareholders and members and manner of voting them
  • The qualifications, duties and compensation of directors or trustees, officers and employees
  • The time for holding the annual election of directors or trustees and the mode or manner of giving notice thereof
  • The manner of election or appointment and the term of office of all officers other than directors or trustees
  • The penalties for violation of the by-laws
  • In the case of stock corporations, the manner of issuing stock certificates
  • Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs
• Rights of a shareholder

  • Right to be issued certificate of stock or other evidence of share ownership and to transfer such shares
  • Right to attend and vote in person or by proxy at shareholders' meetings
  • Right to elect and remove directors
  • Right to adopt, amend or repeal the by-laws
  • Right to purchase a portion of any new shares issued to maintain the same percentage of ownership (pre-emptive right)
  • Right to receive dividends when declared
  • Right to inspect corporate books and records, and to receive financial reports of the corporation's operations
  • Right to participate in the distribution of corporate assets upon dissolution
• Components of a corporation

  • Corporators
  • Incorporators
  • Shareholders or stockholders
  • Members
  • Subscribers
  • Promoters
  • Underwriters
• Classes of shares in general

  • Par value shares
  • No-par value shares
  • Voting shares
  • Non-voting shares
  • Ordinary shares
  • Preference shares
  • Promotion shares
  • Treasury shares
  • Convertible shares
• Minimum subscription and paid-in capital

  At the time of incorporation, at least twenty-five (25%) percent of the authorized capital stock (or share capital) as stated in the articles of incorporation must be subscribed and at least twenty-five (25%) percent of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of a call, or in the absence of a fixed date or dates, upon call for payment by the Board of Directors. In no case shall the paid in capital be less than five thousand (P5,000) pesos
• The SEC requires higher minimum capital requirements for particular types of corporations
• Minimum paid-in capital requirements for different types of corporations

  • Pawnshop: P100,000
  • Freight forwarder domestic: P250,000; international: P2,500,000
  • Cargo consolidator: P400,000
  • Security agency: P500,000
  • Lending investor: P1,000,000
  • School (stock corporations): pre-elementary and elementary: P1,000,000; elementary and secondary: P2,500,000; elementary, secondary and tertiary: P5,000,000
  • Recruitment for overseas employment: P2,000,000
  • Health maintenance organization: P10,000,000
  • Investment adviser: P10,000,000
  • Insurance or reinsurance broker: P20,000,000
  • Investment company: P50,000,000
  • Life or non-life insurance company: P1,000,000,000
• Illustration of minimum subscription and paid-in capital

  • Authorized share capital: P2,000,000 divided into 20,000 shares with a par value of P100 per share. Subscribed share capital: P500,000 (25% of authorized). Paid-in capital: P125,000 (25% of subscribed)
  • Authorized share capital: P60,000 divided into 6,000 P10 par value shares. Paid-in capital: P3,750 (25% of subscribed). Incorporators must pay P5,000 as minimum paid-in capital
• No-par value shares


  The 25% requirement will be based on the authorized number of shares. If the authorized capital is pegged at 2,000 no par value shares, then at least 500 no-par value shares must be subscribed
• Basic corporate organizational structure

  • Shareholders
  • Board of Directors
  • Officers
  • Employees
• President


  Must be a director of the corporation, but cannot act as president and secretary or as president and treasurer at the same time
• Corporate secretary


  Must be a resident and a citizen of the Philippines. May or may not be a director
• Corporate treasurer


  The proper officer entrusted with the authority to receive and keep the money of the corporation and to disburse them as he may be authorized. May or may not be a director
• There is no prohibition in the law against a shareholder being a director or officer of two or more corporations
• Corporate books and records required to be kept

  • Minutes book
  • Stock and transfer book
  • Books of accounts
  • Subscription book
  • Shareholders' ledger
  • Subscribers' ledger
  • Stock certificate book
• Corporate equity financing


  Obtain funds by issuing ordinary or preference shares. It is less risky than debt financing because dividends on ordinary shares are not paid unless declared by the board of directors
• Components of shareholders' equity

  • Share capital (contributed or paid-in capital)
  • Retained earnings
• Legal capital


  The minimum amount of paid-in capital which must remain in the corporation for the protection of corporate creditors
• Share premium (or additional paid-in capital)


  The portion of the paid-in capital representing amounts paid by shareholders in excess of par
• Two basic types of shares

  • Ordinary shares
  • Preference shares
• Authorized share capital


  The maximum number of shares the corporation can issue as specified in the article of incorporation
• Issued share capital


  Shares which have been sold and paid for in full
• Subscribed share capital


  The portion of the authorized share capital that has been subscribed but not yet fully paid
• Outstanding share capital


  Issued shares which are in the hands of the shareholders
• Treasury stock


  Issued shares acquired by the corporation but not retired and are therefore, awaiting to be reissued at a later date
• Accounting for issuance of share capital with par value

  Proceeds should be credited to the share capital account to the extent of the par value of the shares, with any excess being reflected as share premium
• Accounting for issuance of share capital without par value

  Proceeds should be credited to the share capital account. If the no-par stock has a stated value, the excess proceeds over stated value may alternatively be credited to share premium
• Section 65 of the Corporation Code prohibits the "original issue" of share capital (or capital stock) for a consideration less than the par or stated value (i.e. issued at a discount)
• Considerations for issuance of shares

  • Actual cash paid to the corporation
  • Tangible or intangible properties actually received by the corporation
  • Labor already performed for or services actually rendered to the corporation
  • Previously incurred indebtedness by the corporation
• Underwriting


  An investment banker agrees to buy the shares of the corporation and to sell them to investors. The corporation considers the shares as sold because the underwriter will buy the shares that he is not able to sell
• Best efforts basis


  An investment banker undertakes to sell as many shares as possible at a set price but the corporation bears the risk on unsold shares
• When shares with par value are sold, the proceeds should be credited to the share capital account to the extent of the par value of the shares, with any excess being reflected as share premium