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A.2. Disadvantages of Corporate Form: Corporation Law: Atty. Grace Hicban
A.2. Disadvantages of Corporate Form: Corporation Law: Atty. Grace Hicban
Grace Hicban
A.2. Disadvantages of Corporate Form
Avy Buyuccan, Fritze Ann Cristobal, Mary Ruth David, Kimsey Clyde Devoma, Carlston Brix Doddo,
Monica Feril, Joseph Gamboa, Tristan Lazo, Ezequiel Longui, Diazmean Sotelo
1
They do not have a hand in running the day-to-day business operations of the
corporation unless they are at the same time directors or officers of the corporation.4”
4
Espiritu v. Petron Corp., G.R. No. 170891
5
Bustos vs. Register of Deeds Marikina City, G.R. No. 185024
6
Sec. 30 of the Revised Corporation Code
2
The liability of stockholders in Philippine corporations is limited only to the extent of
their capital contribution thereto. Other properties, holdings or assets of stockholders
are not within the reach of corporate creditors. To discourage abuse of this privilege,
the Securities and Exchange Commission [SEC] imposes certain reportorial
requirements which should be complied with on a regular basis.
a) Formation of Corporation
“Establishing a corporation in the Philippines can approximately take 29 days
for a total cost of PHP 7,630.00. Compared to sole proprietorship or
unregistered entities corporations entails a more significant amount.”7
The SEC filing fees for the incorporation of a domestic corporation are as
follows:
1. Basic Filing Fee for the Articles of Incorporation - ⅕ of 1% of the
authorized capital stock or the subscription price of the subscribed capital
stock, but not less than P2,000.00.
2. Legal Research - 1% of the filing fee.
3. Examining and Filing Fee for the By-Laws - P1,010.00.
4. Cost and registration of the Stock & Transfer Book - P470.00
More than P500M to less than P750M: P500,000.00 plus 0.075% of the excess
over P500M +LRF (1% of Filing Fee)
More than P750M to not more than P1B: P687,500.00 + 0.05% of the excess over
P750M + LRF (1% of Filing Fee)
More than P1B: P812,500.00 plus 0.025% of the excess over P1 Billion + LRF
(1% of Filing Fee)
7
Shield GEO (Global Employment Organization)
3
b) Maintenance of Corporate Medium
There is a greater degree of government control and supervision than in other
forms of business organizations such as being subjected to more record-keeping
and reportorial obligations under the Money Laundering Act.8
The profits of the corporation which are already subjected to corporate income tax when
declared and distributed as dividends to the stockholders are again subjected to the
further income tax.
a) Section 24 (B)(2) of the National Internal Revenue Code (1997) states that:
(B) Rate of Tax on Certain Passive Income
(2) Cash and/or Property Dividends - A final tax at the following rates
shall be imposed upon the cash and/or property dividends actually or
constructively received by an individual from a domestic corporation or
from a joint stock company, insurance or mutual fund companies and
regional operating headquarters of multinational companies, or on the
share of an individual in the distributable net income after tax of a
partnership (except a general professional partnership) of which he is a
partner, or on the share of an individual in the net income after tax of an
association, a joint account, or a joint venture or consortium taxable as a
corporation of which he is a member or co-venturer:
8
Republic Act No. 10365
9
Memorandum Circular No. 3, s. 2017 of the Securities and Exchange Commission
4
xxx
Ten percent (10%) beginning January 1, 2000.
xxx
10
Section 6 of Revenue Regulations (RR) 2-2001
5
The IAET is imposed to discourage tax avoidance through corporate surplus
accumulation. When corporations do not declare dividends, income taxes are not
paid on the undeclared dividends received by the shareholders. The tax on
improper accumulation of surplus is essentially a penalty tax designed to compel
corporations to distribute earnings so that the said earnings by shareholders could,
in turn, be taxed.11
11
Cyanamid Philippines, Inc. v. CTA, GR No. - 108067. January 20, 2000
6
As a mechanism to recover lost revenue, the tax rate is patterned after the
rate that the government should have earned. Since tax on dividends to
resident individuals is 10%, then, the tax rate imposed is the same. Thus,
Section 29 of the National Internal Revenue Code of the Philippines
imposes a 10% improperly accumulated earnings tax.
iv) Imposition is not outright upon the mere improper accumulation.
The mere fact that the retained earnings exceed 100% of the paid up
capitalization at the end of a taxable year does not mean an outright tax
liability for IAET. What is being taxed is the improper accumulation and
not the mere accumulation.
As a rule, the corporate taxpayer has within one (1) year or twelve months from
the end of the taxable year within which to dispose of or remedy the excess
retained earnings. Under the rules of the Securities and Exchange Commission
(SEC), such corporate taxpayer must come up with a concrete plan as to the
disposition of such excess. It is the failure to dispose of such excess upon the
lapse of one (1) year that is being penalized and subjected to improperly
accumulated earnings tax in the Philippines.