Quiz 1 (Midterm)

• Corporation


  Artificial being created by law, having the right of succession, and powers, attributes, and properties expressly authorized by law or incident to its existence
• RA11232


  The Revised Corporation Code of the Philippines - the law governing the corporations in the Philippines
• Securities and Exchange Commission (SEC)


  The government agency regulating the corporation and other associations in the Philippines. Have the right to remove from office any director or trustee.
• Major Classifications of Corporations

  • Stock Corporation
  • Non-stock Corporation
  • Corporations Created by Special Laws or Charters
• Other types of corporations

  • Public corporations
  • Private Corporations
  • Open Corporations
  • Closed Corporations
  • One Person (Sole) Corporation
  • Publicly Listed Corporations
  • Non-listed Corporations
  • Corporation with perpetual term
  • Corporation with specific term
• Steps in the Creation of a Corporation

  1. Promotion

  2. Incorporation

  3. Formal organization and commencement
• 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
• Contents of Articles of Incorporation

  • Name of the corporation
  • Purpose of the corporation
  • Place of principal office
  • Term of existence if corporation with a specific term
  • Names, residences and addresses of the incorporators
  • The amount of share capital, its par value and the no. of shares into which it is divided
  • The amount if 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
• By-laws


  Rules of action adopted by the corporation for its internal government and for the government of its officers, shareholders or members
• Organization Costs


  Preliminary expenses incurred upon forming a corporation including legal fees, incorporation fees and share issuance costs
• Components of a Corporation

  • Corporators
  • Incorporators
  • Shareholders/Members
  • Subscribers
  • Director(s)/Trustee(s)
• Rights of a Shareholder

  • Vote in elections for directors and on actions requiring shareholder approval
  • Share in company's profits through the receipt of dividends
  • Preemptive right to keep the same percentage of ownership when new shares are issued
  • Residual claim to share in assets upon liquidation in proportion to their holdings
• Typical Records used by a corporation

  • Minutes book
  • Stock and transfer book
  • Shareholder's ledger
  • Subscriber's ledger
• Classes of Shares in General

  • Par value shares
  • No-par value shares
  • Voting and Non-voting shares
  • Ordinary Shares
  • Preference shares
  • Treasury shares
• Par value


  A nominal amount indicated on the share certificate and fixed in the articles of incorporation. Most often than not, it is not the price at which the corporation sells the share though this amount reflects the minimum issue price of the shares.
• Market value of shares

  The selling price of the share, influenced by factors such as anticipated future earnings, expected dividend rate, current financial position, current state of the economy, and current state of the securities market
• No more required 25% minimum subscription and paid up capital stock at incorporation. But in an increase of authorized capital stock the 25% subscription and 25% paid up requirements are still imposed.
• Shareholder's Equity


  • Share Capital (Ordinary Share Capital or Common Stock, Preference Share Capital or Preferred Stock)
  • Share Capital Not Yet Fully Paid (Subscribed Share Capital)
• Legal Capital


  The portion of the contributed capital or the minimum amount of paid-in capital, which must remain in the corporation for the protection of corporate creditors
• Capital or Common Stock


  Ordinary shares representing the basic ownership interest in a corporation
• Preference Share Capital or Preferred Stock


  Shares that have a priority claim on dividends and assets over common stock
• Trust Fund Doctrine


  Mandates that the corporation must maintain its Legal Capital for the protection of its creditors. It is not available for distribution to shareholders until the claims of corporate creditors are satisfied.
• Legal Capital


  The minimum amount of paid-in capital, which must remain in the corporation for the protection of corporate creditors
• Par value shares


  Legal capital is the aggregate par value of all issued and subscribed shares
• No-par shares


  Legal capital is the total consideration received by the corporation for the issuance of its shares including the excess of issue price over the stated value
• Subscribed Share Capital

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


  A shareholders' equity account presented as a deduction from the related subscribed ordinary shares, or as a current asset if collectible within 12 months
• Share Premium or Additional Paid-In Capital


  The portion of the paid-in capital representing amounts paid by shareholders in excess of par. It may also result from transactions involving treasury shares, retirement of shares, donated capital, share dividends and any other "gain" on the corporation's own share transactions.
• Other Appropriation Reserves


  Revaluation and other reserves properly appropriated by the corporation
• Accumulated Profits/Losses or Retained Earnings


  The component of the shareholders' equity arising from the retention of assets generated from profit-oriented activities of the corporation
• Accounting for Issuance of Shares

  1. With Par - credit share capital at par, any excess to Share Premium

  2. Without Par but with a Stated Value - Share Capital is credited at stated value, with the excess to Share Premium
• Measure of the Consideration Received on the Issue of Share Capital

  • For Cash or Receivable - at Face value
  • For Non-Cash Consideration - at Fair Market Value (FMV) of non-cash or FMV of the shares issued, whichever is clearly determinable
  • For Services Rendered - at FMV of the services rendered or market value of the shares issued, whichever is clearly determinable
• Fair Value


  The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
• Accounting for Delinquent Subscriptions

  1. When the subscriber fails to settle the subscriptions in full, the subscribed shares are declared delinquent

  2. The corporation disposes of the shares in a public auction for the account of the delinquent subscriber

  3. If there is no bidder, the corporation may bid for the delinquent shares and the total amount due shall be credited as paid in full, and the shares shall be considered as treasury shares
• Treasury shares


  Shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation either by purchase, redemption, donation or through other lawful means
• Cost Method


  The preferred method of accounting for treasury shares, where treasury share is recorded at cost of purchase regardless of whether it is acquired below or above par
• The purchase of treasury shares does not decrease the number of issued shares; only the outstanding shares decrease
• Accounting for Treasury Shares

  • Treasury share is always debited for the cost of the shares purchased or credited for the cost of the shares reissued
  • If the reissue price exceeds the cost of the treasury, the excess over cost is not regarded a "gain" but component of share premium (Share Premium-Treasury)
  • If the cost exceeds the reissue price, the difference should be debited to share premium -treasury to the extent of its balance. In the absence of any balance in this account, or if it has already been depleted, the "loss" is debited to retained earnings
• Retirement of treasury shares

  • Cancel the carrying value of the share and the cost of treasury. The carrying value includes the Par and the Share Premium at the time the shares were originally issued
  • The ordinary shares account and the share premium attaching to it when it was originally issued are debited and the corresponding credit is the treasury share at cost. Any positive excess (excess debits over credits) is credited to share premium account (Share Premium -Retirement). Any negative excess (excess credits over debits) is debited to Retained Earnings.