ORGANIZATION AND FORMATION OF
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 incidental to its existence.
 A business entity recognized by law with existence
separate and distinct from its owners.
 A corporation can…
- Sue and be sued
- Hire and fire employees
- Borrow money
- Enter into contracts
- Buy, sell, or hold property
Advantages of a Corporation
 Limited liability
 Easy capital generation
 Professional management
 Separation of owners and entity
 Continuous existence (50 years and renewable; will
not dissolve)
 Easy transfer ownership (no consent needed)
General Terms
 Incorporators- Persons who form a corporation
 Articles of incorporation- Application for
corporate charter
 Corporate charter- Contract between state and
incorporators granting legal existence to the
corporation
 Corporate bylaws- Rules adopted by the board of
directors to govern conduct of corporate affairs
 Organization costs- legal and accounting costs
 Subscribers- Agreed to take original, unissued
shares but will pay at a later date
 Corporators- Persons who compose the corporation
whether shareholder/stockholders (stock) or
members (non-stock)
 Promoters- persons who look for investors;
organize the corporation
 Underwriters- Dispose the shares to the public
Board of Directors
 Hire corporate officers
 Formulate corporate policies
 Elected by the shareholders
 Composition (5 to 15 - old corporation code)
Corporate officers
 Includes president, vice presidents, secretary, and
treasurer
 Carry out policies set by the board of directors
 Responsible for routine corporate operations
A 3 Stages of Organizing Corporation
 Promotion
 Incorporation
 Commencement of the business
 *Under PAS 38- Organization costs are charged to
expense in the period incurred (before- assets that
were amortized)
 *5 years to commence business (registration
validity)
SHARE CAPITAL
 Also known as the capital stock
 It is the amount fixed by the corporate charter to be
subscribed and paid or secured to be paid by the
shareholders of a corporation either in money or in
property, labor, or services upon the organization of
the corporation or afterwards; and upon which it is
to conduct its operations.
 Two classes:
o Ordinary
o Preference
 Share capital may have
o Par value- is the nominal or face value assigned
on the face of the stock certificate and in the
articles of incorporation (par is not an indication
of market value)
o No par value- has no par or stated value. It has
no nominal value stated either in the articles of
incorporation nor on the face of the stock
certificate (market value will be its value)
o No par value with a stated value- stock
without par value, but to which a stated value
has been assigned by the board of directors
(found in articles of incorporation)
o *Per Corporation Code of the Philippines, no-
par share capital is issued for a consideration of
not less than P5.00.
Classes of Share Capital
 Preference (Preferred)
o Preferences include:
1. Dividends
2. Priority in case of liquidation
o A dividend rate is usually expressed wither as a
percent of par value or as a PESO amount per
share.
 Ordinary (Common)
o Residual Equity- all other claims against the
corporation’s assets, including those of creditors,
rank above the claims of ordinary share holders
1. Is not automatically entitled to dividends
2. Does not have asset preference in
liquidation
(TYPES OF PREFERENCE SHARES)
Authorized Share Capital
 The maximum number of shares that a corporation
may issue.
 AOI must be amended to issue more shares
 2 methods to record authorized share capital:
o Journal entry method
o Memorandum entry method
Memorandum Entry Method
Entry:
 Authorized to issue XXX ordinary share capital with
a par value of P—
 Authorized to issue XXX preference share capital
with a par value of P—
Journal Entry Method
Entry:
 Unissued ordinary share capital xx
Authorized ordinary share capital xx
 Unissued preference share capital xx
Authorized preference share capital xx

ISSUANCE OF SHARES
The Joyful Company was organized on Jan, 1, 2021 with
authorized share capital as follows:
- 10,000 shares of 10% preference share capital
with par value of P100 per share
- 200,000 shares of ordinary shares with par value
of P10 per share