CHAPTER 5: BASIC CONSIDERATIONS
In large corporations, management and
CORPORATION
- 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.
ATTRIBUTES OF A CORPORATION
1. A corporation is an artificial being with a
personality separate and apart from its
individual shareholders or members
2. It is created by operation of law - It require
authority or grant from the State, either by a
special incorporation law that creates the
corporation or by means of a general
corporation law
3. Right of Succesion – a corporation shall
have perpetual existence. The death,
withdrawal, transfer of ownership, insolvency
of the shareholders or members will not
dissolve the partnership
4. It has powers, attributes and properties
expressly authorized by law or incident to
existence
ADVANTAGES OF A CORPORATION
1. The corporation has the legal capacity to act
as a legal entity
2. Shareholders have limited liability
3. It has continuity of existence
4. Shares of stock can be transferred without the
consent of the other shareholder
5. Shareholders are not general agents of the
business
6. Greater ability to acquire funds
DISADVANTAGES OF A CORPORATION
1. A corporation is relatively complicated in
formation and management
2. There is a greater degree of government
control and supervision
3. It requires a relatively high cost of
formation and operation
4. It is subject to heavier taxation than other
forms of business organizations
5. Minority shareholders are subservient to
the wishes of the majority
6.
control have been separated from
ownership
7. Transferability of shares permits the
uniting of incompatible and conflicting
elements in one venture
CLASSES OF CORPORATIONS
1. Stock Corporation – corporations which
have share capital dividend into shares
and are authorized to distribute to the
holders such as shares, dividends, or
allotments of the surplus profits on the
basis of the shares held
2. Non-stock corporation – 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.
COMPONENTS OF A CORPORATION
1. Corporators – are those who compose a
corporation
2. Incorporators – stockholders or members
mentioned in the AOI as originally forming
and composing the corporation and who are
signatories to said articles of incorporation
3. Shareholders/Stockholders – are
corporators in a stock corporation. It may be
natural or juridical persons
4. Members – are corporators of a non-stock
corporation
5. Subscribers – are persons who have agreed
to take and pay for original, unissued shares
of a corporation formed or to be formed.
*All incorporators are subscriber but a
subscriber need not be an incorporator*
6. Promoter – a person who takes initiative in
founding and organizing the corporation
7. Underwriters – investment bankers
8. Independent director – a person who is
independent of management
9. Additional General Powers per RCCP –
every corporation incorporated under the
RCCP is expressly given the power to enter
into a partnership, joint venture, or any
 commercial agreement with natural or
juridical persons
CORPORATIONS GENERAL TERMINOLOGY
Articles of incorporation
- Application for corporate charter
Corporate Charter
- Contract between state and incorporators
granting legal existence to corporation
Corporate bylaws
- Rules adopted by board of directors to
govern conduct of corporate affairs
Organization costs
- Charge as outright expense
Ex. Legal and accounting costs
Domestic vs. Foreign Corporation
- Depends on state in which chartered
CLASSES OF SHARES
1. Par value shares - minimum issue price of
the shares
2. No-par value share - stock is issued without
a par value
- Minimum stated value of a no-par
value share is P5.00
- Shares issued without a par value
are deemed fully paid
3. Voting shares – issued with the right to vote
4. Non-voting shares – those issued without
the right to
5. Ordinary shares – these shares entitle the
holder to an equal pro-rata division of profits
without any preference
6. Preference shares - these shares entitle the
holder to certain advantages or benefits over
the holders of ordinary shares
7. Founders’ shares – may be given certain
rights and privileges not enjoyed by the
owners of other stocks
8. Redeemable shares – shares which may be
purchased by the corporation from the
holders of such shares upon the expiration of
a fixed period, regardless of the existence of
unrestricted retained earnings in the books of
the corporation
9. Treasury shares – a stock has been issued by
the corporation as fully paid and later
acquired but not retired
10. Promotion shares – those 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
11. Convertible shares – a stock which is
convertible or changeable from one class to
another class
ARTICLES OF INCORPORATION
- a set of formal documents filed with a
government body to legally document the
creation of a corporation
HIERARCHY OF CORPORATE STRUCTURE
Shareholders
Elect the
Board of Directors
Elect the
Officers
Hire
Employees
RIGHT OF A SHAREHOLDER
1. Right to be issued certificate of stock or other
evidence of share ownership and to transfer
such shares
2. Right to vote via remote communication or in
absentia at shareholder’s meetings
3. Right to elect and remove directors
4. Right to adopt, amend, or repeal the bylaws
5. Preemptive right to buy new shares in
proportion to shares already owned
6. Right to receive dividends when declared
7. Right to inspect corporate books and
records, and to receive financial reports of
the corporation’s operations
8. Right to participate in the distribution of
corporate assets upon dissolution
CHAPTER 6: SHARE CAPITAL debited for the total par value of the fully
collected subscription
SHARE CAPITAL

- The shares of stock issued

Outstanding Share Capital - issued shares
The share, contributed of paid-in capital is
which are in the hands of the shareholders at the
further divided into the following:
balance sheet date
Legal Capital – the portion of the contributed
- The number of outstanding shares will
capital or the minimum amount of paid-in
equal the difference between the issued
capital, which must remain in the corporation for
shares and the treasury shares
the protection of corporate creditors.

Share Premium (Additional Paid-In Capital) – the

Treasury Stock - these are issued shares
portion of the paid-in capital representing
acquired by the corporation but not retied are
amounts paid by shareholders in excess of par
therefore, awaiting to be reissued at a later date

- Number of shares the corporation has

TWO BASIC TYPE OF SHARES repurchased

Ordinary share – this share represent the basic

ownership class of the corpotation
SUBSCRIPTION OFSHARES
- Entity’s residual equity
Subscription Contract – legally binding contract
Preference Share – this share gives its owners which provides for the number of shares
certain advantages over ordinary shareholders subscribed, the subscription price, the terms of
payment, and other conditions of the transaction
- Priority on dividends when declared
before the ordinary shareholders or to
priority claims on assets in the event of
A subscriber becomes a shareholder upon
corporate liquidation
subscription but the stock certificates
- To generate more capital
evidencing ownership over shares of stocks are
not issued until full collection of subscription

TERMS RELATED TO SHARE CAPITAL

Authorized Share Capital - the maximum Subscription Receivables – debited for the total
number of shares the corporation can issue proceeds of the subscription to the ordinary
shares and credited for the collections on the
- This maximum number of shares when
subscriptions
multiplied by the par value of the share
will yield the authorized share capital

*Delinquent shares – subscribed shares are

declared delinquent shares when a subscriber
Issued Share Capital - number of shares that
fails to settle the subscriptions in full on the due
have been distributed to shareholders
date or in ‘’call’’ made by the board of directors.
- Share capital (ordinary or preference) is
credited for the total par value of the
shares subscribed and debited for the Highest bidder – where the shares delinquent
total par value of the fully collected will be sold
subscriptions
- Who is willing to pay the ‘’offer price’’
which includes the full amount of the
subscription balance plus accrued
Subscribed Share Capital - Is the portion of the
interest, cost of advertisement, and
authorized share capital that has been
expenses of auction sale in exchange for
subscribed but not yet fully paid
the smallest shares
- This account is credited for the total par
value of the shares subscribed and
*If there is no bidder, the delinquent shares will
be credited as paid in full books of the
corporation. These shares are considered as
treasury shares