ACCOUNTING FOR

CORPORATIONS
CORPORATION FORMATION

EMPV
 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 (Section 2 of Revised Corporation Code, R.A 11232)
- Generally composed of of 5 or more owners, but a corporation can now be incorporated with one owner ( One Person Corporation)
CHARACTERISTICS:
1. SEPARATE LEGAL EXISTENCE
- A corporation has a *juridical personality of its own separate and distinct from the shareholders. It can act on its own name wherein it can enter
into contracts, sue and be sued , have its own assets and liabilities under its own name.
* An entity that is created by law and granted with rights and responsibilities.
2. CREATED BY OPERATION OF LAW
- A corporation is created by law ( Revised Corporation Code or R.A 11232) which authorizes and regulates its existence. It is not created by mere
agreement by the parties who want to organize a corporation. In order for a corporation to be established, the rules and regulations in the RA 11232
must be strictly followed.

3. RIGHT OF SUCCESSION/ PERPETUAL LIFE

- A corporation can exist continuously regardless there is a death, withdrawal or incapacity of shareholders and regardless of the transfer or sale of
shareholder of its shares. Based of the Revised Corporation code the life of a corporation is perpetual, meaning it can exist
continuously without any limitations unless base on their articles of incorporation otherwise. Before, based on the Old Corporation code,
the corporate life of a corporation is for a period not exceeding 50 years at a time from the date of incorporation, however this may be extended, by
amending the articles of incorporation for periods not exceeding 50 years.
4. Powers, attributes and properties expressly authorized by law or incident to its existence.
A corporation is granted by the Revised Corporation Code the powers which are:

a.) Express powers – powers granted by the laws ( R.A 11232/ Special laws) or enumerated in the articles of incorporation.
Example of express power is the power to extend or shorten corporate term of a private corporation when approved by a majority vote of the
board of directors and ratified by at least 2/3 of the outstanding shareholders indicated in the articles of incorporation.

b.) Incidental powers - powers which are necessary for corporate existence and which can be exercised.
Example of incidental power is the power to buy assets like land or building to be used for the operations of the business.

c.) Implied powers – those derived from express and incidental powers.
Example of implied power is the power to hire employees to help in the fulfillment of the business’s goals.

5. Limited liability of shareholders

The owners of a corporation which are called the shareholders are liable to corporate creditors up to the extent of what they contributed only to
the corporation.

6. Corporate management – the management of the corporation is vested upon a group of shareholders which is called the Board of
Directors (BOD) .This group is elected by the shareholders.The BOD also elects their officers among its members.

7. Government regulations – Corporations are subject to strict government regulations from the time of its incorporation through its yearly
operations.This is to protect the interest of the owners since most of them do not actively participate in the day to day to management of the
business. Securities and exchange commission is the government body who mostly strictly regulates the corporations.
 CLASSES OF CORPORATIONS
AS TO PLACE OF INCORPORATION:

1. Domestic Corporation – organized and incorporated under the Philippine laws .

Examples : Jollibee Foods Corporation , San Miguel Corporation, SM Investment Corporation (SM Group)

2. Foreign Corporation – organized and incorporated under the Foreign laws .

Examples : Apple Inc., McDonalds Corporation, Procter & Gamble , Unilever

AS TO PURPOSE :

1. Public Corporation– created for the purpose of governing a particular segment of the state, such as
municipalities and cities or to fulfill a government function.
Examples : Bangko Sentral ng Pilipinas, Ninoy Aquino International Airport, Davao City Water District

2. Private Corporation– organized for private purpose, aim or benefit.

Examples : Jollibee Foods Corporation , McDonalds Corporation, Procter & Gamble , San Miguel Corporation,

3. Quasi- Public Corporation– is a private corporation which was granted a franchise by the government to
perform public duties.
Examples : Meralco, Maynilad, GMA, PLDT, ABS-CBN, Grab, Angkas
STOCK OR NON-STOCK:

1. Stock Corporation – ownership is in the form of shares. This type of corporation are normally profit oriented
and are authorized to distribute dividends to its shareholders.
Examples : Jollibee Foods Corporation , San Miguel Corporation, SM Investment Corporation (SM Group)

2. Non- stock Corporation – this type of corporation is not organized for profit purposes and does not distribute
dividends to its members. Normally non-stock corporations are established for the purpose of religious, educational,
social, scientific, civic or political.
Examples : University of Santo Tomas, UNICEF, Philippine Red Cross

RELIGIOUS OR NON-RELIGIOUS:

1. Ecclesiastical Corporation– is organized for religious purposes

Examples : Iglesia ni Cristo, Seventh Day Adventist Church, Roman Catholic Church.

2. Lay Corporation–– is organized for non-religious purposes

Examples : Jollibee Foods Corporation , McDonalds Corporation, Procter & Gamble , San Miguel Corporation,
OPEN OR CLOSE :

1. Open Corporation – ownership in the corporation is offered to public. This type of corporation does not
restrict anyone from becoming a shareholder of the corporation. An open corporation can either be listed or
over the counter. Listed corporation are corporations whose shares are traded in the stock exchanges like in the
Philippine stock exchange. Over the counter corporation is the one whose shares are traded in the market in which
securities buy and sell directly from and to the public.

Examples : Jollibee Foods Corporation , San Miguel Corporation, SM Investment Corporation (SM Group)

2. Close Corporation – this type of corporation is on whose ownership is limited to few persons and its shares is
not available for purchase in public. Normally example of this corporations are family corporations.
Examples : Smart Communications

SOLE OR AGGREGATE:

1. Corporation Sole – consist of only one corporator.

2. Corporation Aggregate–– consists of more than one corporator.

CIVIL OR ELEEMOSYNARY:

1. Civil Corporation – established for profit.

2. Eleemosynary Corporation – established for charity.

Examples : SM Foundation, Gawad Kalinga

AS TO COMPLIANCE OF LEGAL REQUIREMENTS:

1. De jure Corporation– one that exists both in fact and in law. It has complied all the legal requirements and
operates as a corporation.

2. De factot Corporation––one that exists in fact but not in law. It operates as a corporation but there are
certain legal requirements that are not complied.
 COMPONENTS OF A CORPORATION

1. CORPORATORS – those who compose the corporation.

2. INCORPORATORS- those who originally formed the corporation whose names are indicated and signed in
the articles of the incorporation. Natural and juridical persons can now be incorporators based on the RA
11232. There is no minimum number of incorporators but the maximum number remains at 15.
3. SHAREHOLDERS- are the corporators of a stock corporation and are owners of a share of stock. They may
be juridical or natural persons.
4. MEMBERS – are the corporators of a non-stock corporation.
5. PROMOTERS – persons who cause to bring the formation and organization od a corporation by bringing
together the incorporators, procuring subscriptions or capital for the corporation and setting the machinery which
leads to organization of the corporation.
6. SUBSCRIBERS – are persons who agreed to buy and pay for original, unissued shares of a corporation.
7. UNDERWRITERS – persons who sell the shares in public for the corporation.
 PROCESS OF INCORPORATION
1. PROMOTION
- Based on the Revised Corporation Code of the Philippines, at least one person but not exceeding 15 persons may organize
a corporation as incorporators. Normally, the incorporators are the promoters of the corporation who sets up a tentative
working organization and solicits subscriptions from investors to raise capital for the business.

2. INCORPORATION
- After promotion,the articles of incorporation shall be drafted and must contain the following information:
a.) corporate name
b.) purpose for which the organization is organized
c.) place of principal office
d.) corporate term – if they will operate with a fixed term
e.) number of directors or trustees
f.) names, nationalities and residences of incorporators
g.) authorized capital stock
h.) names of subscribers , number of shares and amount of subscription
• Based on RA 11232, there is no requirement anymore regarding the authorized capital stock to be subscribed at least 25%
and be paid at least 25%. With this, the Treasurer’s affidavit is no longer required to be submitted together with the articles
of incorporation because the amount of capital subscribed and/or paid is already included in the articles of incorporation.
• Bylaws must now be filed together with the articles of incorporation. It can no longer be filed within one month from
notice of issuance of the certificate of incorporation.
• Bylaws is a supplement to the articles of incorporation and contains provisions or policies for internal administration of
the corporation.
• So to obtain a certificate of incorporation, the articles of incorporation together with the bylaws must be filed with the
Securities and Exchange Commission (SEC) .The articles of incorporation must be signed by the incorporators and should
notarized. Then filing and publication fees are paid to SEC.
• The date of approval of the articles of incorporation is the same date that is stated in the certificate of registration as the
date of the commencement of the juridical personality of a corporation.

3. FORMAL ORGANIZATION AND COMMENCEMENT OF BUSINESS OPERATIONS

• On the date when the certificate of incorporation is issued, the corporation can now commence its business. Failure of a
corporation to formally organize and commence its business within 5 years from the date of its incorporation shall
be render the certificate of incorporation deemed revoked as of the day following the end of the 5-year
period.
• Formal organization includes adoption of the bylaws, election of directors or trustees and election of directors.
 CORPORATE C APITAL STRUCTURE
• The capital of a corporation is called SHAREHOLDER’S EQUITY. The Shareholder’s equity is composed of the
following:

SHARE CAPITAL ACCOUNTS – is the amount fixed, subscribed and paid by the shareholders from its authorized
shares based on the articles of incorporation. Authorized shares is the maximum number of shares a corporation can issue
as indicated in the articles of incorporation. A shareholder can buy different classes of stocks depending on what the
corporation is offering. There are two classes of shares in which a corporation can issue depending on authorization given
to them:
1. Ordinary shares – is the primary issue of shares, normally it gives the holders of this stock basic rights to the
corporation. When there is only one class of shares being issued, it is presumed to be ordinary shares whether
designated or not. The ordinary shareholders normally have less priority when it comes to the distribution of assets
upon corporate liquidation and distribution of dividends.
2. Preference shares – are shares which gives the holder preference when it comes to distribution of dividends and as
to distribution of assets in the event of corporate liquidation .This type of share has a higher price compared to
ordinary shares because the shareholders of this type of share paid for the priority when it comes to distributions of
asset in the event of corporate liquidation and dividends. Dividends to be received are normally expressed in fixed
percentages or peso amount per share.
When the shares are issued to a shareholder, it is normally issued higher than the par value of the shares. Par value is
the nominal value of the share indicated in the share certificate and also in the articles of incorporation. This is like
the minimum price in which a share can be issued. So the excess of the consideration received over the par value is
credited to an additional paid in capital account.
When a share issued does not have a par value indicated in the the share certificate, the corporation may assign a
stated value in the corporate bylaws. Accounting for a no-par but with stated value is just the same with par value
shares.
When a share does not have a par and also a stated value, the total issue price or the amount of consideration
received is credited in full to the share capital account. In no case could a no- par, no stated value shares be issued
less than a consideration of P5.

ADDITIONAL PAID IN CAPITAL – these are the excess of the consideration received from issuance of shares
over their par or stated value and others.

RETAINED EARNINGS – this is the accumulated profits of the corporation. If the corporation earns more profit,
it will have a credit balance of the retained earnings account, but if the retained earnings have a debit balance or have
accumulated more losses, it will be called a deficit.

There some other components of shareholder’s equity, we’ll just focus on these three.