CORPORATION

Advantages in financing with share capital:

1. Equity financingthe method of obtaining funds by issuing ordinary or
preference sharesis less risky than debt financingissuance of bonds, notes
or mortgage, because dividends on ordinary shares are not paid unless
declared by the board of directors. In contrast, if the interest on bonds, notes
or mortgage payable is paid, a corporation may be forced into bankruptcy.
2. When a company does not declare cash dividends, the cash from profitable
operating activities may be invested to finance expanded operations.
3. A corporation may need the proceeds from an ordinary share issue to
improve the balance between liabilities and shareholders equity.
DEFINITION
A corporation is 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
1. A corporation is an artificial being with a personality separate and apart from
its individual shareholders or members.
2. It is created by operation of law. It cannot come into existence by mere
agreement of the parties as in the case of business partnerships.
Corporations require special authority or grant from the State, wither by a
special incorporation law that directly creates the corporation or by means of
a general corporation law.
3. It enjoys the right of succession. A corporation has the capacity of continued
existence regardless of the death, withdrawal, insolvency or incapacity of the
individual shareholders or members. The transfer of ownership of shares of
stock does not dissolve the corporation.
4. It has the powers, attributes and properties expressly authorized by law or
incident to its existence.
ADVANTAGES OF A CORPORATION
1.
2.
3.
4.

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.
5. Its management is centralized in the board of directors.
6. Shareholders are not general agents of the business.
7. Greater ability to acquire funds.
DISADVANTAGES OF A CORPORATION
1. A corporation is relatively complicated in formation and management.
2. There is a greater degree of government control and supervision.
3. It requires a relatively high cost of formation and operation.

4. It is subject to heavier taxation than other forms of business organizations.

5. Minority shareholders are subservient to the wishes of the majority.
6. In large corporations, management and control have been separated from the
ownership.
7. Transferability of shares permits the uniting of incompatible and conflicting
elements.
CLASSES OF CORPORATIONS
1. Stock Corporation. Corporations which have share capital 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.
2. Non-stock Corporation. A non-stock corporation is one where no part of its
income is distributable as dividends to its members, trustees or officers. Any
profit that a non-stock corporation may obtain as an incident to its operation
shall, whenever necessary or proper, be used for the furtherance of the
purpose or purposes for which the corporation was organized. Non-stock
corporations may be formed or organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civic service, or similar purposes.
OTHER CLASSIFICATIONS OF CORPORATIONS
1. According to number of persons:
a. Corporation Aggregate. A corporation consisting of more than one
corporator.
b. Corporation Sole or a special form of corporation usually associated
with the clergy. It is a corporation which consists of only one member
or corporator and his successors such as a bishop.
2. According to nationality:
a. Domestic Corporation. A corporation organized under Philippine
laws.
b. Foreign Corporation. A corporation organized under foreign laws.
3. According to whether for public or private purpose:
a. Public Corporation. A corporation formed or organized for the
government of a portion of the state.
b. Private Corporation. A corporation created for private aim, benefit or
purpose.
4. According to whether for charitable purpose or not:
a. Ecclesiastical Corporation. Those organized for religious purposes.
b. Eleemosynary Corporation. Those established for public charity.
c. Civil Corporation. Those established for business or profit.
5. According to their legal right to corporate existence:
a. De Jure Corporation. A corporation existing in fact and in law. It is
organized in strict conformity with the law.
b. De Facto Corporation. A corporation existing in fact but not in law.
6. According to degree of public participation with regard to share ownership:
a. Close Corporation. A corporation whose share ownership is limited to
selected persons or members of a family not exceeding 20 persons.

b. Open Corporation. A corporation where the share is available for

subscription or purchase by any person.
7. According to their relation to another corporation:
a. Parent or Holding Corporation. A corporation that is related to
another corporation that it has the power to either directly or indirectly
elect the majority of the directors of a subsidiary corporation.
b. Subsidiary Corporation. A corporation controlled by another
corporation known as a parent corporation.
STEPS IN THE CREATION OF A CORPORATION
There are three steps in the creation and organization of a corporation, namely:
1. Promotion. It is the process of bringing together the incorporators or the
persons interested in the business of procuring subscriptions or capital for the
corporation and of setting in motion the machinery that leads to the
incorporation of the corporation itself.
2. Incorporation. This step includes the following:
a. Verification from the records of the Securities and Exchange
Commission (SEC) that the proposed corporate name is not the same
or similar to an existing corporation.
b. Drafting and execution of the articles of incorporation by the
incorporators. The person elected as temporary treasurer should
execute an affidavit regarding the share capital subscribed and paid
up. The treasurer should also submit a sworn statement of assets and
liabilities of the corporation.
c. Deposit by the treasurer of the cash paid for the shares subscribed in
the bank in the name of the treasurer in trust for and to the credit of
the corporation. The bank is required to issue a certificate of deposit.
d. Filing of the articles of incorporation with the SEC together with the
treasurers affidavit , statement of financial position, certificate of bank
deposit, and certificate as to the name of the corporation;
e. Payment of the filing and publication fees; and
f. Issuance by the SEC of the certificate of incorporation.