ACCOUNTING FOR CORPORATIONS Basic Considerations tearing Objectives: after studying this chapter, you should be able to: Trace the development of Define corporation. Identify the attributes of a corporation. Identify and explain the advantages and disadvantages of a corporation. Identify and describe the classes of corporations under the Revised Corporation Code of the Philippines, Identify and describe the other classifications of corporations. Detail the components of a corporation. Define independent director, Describe the classes of shares, 10. Se the essential contents of the articles of incorporation and the by- jaws. 11. Compare the contents of the AO! per RCCP and Corporation Code. 12. Determine the minimum capital stock requirement at the time of incorporation. 13. Interpret the basic corporate organizational structure. 14, List some of the rights of a shareholder. 15. Name the corporate books and records. 16. Define a one person corporation and discuss its salient features. the general law on corporations. yee The Pareto principle or the 80-20 rule states that for many events roughly 80% of the effects come from 20% of the causes. In 1906, Italian economist Vilfredo Pareto observed that 80% of the land in Italy was owned by 20% of the population. Quality management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s recognized a universal principle that he called the "vital few and trivial many." In Dr. Juran's initial work, he identified that 20% of the defects caused 80% of the problems. It can also be stated that 80% of outcomes can be attributed to the top 20% of the Players. In the Philippine enterprise sector, the interesting numbers are not 80-20 but §8-0.40. That is, 6896 of our economy's total output can be attributed just to the largest 0.40% of Philippine enterprises or 3,023 out of a total 777,687 firms counted in 2010.The rest—the 99.6% composed of micro-enterprises (making ie Sea oe ang medium enterprises or SMEs (comprising 8%)—account for less @ ) OF the country’s gross domestic product (GDP). Dr. Habito recently cited figures from a 2008 study that short eilienige micro. enterprises and SMEs contributing a smaller share to GDP than me oh neighbor, with the share reaching up to 57% in Indonesia, The same holds ey ution to total jobs: Philippine SMEs account for 61%, versus 68% in Singapore, 73% in Cambodia, 77% in Thailand, 81% in Laos and 97% in Indonesia. These comparisons show that great scope remains for strengthening the role of SMEs in the Philippine economy if the traditional hurdles in access to finance, technology, raw materials and markets can bg ‘overcome. Adapted portions from “Small Business and ASEAN Integration,” By Dr. Cielito Habito of Philippine Daily Inquirer, Sept. 30, 2014. One way ih which corporations raise new capital is by issuing shares of stock. In the early months of 1992, General Motors Corporation, the major car—Chevrolet, Pontiac, Buick and Cadillac—maker in North America, successfully issued 55 million ordinary shares at USS39.0 per share, raising more than US$2.1 billion. It was the fourth time in two years that G.M. had raised funds by issuing shares. What are some of the possible reasons why G.M. would have chosen a share issue over other was of raising capital? There are definite advantages to financing with. share capital. First, equity financing—the method of obtaining funds by issuing ordinary or preference shares—is less risky than debt financing—issuance 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 not paid, a corporation may be forced into bankruptcy. Second, when a corporation does not declare cash dividends, the cash from profitable operating activities may be invested to finance expanded operations. Third, a corporation may need the proceeds from an ordinary share issue to improve the balance between liabilities and shareholders’ equity. It is important for accountants to understand the nature and characteristics of corporations as well as the process of accounting for a share issue and other types of share transactions. Adapted from “Big G.M. Issue Lands and Price Holds Up,” By Susan Antilla of New York Times, May 21, 1992. REVISED CORPORATION CODE Republic Act 11232, otherwise known as the Revised Corporation Code of the Philippines (RCCP), was signed into law by President Rodrigo Duterte on Feb. 20, 2019 and became effective Feb. 23, 2019. 5-2 | WIN Ballada’s Partnership and Corporation Accountingcover 39 years, i for the Corporation Code of the Philippines (Corporation Code) or Batas mbansa BIg. 68, was th ; pie ‘on May 1, 1989,” 2 that governed corporations. The Corporation Code took not all of the provisions congress decided order to Pass a cor Of the Corporation Code were amended by the RCCP, but ee enact the unchanged provisions and include new provisions in plete Revised Corporation Code of the Philippines. the first general law on cor codification of the American | The Philippine Commission Ri Porations in the Philippines, which was practically a, law on corporations, was the Corporation Law or Act 1459. aSSed this law and it took effect on Apr. 1, 1906. ‘The RCCP eins to introduce the following reforms: + Policies that would enhance the ir i the Philippines; 3 ules that protic te eas of dong busines inthe Philippines i ite and F protection; Provisions that instill corp. Paar Sake orate and civic responsibility; and at will stren A eee vgthen the country’s policy and regulatory corporate 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 (Revised Corporation Code of the Philippines, Sec. 2). ATTRIBUTES OF A CORPORATION 1. A corporation is an artificial being with a personality separate and. apart from its individual shareholders or members. 2. Itis created by operation of law. \t 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, either by a special incorporation law that directly creates the corporation or by means of a general corporation law (i.e., The Revised Corporation Code of the Philippines). 3. It enjoys the right of succession. A corporation shall have perpetual! existence unless its articles of incorporation provides otherwise (Sec. 11, RCCP). The death, withdrawal, insolvency or incapacity of the individual shareholders or members will not dissolve the corporation. The transfer of ownership of shares of stock does not dissolve the corporation. 4. Ithas the powers, attributes and properties expressly authorized by law or incident toits existence. ' The maximum corporate term of 50 years per Sec. 11 of the Corporation Code was deleted in the RCP, Chapter 5: Basic Considerations | 5-3ADVANTAGES OF A CORPORATION i al entity. ‘The corporation has the legal capacity t0 act #5 2 leg Shareholders have limited liability. Ithas continuity of existence. the other sh Shares of stock can be transferred without ee 2 'areholders Its management is centralized in the board of in) . Shareholders are not general agents ofthe Business: Greater ability to acquire funds. Noy Pen DISADVANTAGES OF A CORPORATION z icated in formation and management. ment control and supervision. mation and operation. her forms of business organizations, the wishes of the majority. control have been separated from A corporation is relatively compli There is a greater degree of gover It requires a relatively high cost of for Itis subject to heavier taxation than ott Minority shareholders are subservient to In large corporations, management and ci owneiship. 7. Transferability of shares permits the uniting of elements in one venture. SP eN f incompatible and confctng CLASSES OF CORPORATIONS - Section 3 of the RCCP classified private corporations into: 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 (Sec. 86). Non-stock corporations may be formed or organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry, agricultural and like chambers , or any combination (Sec. 87). 5-4 | WIN Balloda’s Partnership and Corporation Accountinga CLASSIFICATIONS of ott CORPORATIONS pccording £0 UMbEF OF person. according to nationali tic corporat ‘a. Domestic corporation. A corporat; ‘ Foreign corporation. A "poration organized under Philippine laws. other than. the Philippines sto” formed, organized or existing under laws nes’ and whose laws allow Filipino citizens and According to whether for public or private purpo: A. Public corporation. A corporatio portion of the state (eg, provi formed or organized for the government of a a 8s, cities, municipalities and barangays). ate corporat B. Priv Poration. A corporation created for private aim, benefit or purpose. 1. 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: |. Close corporation. A corporation whose share ownership is limited to selected persons or members of a family not exceeding 20 persons. 8. Open corporation. A corporation where the share is available for subscription or purchase by any person. . Publicly-held corporation. A on an exchange or with assets in ex holders, at least 200 of which are equity securities (SRC Rule 3-1.M, Amen Code (R.A. 8799). corporation with a class of equity securities listed cess of P50,000,000 and having 200 or more holding at least 100 shares of a class of its ded IRR of the Securities Regulations Chapter 5: Basic Considerations | 5-5corporation: i t is related ‘A. Parent or holding corporation. A corpora bee i er Anat corporation that it has the power to either on Y elect pe majority of the directors ofa subsidiary corpera id ener caries B. Subsidiary corporation. Acorporation controlled by tion Koy as a parent corporation. i 7. According to their relation to another COMPONENTS OF A CORPORATION 1 1. Corporators are those who compose 2 corporation, whether as stockholders 4 shareholders in a stock corporation or as members in a nonstock corporation (ee 5). members mentioned in the Articles o¢ ators are those stockholders or m e ly forming and composing the corporation and wig incorporation (Sec. 5)- 2. Incorpors Incorporation (AO!) as original are signatories to said articles of person, partnership, association oy Section 10 of the RCCP provides that any it more than fifteen (15) in number, corporation, singly or jointly with others but no! may organize a corporation for any lawful purpose oF Purposes. Natural persons who are licensed to practice 2 profession, and partnerships or associations organized for the purpose of practicing a profession, shall not be allowed to organize as a corporation unless otherwise provided under speciatlaws, ‘0 are natural persons must be of legal age. Each incorporator of a Incorporators wh ‘one (1) share of the stock corporation must own or be a subscriber to at least capital stock. A corporation with a single stockholder is considered a One Person Corporation (OPC; will be discussed later). Incorporators are no longer confined to natural persons (i.e. human beings) Artificial beings (e.g, a partnership, association or corporation) can be incorporators. Under the old Corporation Code, the minimum number of incorporators was five. Under the RCCP, one person can form a corporation, the OPC. The requirement of “not less than five (5) nor more than fifteen (15) trustees” were retained in the case of educational corporations (Sec. 106, and that “the number of trustees shall be in ‘multiples of five (5)") and religious societies (Sec. 114). ‘Note: All incorporators (if they continue to be shareholders) are corporators of @ corporation, but not all corporators are incorporators. An incorporator will always retain his status as such though no longer having an interest in the corporation. 5-6 | WIN Ballada’s Partnership and Corporation Accountingshareholders or Shareholders may be nnOl%2"S are corporators in a stock corporation (Sec. 5). 'Y Be natural or juridical persons. Members are cory Porators of a non.stock corporation (See: 5)- subscribers are pers raarears ATS PETSONS who have agreed to take and pay for original, unissued 3 Poration formed or to be formed. Note: All incorporators are subscribers but a subscriber need not be an incorporator. promoter is a 7 : * and organizin, eee Who, acting alone or with others, takes initiative in founding : the corporation and receives consideration therefor. Underwriters are usually investment bankers who have- + agreed, alone or with others, i , te ' ee (0 buy at stated terms an entire or a substantial part of an + guaranteed the sale of an iss = " ue by agreement to buy from the issuing corporation any unsold portion at a stated Price; or i‘ ' agreed 3 pete best efforts to market all or part of an issue; or a ‘or sale shares he has purchased from a controlling stockholder. . Independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director (Sec. 22) The board of the following corporations vested with public interest shall have independent directors constituting at least 20% of such board: Corporations covered by Section 17.2 of Republic Act 8799, “The Securities Regulation Code,” namely those whose securities are registered with the SEC, corporations listed with an exchange or with assets of at least PSOM and having 200 or more holders of shares, with at least 100 shares of a class of its equity a shares; b. Banks and quasi-banks, non-stock savings and loan associations (NSSLAS), pawnshops, corporations engaged in money service business, pre-need, trust and insurance companies, and other financial intermediaries; and Other corporations engaged in business vested with public interest similar to the above, as may be determined by the Commission, after taking into account relevant factors which are germane to the objective and purpose of requiring the election of an independent director, such as the extent of minority ownership, type of financial products or securities issued orvoffered to investors, Chapter 5: Basic Considerations | 5-7Rafi ir erat Public interest involved in the nature of business operations, ang they analogous factors. Every corporation incorporated under 4 RCCP is expressly given the power to enter into a partnership, Joint venture, o- . commercial agreement with natural or Juridical persons (Note: under BPE, ony! enter into merger or consolidation with other corporations). Also, domest corporations are allowed to give donations in aid of any political party or candidate or for purposes of partisan political activity (sec, 35). These were not allowed in the Corporation Code. 9. Additional General Powers per RCCP. CLASSES OF SHARES 1. Par value shares. One in which a specific amount is fixed in the articles of incorporation and appearing on the certificate of stock. The par value is the minimum issue price of the shares. Section 6 of the Code states that preferer issued only as par value shares. without any value appearing on the face of the certificate hare may have a stated value which may be fixed in the ard of directors or the shareholders. Thus, the ally fixed based on the book value nce (or preferred) shares of stock may be 2. No-par value shares. One of stock. A no-par value s! articles of incorporation or by the bo: issue price may vary from time to time as it is usu of the corporatian’s shares. the minimum stated value of a no-par value share is five pesos (P5.00) 3, However, .sued without par value are deemed fully paid. per share. In addition, shares is Banks, trust, insurance, and preneed companies, public utilities, building and loan associations, and other corporations authorized to obtain or access funds from the’ public, whether publicly listed or not, shall not be permitted to issue no-par value shares of stock (Sec. 6) 4. Voting shares. Those issued with the right to vote. ithout the right to vote. 5. Non-voting shares. Those issued wit ler to an, equal pro-rata division of 6. Ordinary shares. These shares entitle the hold profits without any preference. 7. Preference shares. These shares entitle the holder to certain advantages or benefits cover the holders of ordinary shares. 8, Founders’ shares may be given certain rights and privileges not enjoyed by the ‘owners of other stocks (Sec. 7). 9. Redeemable shares may be issued by the corporation when expressly provided in the articles of incorporation. They are shares which may be purchased by the corporation front the holders of such shares upon the expiration of a fixed perios regardless of the existence of unrestricted retained earnings in the books of the 5-8 | WIN Ballada’s Partnership and Corporation Accountingcorporation, and upon si ! : incorporation and the a other terms and conditions stated in the articles of ficate 0. TeASury shares. A stock 4 Of stock representing the shares (Sec. 8). later reacquired but not p Promotion shares. Those j + Tho: en incorporation of a Se issued to promoters as compensation in promoting the ‘orporati ° ji the welfare of the compara or for services rendered in launching or promoting hat has been issued by the corporation as fully paid and etired, we Convertible shares, 12. another class. A stock which is convertible or changeable from one class to ARTICLES OF INCORPORATION (Aol) contents ion 13 provides section 13 provides fata Corporations organized under this Code shall file with the seen: duly signee gamission (SEC) articles of incorporation in any ofthe official da are ered By aha eat tnewledged or authenticated, in such form and manner as may De by the SEC, containing substantially the following matters, except as otherwise prescribed by this Code or by special law: 1. The name of the corporation; 2. The specific purpose or purposes for which the corporation is formed; 3. The principal place of business (specific address? must be specified per SEC Memorandum Circular No. 3, Series of 2006) which must be within the Philippines; 4, The term of existence if the corporation has not elected perpetual existence; 5. The names, nationalities and residences of the incorporators; 6, The number of directors, which shall not be more than fifteen (15) or the number of trustees, which may be more than fifteen (15); 7. The names, nationalities and residences of the persons who shall act as directors or trustees until the first regular directors or trustees are elected and qualified. 8. If it be a stock corporation: a. Amount of authorized share capital in pesos, b. Number of shares into which it is divided, In case the shares are par value shares: + the par value of each share, * names, nationalities and residences of the original subscribers, * the amount subscribed and paid by each subscriber on his subscription. 2 er SEC Memorandum Circular No. 6, Series of 2016, there is no need to amend the AOI if the corporation willtransfr its principal office within the same city or municipality. Only an amended General Information Sheet (Gis) is required to be submitted to the SEC within 15 days from the transfer. Ifthe transfer isto.a different city or municipality, then there is a need to amend the AOI. Chapter 5: Basic Considerations | 5-9d. In case of no par value, the articles need only state such fact, and the num, shares into which said share capital is divided. o If it be a mon-stock corporation, the amount of its capital, the na . nationalities ’and residences of the contributors and the amount contribute 10. Such other matters consistent with law and which the incorporators may een, necessary and convenient. 3 11. An arbitration agreement may be provided in the articles of incorpora, pursuant to Section 181 of the RCCP. The articles of incorporation and applications for amendments thereto may be filed yi, the Commission in the form of an electronic document, in accordance with the Commission’s,rules and regulations on electronic filing. No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, non-st savings and loan associations (NSSLAs), pawnshops, and other financial intermediaries shall be approved by the SEC unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is i accordance with law (Sec. 16). Prescribed Form Per Section 14, unless otherwise prescribed by special law, the articles of incorporation of all domestic corporations shall comply substantially with the following form: Articles of Incorporation of (Name of Corporation) The undersigned incorporators, all of legal age, have voluntarily agreed to forma (stock)/{non-stock) corporation under the laws of the Republic of the Philippines and certify the following: First: That the name of said corporation shall be "____, Inc., Corporation or OPC"; Second: That the purpose or purposes for which such corporation is incorporated ‘re: (If there is more than one purpose, indicate primary and secondary purposes); Third: That the principal office of the corporation is located in the City/Municipaliy of___; Province of Philippines; Fourth: That the corporation shall have perpetual existence or a term of years from the date of issuance of the certificate of incorporation; Fifth: That the names, nationalities, and residence addresses of the incorporate of the corporation are as follows: . 5-10 | WIN Ballada’s Partnership and Corporation Accounting— Nationality Residence Sim Ree et a OTT sixth: That the numb, ‘St Of directors or trustees of the corporation shall be i Nd the nomet de “Zon Or USES Of the Comoran ctionalties, and residence addresses of the fist ae N are as follows: Nome Nationatty Residence ott TUE POO dee eee a pe ee gissga Ce 2 a ae a eam seventh: That the A P. ), divided i Norized capital stock of the corporation is Seem ee, Thecaser,sneres with the par value of PESOS (Fine corporation ig.” “OS Al the shares ore without par valve): That the capital 100 Ores have Por value Geqe——-—————— shaves without por valve. (In cose 3 ‘and a a oy corporation consists ane are without par valve): it ee Bical stock ot shares hy : 0 Sama SOEKTCH *y'¥@ par value of PESOS ft et ad tw shares are without par valve. Eighth: That the number of s hare: i geen subscribed as follows: 8 Of the authorized capital stock above stated has Name of Subscriber] Nafionaly | No. of Shares | Amount | Amount Paid Subscribed | subscribed (Modify No. 8 if shares are with no par value. In case the corporation is non-stock, Nos.7 and 8 of the above arficles may be modified accordingly, and it is sufficient if the aries state the amount of capital or money contributed or donated by specified pesons, stating the names, nationalities, and residence addresses of the contributors or donors and the respective amount given by each.) Ninth: That has been elected by the subscribers as Treasurer st he Corporation to act as such until after the successor is duly elected and quaified in accordance with the by-laws, that as Treasurer, authority has been given to receive in the fame and for the benefit of the corporation, all subscriptions, contributions or donations Bid or given by the subscribers or members, who certifies the information set forth in the S2¥enth and eighth clauses above, and that the paid-up portion of the subscription in Cath and/or property for the benefit and credit of the corporation has been duly tecived Tenth: That the incorporators undertake to change the name of the corporation fately upon receipt of notice from the Commission that another corporation, ip oF person has acquited a prior right to the use of such name, that the name Chapter 5: Basic Considerations | 5-11has been declared not distinguishable from Us of another corporation, or that it is contrar Public policy, ____ Eleventh: (Corporations which will engoes Flipino citizens shall provide the following): "No transfer of stock or interest to less than the required percentage of allowed or permitted to be recorded in the prof restriction shall be indicated in all s IN WITNESS WHEREOF, we have h day of eae Province of, ereunité signed these Articles of Incorporatgy : in the City/Muricipality of [Republic of the Philippines. cq nome akready registered oF reserveq 1oto Kaw, public Moras, Good hy o. any business OF Activity reseryeq for which shall reduce the ownership of Filipino cif capital stock as provided by existing laws shat per books of the corporation, g ‘eck cerlificates issued by the corporation.” ra thi hie [Names and Signatures of the Incorporatons) {Name and Signature of Treasurer) ‘Comparison of the Articles of Incorporation per RC To facilitate comparison of the real -CP and Corporation Code uirements under the RCCP and the Corporstion Code as to the contents of the Articles of Incorporation (AOI), a table is prepared as follows: RCCP Corporation Code (RA 11232) (BP 68) Name If the corporation is an OPC, the PCis not allowed. letters “OPC” is included in the corporate name. Who Can Be An | Any natural person, partnership, Incorporator corporation, or association Only natural persons ‘Number of One incorporator is enough. | At least five (5) incorporators Incorporator(s) ___needed Residence of No residency requirement for _ | A majority of the incorporators Incorporators incorporators. must be residents of the Philippines. Term Shall have perpetual term by default unless the AO! provides Not exceeding 50 years. otherwise. ‘Number of ‘No minimum number of Directors directors/trustees except for | Minimum number of directors | educational corporations and is five (5). religious societies. Residence of 'No residency requirement for ‘A majority of the directors Directors directors. must be Phil. residents. 5-12 | WIN Ballada’s Partnership and Corporation Accountingaa amount of | requreg nn ™U capital stock] atleast 25K the authored | subscribed and | jay Ther 'S required by special capital stock must be poid-n Copital, | supconges 28° AE minimum | subscribed and atleast 25% of amma nimi 2Pital andno | the subscribed capital must be ‘Statement of Subscribed aid-in capital, paid-uy subscribed and | in the gen i'd Palin capital are | in two (2) separate clauses (8th ett Conor Clause ofthe AOI (Sec. | and 3th) ofthe AOI, (Sec. 15, Tanaers Asaawe 14, RccP), Corporation Code). affidavit Ba fee tWeasurer'saffidavitis | A-separate treasurer’ affidavit | certifi t fQuired but the is required, | part ston ofthe treasureris | tdertating to | Ne eeette AOL sth Clause). ‘Change Name seperate, Tequired to submit a There is a separate. undertaking Toth cetetking, see the | to change the crporate name “spate Fath cause of the Aor. to be signed by directors. trencOtborators and the Only incorporators sign the “——Measurer sign the AOI. Al. GISTRATION, INCO} ee RPORATION AND COMMENCEMENT OF CORPORATE Under aa 38, @ Person or group of persons desing to incorporate shall submit the intended corporate nathe to the SEC for verification. If the Commission finds that the name is distinguishable from a name already reserved or registered for the use of another corporation, not protected by law and not contrary to law, rules and regulations, the name shall be reserved in favor of the incorporators. The incorporators shall then submit their articles of incorporation and by-laws to the Commission. If the Commission finds that the submitted documents and information are fully compliant with the RCCP and other relevant laws, rules and regulations, SEC shall issue the certificate of incorporation. The private corporation commences its corporate existence and juridical personality from the date the SEC issues the certificate of incorporation under its official seal. NON-USE OF CORPORATE CHARTER AND CONTINUOUS INOPERATION Section 21 states that if a corporation does not formally organize and commence its business within five (5) years (Note: two (2) years in the Corporation Code) from the date of its incorporation, its certificate of incorporation shall be deemed revoked as of the day following the end of the five-year period. However, if a corporation has commenced its business but subsequently becomes inoperative for a period of at least five (5) consecutive years, the SEC may, after due ‘notice and hearing, place the corporation under delinquent status. Chapter 5: Basic Considerations | 5-13resume operat ‘delinquent corporation shall have a period of two ore u oan Seratins ny comply with all requirements that the sec et ear Petra corporation, the SEC shal issue an order NE the del ech ee s with the requirements and resume OF es ’ cause the revocation ofthe corporation's certificate of incorp ation under deli ts three (3) time 177). perati ns cer nquent status in case Of failure The SEC may also place the corpo! i onsecstvel or intermiten submit the reportorial requiremen within a period of five (5) years (Sec. BY-LAWS. ‘These are the rules of action adopted by the corporation for its internal government ang for the government of its officers, shareholders oF members. Under Section 46,5 private corporation may provide in its by-14ws for: 1 The time, place and manner of cling and conducting regular or special meetings of ty directors or trustees; a. The time and manner of cling and conducting regular oF special meetings and modet of notifying the stockholders or members thereof; 4: The required quorum in meetings of stockholders or members and the manne of voting therein; 4, The modes* by which a stockholder, member, and cast their votes; 5, The form for proxies of stockholders and members and the manner of voting them; 6. The directors’ or tri director, or trustee may attend meetings ustees’ qualifications, duties and responsibilities, the guidelines for setting the compensation® of directors or trustees and officers, and the maximum umber of other board representations that an independent director* or trustee may have which shall, in no case, be more than the number prescribed by the SEC; The time for holding the annual election of directors of trustees and the mode or manner of giving notice thereof; The manner of election or appointment and the term of office of all officers other than directors or trustees; 9, The penalties for violation of the bylaws; 10, Inthe case of stock corporations, the manner of issuing stock certificates; and 11. Such other matters as may be necessary for the proper or convenient transaction of its corporate affairs for the promotion of good governance and anti-graft and corruption measures*. 12. An arbitration agreement may be provided in the by-laws pursuant to Section 181°. * New provisions in the RCCP. 5-14 | WIN Ballada’s Partnership and Corporation AccountingNOMINIMUM CAPITAL stoey rack corporations shall Sperwise specifically eee Tequired to have a minimum capital stock, except as gr least P5.000 under Seq. 1 "4 e. none of the above Properties expressly authorized by law or The owners of shares ina stock corporation are called a. incorporators, b. promoters, c_members. d._ shareholders, Refers to an equitable right of shar the corporation in proportion to ti equity in their surpl eholders to subscribe to newly issued shares of heir present shares in order to maintain their ‘WS as well as proportionate standing in the corporation. a, right of redemption b. pre-emptive right c. Tight to be sued d. concept of corporate entity The advantage of a corporation from a partnership is a. The death of a shareholder will not dissolve the corporation because of its power of succession. Its management is centralized on the board of directors. Shareholders have limited liability. Shareholders are not general agents of the business. all of the above peo The most powerful person in a corporation is the a. incorporator. b. president. c. vice-president. 4. chairman of the board. Chapter 5: Basic Considerations | 5-2513, 14, 15. 16. 17. 18. 1 Articles of Incorporation g,. ries thereof are hay, ley in the joned re end who are signatol ers The shareholders or members tion an forming and composing the ¢O"P a. incorporators. b. corporators. ¢. promoters. d. subscribers. . ofthe corporate form of organizay,, istic One of the following is not a characterist a. limited liability of shareholders b, mutual agency ¢. continuous existence d. centralized authority 1 r to pro-rata di The ordinary stock of the corporation entitling ie Pare ca Av denge Without any priority over any other shareholders al othe, shareholders except preference shareholders Is preference share. guaranteed share. convertible share. ordinary share. pose One who has agreed to take shares from the corporation on the original issue gf such share is called a. incorporator. b. member. ©. promoter. d. subscriber. e. none of the above No par value shares cannot be issued a. for less than P5.00. b. with preference as to assets or as to dividends. c. without being fully paid. d. by banks, trust, insurance and preneed companies, public utilities, building and loan associations and other corporations obtaining funds from the public. e. allof the above. Which of the following is a disadvantage of the corporate form of business? Corporations lack mutual agency. There is a greater degree of government control and supervision. Ownership shares can be easily transferred. Owners’ liability is limited. aoge 5-26 | WIN Ballada’s Partnership and Corporation AccountingACCOUNTING FoR CORPORATIONS Share Capital yet Objectives: fet studying this chapter, you, should be able to: Identify the basic compon, explain the characteristig, Distinguish the terms re Differentiate par value fr, , rom no Record the share issuances ton See lustrate the shar nth ae ee and edsnuc ae" Process including delinquency sale. "2s of the types of share-based payments. state the measurement ' Svbes'of share-baselt pay! transactions. "ules for equty-setted share-based payment s S z 3 11. Define treasury stock. 42, Record purchase, reissuance and retirement of treasury stocks. 13, Show the treatment of donated capital, 14, Identify and discuss the other share capital transactions. Acorporation that has produced such renowned successes as the Model T, Mustang, Taurus, F150, Lynx, Galaxy, Chateau, Expedition and Explorer, and such a dismal failure as the Edsel, would have some interesting tales to tell. Henry Ford was a defiant visionary from the day Ford Motor Company was formed in 1903. His goal from day 1 vas to design a car he could mass-produce and sell at a price that was affordable to the masses. He accomplished this goal, and by 1920, 60% of all vehicles on American road were Fords. Henry Ford was intolerant of anything that stood between him and success. In the early years, Ford issued shares to the public in order to finance the corporation’s exponential owth. In 1916, he decided that, to retain funds to finance expansion, the corporation Would skip a dividend payment to its shareholders. The shareholders sued. Henry Ford's reaction was swift and direct: if the shareholders did not see things his way, he: d 100% of the : 13, the Ford fami chap enttpade CL ae ofr a ak ee hy outside “interference: Years ’s of Ford; thus, elimin: shares were again issued to the publi-- ive over the years while at the sam, i 10 evol q e ty Ford Motor Company has continue 2 evn more lke the corporation Harte, sometimes has appeared to bee i f arly a billion shares of publicly traq, Fog i fay, there are ne leq oreinaly eared iat and chief Executive isnot even 2 member! ™ ou . : “Ford family. vag a significant stake in Ford. In 1994 ily still retains 2 sign! 7 Ling However, the Ford family ted, top management decided to centralize q Hann, Ford pi 13 jons made by top management, rather i i key decisi making—that is, to have more - of Henry Ford’s most f. 2 by division managers. Moreover, reminiscent ry Famous cap is lobal car—a mass-produced car that the corporation is attemting to make 2 8 Can be sg sround the world with only minor changes. Why did Henry Ford originally choose to form a corporation rather than 4 proprietorship? Why did Ford Motor Company purchase all of its outstanding hates Whar atvartages and dsadvantages of being organized as corporation are ile by Ford? ; ‘OVERVIEW Generally, the type of business organization—sole proprietorship, partnership 9, corporation, does not affect the asset and liability sections of the statement of financig, position, The only difference is in the owners’ equity sections. Sole proprietorships aig partnerships use capital accounts and ultimately combine the owners’ contributions ang accumulated earnings. Corporations separately report contributed capital ang accumulated profits in accordance with some legal provisions. The owners’ equity section of a corporation's statement of financial position is called shareholders’ equity. Shareholders’ equity has two major components—share capital (contributed or paid-in capital) and retained earnings. Share capital reflects the amount of resources received by a corporation as a result of investment by shareholders, donations or other share capital transactions. Retained earnings (or accumulated profits or losses) is the amount of capital accumulated and retained through the profitable operations of the business. The Philippine Accounting Standards (PAS) has adopted the terminology used in the International Accounting Standards. 6-2 | WIN Ballada’s Partnership and Corporation Accounting