Course Code: ACC 102

Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

Lesson title: Accounting for Corporations: Basic Consideration Materials:

Objectives: Module #23
1. Define corporation and identify its attributes,
classifications, components and classes of shares References:
2. Identify and explain the advantages and disadvantages Fundamentals of Financial
of a corporation Accounting and Reporting by
3. Outline the steps in creation of corporation and Win Ballada
summarize the essential contents of articles of
incorporation and by-laws

Productivity Tip:
Warm up your mind before studying. Just like your muscles before a workout, your brain needs
warming up before a learning session in order to wake up and function properly.

A. LESSON PREVIEW/REVIEW
1) Introduction (2 mins)

Hi there! We hope that you are doing well because today another exciting lesson awaits you in this
module! Today, we will talk about accounting for corporation.

Corporations influence the economy of our country as well as our lives. These corporations are
responsible in providing us essential products available for our daily living. A corporation, like sole
proprietorship and partnership, may be engaged in rendering services, buying and selling goods and
even manufacturing of products.

So, we encourage you to go through this module and learn more about corporation as a form of
business organization. Also, we encourage you to take note for the unfamiliar words or phrases you
find challenging to understand and look its meaning in your dictionary. Enjoy learning! 

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 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

2) Activity 1: What I Know Chart, part 1 (3 mins)

Try answering the questions below by writing your ideas under the What I Know column. You may use
key words or phrases that you think are related to the questions. Answer the What I learned section
after reading the Concept notes

What I Know Questions: What I Learned

How can you define corporation?

What are the attributes and

classifications of corporation?

What are the composition of a

corporation?

B. MAIN LESSON
1) Activity 2: Pre-Printed Content Notes (13 mins)

Let your journey of understanding today’s topic begins here!

Before anything else, let’s define corporation.

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. (The
Corporation Code of the Philippines, Section 2).

ATTRIBUTES OF A CORPORATION
1. Artificial being – having only an artificial personality separate and distinct from its individual
shareholders or members.
2. Created by operation of law – formation of corporation is based not merely on agreement of
the shareholders but on special authority or grant from the state, either by special incorporation
law or by means of a general corporation law.
3. Right of success – it enables the corporation to continue its existence subject to the period
stated in the Articles of Incorporation, thus death, withdrawal, insolvency or incapacity of the
individual shareholders will not dissolve corporation.
4. Has the powers, attributes and properties expressly authorized by law or incident to its
existence – as a juridical entity, it is vested with powers by the state

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 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

Is corporation a good form of business organization? Here are the lists of its advantages and disadvantages
for your evaluation:

ADVANTAGES DISADVANTAGES
1. Has capacity to act as legal entity 1. Relatively complicated in formation and
2. Shareholders have limited liability management
3. Has continuity of existence 2. Greater degree of government control
4. Shares of stocks can be transferred and supervision
without the consent of other 3. Requires relatively high cost of
shareholders formation and operation
5. Management is centralized in the board 4. Subject to heavier taxation
of directors 5. Minority shareholders are subservient
6. Shareholders are not general agents of to the wish of the majority
the business 6. In large corporations, management and
7. Greater ability to acquire fund control have been separated from
ownership
7. Transferability of shares permits the
uniting of incompatible and conflicting
elements in one venture.

How’s your learning so far? Did you find it interesting? Yes, corporation is really interesting
because of its variety of classes! Presented below are the classifications of corporation:

CLASSES OF CORPORATIONS
Type Distinction
Stock Corporation have capital stock divided into shares and are authorized to distribute the
holders of such shares dividends or allotment of surplus profits on the basis
of the shares held
Non-stock Corporation no part of its income is distributable as dividends to its members, trustees or
officers

OTHER CLASSIFICATIONS OF CORPORATIONS

Category Type of Corporation Distinctions
1. According to number a. Corporation aggregate more than one corporator
persons b. Corporation sole one member or corporator
2. According to a. Domestic corporation organized under Philippine law
nationality (country of b. Foreign corporation organized under foreign law
creation
3. According whether for a. Public corporation formed for the government of a portion of the
public or private purpose state
b. Private corporation created for private aim, benefit or purpose
4. According to whether a. Ecclesiastical corporation organized for religious purposes

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 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

Category Type of Corporation Distinctions

charitable purpose or b. Eleemosynary established for public charity
not corporation
c. Civil corporation established for business or profit
5. According to their a. De jure corporation exist in fact and in law
legal right to corporate b. De facto corporation exist in fact but not in law
existence
6. According to the a. Close corporation share ownership is limited to selected
degree of public persons or members
participation with regard b. Open corporation share is available to any person
to share ownership
7. According to their a. Parent or holding related to another corporation that it has
relation to another corporation power to either directly or indirectly elect the
corporation majority of the directors of a subsidiary
corporation
b. Subsidiary corporation controlled by another corporation

People are important resource of every organization. So, let’s meet the different person behind
a corporation.

COMPONENTS OF A CORPORATION
Components Distinctions
1. Corporators Those who compose the corporation whether shareholders or members, at
any time. This term includes incorporators, shareholders or members.
2. Incorporators Are shareholders or members mentioned in the articles of incorporation as
originally forming and composing the corporation and are signatories to said
article.
3. Shareholders (stockholders) are corporators in a stock corporation
4. Members corporators of a non-stock corporation
5. Subscribers Persons who have agreed to take nad pay for original, unissued shares of a
corporation formed or to be formed.
6. Promoters Persons who bring out or cause to bring about the formation and
organization of a corporation.
7. Underwriters Usually investment bankers who have agreed, alone or with others, to buy
the stated terms an entire or a substantial part of an issue of securities

CLASSES OF SHARES
Classes Distinctions
1. Par value shares One in which a specific amount is fixed in the articles of incorporation
and appearing on the certificate of stock. Par value is the minimum issue
price of the shares
2. No-par value shares One without any value appearing on the face of the certificate of stock. It
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 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

Classes Distinctions
may have stated value which may be fixed in the articles of incorporation
or by board of directors, or the shareholders
3. Minimum stated value minimum stated value of no-par value shares is P5 per share
4. Voting shares Those issued with right to vote
5. Non-voting shares Those issued without right to vote
6. Ordinary shares Shares that entitle the holder to an equal pro-rata division of profits
(Common stocks) without any preference
7. Preference shares Shares that entitle the holder to a certain advantage or benefits over the
(Preferred stocks) holders of ordinary shares
8. Promotion shares issued to promoters as compensation in promoting the incorporation of
a corporation, or for services rendered in launching or promoting the
welfare of the corporation
9. Treasury shares A stock that has been issued by the corporation as fully paid and later
reacquired but not retired
10. Convertible shares A stock which is convertible or changeable from one class to another
class

MINIMUM SUBSCRIPTION AND PAID-IN CAPITAL

 25 % of the authorized capital stock must be subscribed
 25% of the total subscription be paid
 In no case the paid up capital be less than P5,000

STEPS IN THE CREATION OF A CORPORATION

2. INCORPORATION
3. FORMAL
1. PROMOTION / ORGANIZATION AND
 Verification of proposed
CONCEPTUALIZATION COMMENCEMENT OF
corporate name
BUSINESS OPERATIONS
 Drafting and execution of
articles of incorporation
Adoption of by-laws
 Deposit by treasurer of the
 Gathering of  Election of Board of
cash paid for the shares
incorporators Directors
subscribed
 Procuring Taking other necessary
 Filing of Articles of
subscriptions or steps to transact legitimate
Incorporation with the
capital business or accomplish its
SEC
purpose
 Payment of filing and
publication fee
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 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

ARTICLES OF INCORPORATION
All corporations organized under the Corporation Code of the Philippines shall file with the
Securities and Exchange Commission articles of incorporation in any of the official languages
duly signed and acknowledged by all of the incorporators.

BY-LAWS
These are rules of action adopted by the corporation for its internal government and for the
government of its officers, shareholders or members.

2) Activity 3: Skill-building Activities (with answer key) (18 mins + 2 mins checking)

Direction: Try this exercise and see how well do you understand the concepts about corporation. In the
spaces provided, write T if the statement below is true otherwise F if it is false.
_____ 1) A corporation can come into existence by mere agreement of the parties as in the case of
partnership.
_____ 2) A corporation can be held liable for the personal indebtedness of a shareholder.
_____ 3) Shares of stock cannot be transferred without the consent of the other shareholders.
_____ 4) The liability of the shareholders for the payment of corporate debts is limited to the value of
their shares.
_____ 5) A corporation may exercise only powers expressly authorized by law or incident to its
existence
_____ 6) A corporation as an artificial being can be an incorporator.
_____ 7) A corporation or a partnership can be a corporator.
_____ 8) Preferred stock can be issued without par value.
_____ 9) All corporators are incorporators.
_____ 10) All incorporators are subscribers but subscriber need not be an incorporator.
_____ 11) No-par value shares have a minimum stated value of P5.00 per share.
_____ 12) The transfer of ownership of shares of stock does not dissolve the corporation
_____ 13) A de jure corporation is a corporation existing in fact and in law
_____ 14) Paid up capital cannot be less than P 5,000
_____ 15) There is a minimum authorized capital stock required by law.

3) Activity 4: What I Know Chart, part 2 (2 mins)

Now, I really would like to discover What You Know NOW by referring to the third column of the
Chart contained in your Activity 1.

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 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

4) Activity 5: Check for Understanding (5 mins)

Determine the minimum subscription and the minimum paid in capital in the following cases below:
a. Arielle Corporation is being incorporated with an authorized share capital of P 3,000,000. The
share capital is divided in 300,000 shares with a par value of P10 per share.
b. Julia Corporation is being organized with a share capital of P 50,000. The share capital is
divided into 10,000 shares at P5 per share.

A. LESSON WRAP-UP
1) Activity 6: Thinking about Learning (5 mins)
Congratulations for finishing this module! Shade the number of this module that you have finished.

b) Think about your learning by filling up your “My Learning Tracker” below. Write your learning targets,
your scores, and learning experience for this session and deliberately plan for our next learning
session.

Date Learning Target/Topic Scores Action Plan

What module# did you do? What
What’s the date
were the learning targets? What
today?
activities did you do?
What contributed to the quality of your performance today?
What were your scores
What will you do next session to maintain your performance or
in the activities?
improve it?

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 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

FAQs

1. Does a corporation entitled to moral damages?

- No. Corporation, being an artificial person having existence only in legal contemplation, has no
feeling, no emotion, no senses; therefore, it cannot experience physical suffering, mental
anguish, fright, serious anxiety, wounded feelings, etc.

2. Is the corporate term of a corporation subject to extension?

- Yes. 50 years corporate term may be extended for periods not exceeding fifty years in any
single instance by an amendment of the articles of incorporation. No extension can be made
earlier than five years prior to the original or subsequent expiry date unless there are justifiable
reasons for an earlier extension.

KEY TO CORRECTION

Activity 3
1. F
2. F
3. T
4. T
5. T
6. F
7. T
8. F
9. F
10. T
11. T
12. T
13. T
14. T
15. F

Activity 5
a. Minimum subscription – P 750,000; minimum paid in capital – P 187,500
b. Minimum subscription – P 12,500; minimum paid in capital – P 5,000

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