GENERAL CONSIDERATIONS OF CORP. ACCOUNTING
Ease of Raising Capital Resources
Statutory Definition of Corporation (Sec. 2)
1. ARTIFICIAL BEING. (must have juridical
person, stockholders are not liable. TP is not
allowed to run.)
2. CREATED BY OPERATION OF LAW (not only
stipulated, but there shall be AOI.)
3. HAVING THE RIGHT OF SUCCESSION (life
expectancy of corp is written on AOI, cannot
be changed, not affected by transfer of
shares by SH to TP.)
4. POWERS, ATTRIBUTES, AND PROPERTIES
EXPRESSLY AUTHORIZED BY LAW OR
INCIDENTAL TO ITS EXISTENCE (creatures of
law so it must abide to it).
Doctrine of Separate Entity – the business and its
owner’s identity are separate in the name of the law.
(ex. The owner and the corporation are always
separate entities.)
 Juridical Person capable of having rights
and obligations, separate and distinct from
members or stockholders.
 In form or substance, they are still
consolidated as one of the same accounts /
entities.
Doctrine of Limited Liability - Stockholders are not
liable for corp. obligations. Can’t be held to third
persons who claims against corp. beyond agreed
contribution to corporate capital (paid or unpaid).
Advantages of a Corporate Organization
(SepLimFreeCen)
1. Separate Juridical Personality
2. Limited Liability to Investors
3. Free transfer ability of units of ownership
4. Centralized Management
Advantages of a Corporation (PerTransAttEaseCont)
1. Perpetual/Continuous Existence
2. Transferability of Shares
3. It attracts more investors
4.
5. Continuous Life
Disadvantages of a Corporation (CosHiLimiSub)
1. Costly to Form/Establish
2. Highly Regulated by the SEC and other
government agencies like the BSP, CHED,
etc. (Strict Government Regulations)
3. Limited liability may discourage creditors.
4. Subservience of Minority Stockholders to
wishes of Majority only to equitable
restraint.
Powers Defined by Law (ExImUlt)
1. Expressed
2. Implied
3. Ultravires – outside your power, contract is
VOID.
Classifications of Corporations – Existence of Stocks
(SEC. 3)
1. Stock Corporation – distributes profits as
dividends. Authorized to distribute shares to
stockholders or allotments of surplus profits
on basis of the shares held.
2. Non-Stock Corporation – No part of income
is distributable as dividends to members or
trustees.
Classification of Corporations – Number of Persons
(Agg,Sale,OPC,Pres,Stock)
1. Corporation Aggregate – consists of more
than one member or corporator.
2. Corporation Sale – religious corporation w/
one member or corporation and only his
successor.
3. One-Person Corporation – consists of only
one stockholder or board member instead
of min. 5.
4. Corporation by Prescription –existed longer
than man, deemed as corporation by the
law.
5. Stock Corporation - type of for-profit
company. SH receives part ownership of the
corporation through shares of stock.
Example: The Catholic Church of the Philippines may
be regarded as an example of Corporation Sole &
Corporation by Prescription.

Classifications of Corporation – Religious Purpose or
Not (Eccle, Lay)
1. Ecclesiastical Corporation – one organized
for religious purpose.
2. Lay Corporation – organized for a purpose
other than religion.
Classifications of Corporations – Charitable Purpose
or Not (Eleemos, Civil)
1. Eleemosynary – established for charitable
purposes. (keyword: Limos)
2. Civil – established for business or profit.
Classification of Corporations – State or Country
Under by Whose Laws (Dom,For)
1. Domestic – incorporated under Philippine
laws.
2. Foreign – formed under any laws other than
Philippines whose laws allows Filipino
citizens and corporations to do business in
its own country and state.
- License Necessary For:
o Regulation Purposes
o Access to Local Courts
Reciprocity Clause – Foreign must earn license from
gov’t to do business in PH. Moreover, foreign
countries can only run businesses in PH if they allow
our domestic businesses to run as well.
Classification of Corporations – Legal Right to
Existence (Jure, Facto)
1. De Jure – (pron. De yure) existing both in
fact and in law. Strict & substantial
compliance.
2. De Facto - existing in fact but not in law
(minor defect to documents). Collorable
compliance.
GR: Only Solicitor General can challenge status of De
Facto corporation. The incorporation will be revoked
of corporation and contracts if successful.
Quo-Warranto Proceedings – hearings related to de
facto corporations being challenged (& nulled) its
status.
Classifications of Corporations – Open to Public or
Not
1. Close – limited to selected persons or
members of family.
2. Open – open by person who may wish to
become stockholder or member.
Classifications of Corporation – Relation to Another
Corporation (Par,Sub)
1. Parent or Holding – related to corporation
that it has power directly or indirectly to
elect majority of the director of such other
corporation. (ex. HYBE, San Miguel, FEU)
2. Subsidiary – related to corporation that
majority of its directors can be elected by
such other corporation. (ex. JYP)
Classifications of Corporation – True Sense or
Limited Sense (True, Quasi)
1. True – exists by statutory authority.
2. Quasi – exists w/o formal legislative grant.
 Corporation by Prescription
 Corporation by Estoppel – not a
corporation, neither de jure nor de
facto, because it is so defectively
formed. Only asserted as
corporation but not in paper.
Classifications of Corporation – Gov’t or Private
1. Public – formed for the state.
2. Private – formed for priv. purposes, benefit,
or end.
Classifications of Corporation – Going Public or Not
1. Going Public – decide to list its shares in
stock exchange.
2. Going Private – restrict the share to certain
group.
Non-Listed Corporations - Shares are not actively
traded over organized stock exchange.
(e.g.corporations whose shares are traded over the
counter by brokers)
 Corporation with perpetual term –
perpetuity in existence until
dissolved and liquidated. Life can
be shortened thru amendment of
AOI.
 Corporation with specific term –
exists until expiration of its term.
Can be shortened or extended thru
amendment of AOI.
Quasi-Public Corporations – organized by private  Promoter – is a person who takes initiative
persons performing public function and for profits to in founding and organizing the business of
private person. the issuer and receives consideration
therefor.
 Underwriters – investment bankers or
stockbrokers often facilitate promotion and
subsequent sale of shares to prospective
investors.

Incorporation
 Drafting of Articles of Incorporation (AOI)
 Filing of Articles and Payment of Fees
 Examination of Articles by SEC; Approved or
Rejection
GR: The corporation does not acquire its juridical
personality until the SEC issues to it its certificate of
incorporation or registration.

Formal Organization and Commencement

1. the adoption of by-laws,

2. election of the board of directors (BOD) and

of administrative officers; and

3. Taking such other steps to enable it to

transact the legitimate business or
accomplish the purpose for which it was
created.

GR: (Fail to submit to SEC) If a corporation does not

formally organize and commence the transaction of
its business within five (5) years from the date of its
incorporation, its corporate powers shall cease, and
the corporation shall be deemed dissolved.

GR: (Inactive Corporations) If a corporation has

GENERAL CONSIDERATIONS / CORPORATE FORM commenced business but subsequently becomes
continuously inoperative for a period of at least five
Steps in Creating a Corporation (Pro,Inc,ForOrgCom) (5) years, the same shall be a ground for the
suspension or revocation of its certificate of
Formal
Promotion Incorporatio incorporation.
organization
n
and
commencement
ARTICLES OF INCORPORATION
Promotion – “Promoter” brings together persons
interested in the business and sets in motion the Articles of Incorporation (AOI) - “Resume” of the
machinery that leads to the formation of the corporation. Charter of the corporation and the
corporation. contractual relationships between state, corporation,
and stockholders.

Contents of Articles of Incorporation

 1. Corporate Name;

2. Purpose Clause;

3. Principal Office (must be within the

Philippines);

4. Term of Existence, if the corporation has not

elected perpetual existence; BY-LAWS

5. Incorporators (Names, Addresses, and By-Laws - Rules of action adopted by corporation for
Residences); its internal government and of its officers,
shareholders, or members. (private laws basically)
6. Directors or Trustees;
Contents of By-Laws (ConRuDir,RuOf,RuIs,MeAm,O)
7. Capitalization (Share Capital and its value,
Par Value and no. of shares its divided); 1. Conduct of meeting of SH & directors;
2. Rules for directorship (i.e. owner of at least
a. If share = no value, article state 1 share and majority are residents of PH);
only no of shares but ‘shares 3. Rules for officership
without par’ shall be stated 4. Rules for issuing shares
therein. 5. Method of amending by-laws
6. Others
8. Shares of Stock;

a. The amount of SC or number of no-

par shares subscribed with
indication of the amount or # of
no-par shares subscribed and paid
by each.
9. Such other matters consistent with law and
which the incorporators may deem
necessary and convenient.
Organization Costs - Preliminary expenses incurred
upon forming a corporation including legal fees,
incorporation fees and share issuance costs.
GR: Organization Costs shall be expensed as
incurred.
XPN: (Organization Costs) Share Issuance Costs are
debited to share premium account arising from share
issuance with any excess to retained earnings.

If the share has no par value, the articles shall state

only the number of shares but the fact that the
shares are without par shares shall be stated
therein.

GR: Generally, a corporation’s article of incorporation

must include the name of the corporation, number
of authorized, name of each incorporators, etc.

XPN: (AOI and what must it include) Quorum

Requirements. They are found in by-laws.
 Directors / Trustees – One (1) to Fifteen (15)
members. OPC shall have one (1) D/T. Every director
must own at least one (1) share of voting stock.
Trustees may be more than 15 in multiples of 5.

COMPONENTS OF A CORPORATION

Corporators – Those who compose a corporation, REPOSITORY OF POWERS

whether as stockholders or members. Involved in the GR: (Repository of Powers) The Board of Directors or
corporation. the Board of Trustees shall exercise the corporate
Incorporators – mentioned in AOI as originally powers (SEC. 22).
forming and composing the corporation and who are XPN: (Repository of Powers in BoD/BoT) Delegation
signatories thereof. to Executive Committee authorized in by-laws.
Incorporator Corporator XPN: (Repository of Powers in BoD/BoT)
Signatory of the AOI. May or may not be Authorization pursuant to a contracted manager
signatory of the AOI. which may be an sole, partnership, or another
corporation (Sec. 43 applies if Corporation).
Does not cease to be Cease to be a
an incorporator upon corporator/member by
sales of his shares. sale of his shares
depending if stock or XPN: (Repository of Powers in BoD/BoT) In close
non-stock. corporations, StockH may manage business of corp
instead by a BoD, if AOI so provide.
Limited to not more Limited to available
than 15 members. authorized capital GR: (Repository of Powers in Bod/BoT) Contracts
stock. made between TP and corporation is made under
authority of its Board of Directors.
Originally forms part of Not necessarily.
the organization.

GR: Filipino Citizenship Depending on the Powers of the Board (Conrol,Conduct,AllPow)

is not a requirement in nature of business of 1. Control over the properties and assets of
Incorporators. the corporation.
the corporation.
XPN: When engaged in If it is nationalized, the 2. Conduct of business.
a business which is citizenship becomes 3. All corporate powers.
partly or wholly material. 4. These are entrusted to the BOD (Board of
nationalized where Directors), unless provided otherwise.
majority must be
residents. Rights of a Shareholder (Vote,Profit,Right,Residual)

1. Vote in elections: for directors and on

Shareholders – Corporators in a stock corporation.
Members – corporators of a non-stock corporation.
Subscribers – persons who have agreed to take and
pay for original, unissued shares of a corporation
formed or to be formed.
actions requiring shareholder approval.
2. Share in company’s profits: through the
receipt of dividends.
3. Preemptive right: to keep the same
percentage of ownership when new shares
are issued.
4. Residual claim to share: in assets upon
liquidation in proportion to their holdings.
 Rights of Stockholders 4. Such other officers as may be provided in
(Man,Vote,Rem,Prop,Div,App,StoCertFPS,AssLi the by-laws.
q,TransStocks,Preemp)
 If the corporation is vested with public
1. Direct/Indirect Participation in interest, the board shall also elect a
Management; compliance officer.
2. Voting Rights (Sec 6); XPN: (Corporate Officers) Person cannot be a
president & secretary or president & treasurer at
3. Right to remove Directors (Sec. 27); the same time.
4. Proprietary Rights: GR: (Corporate Officers) An officer is also
 Right to Dividends. considered a corporate officer if he has been
appointed by the board of directors.
 Appraisal Right – (Cease to become a
Stockholder) (Sec. 80);

 Right to Issuance of Stock Certificate for Election of Directors / Trustees

Fully Paid Shares (Sec. 63);  Directors are elected for one-year from
 Proportionate participation in among stockholders.
distribution of assets in liquidation (Sec.  Trustees are elected not exceeding three
139); years from among members.
 They hold office until successors are
 Right to transfer of stocks in corporate elected.
books (Sec. 62);  No share = Ceases to hold position.

 Pre-emptive Right – right of existing SH

to purchase newly issued shares before
others (Sec. 38).
5. Right to inspect book and records (Sec. 73);
6. Right to be furnished with the most recent
financial statements/financial reports (Sec.
74);
7. Right to recover stocks unlawfully sold for
delinquent payment of subscription.
8. Right to file individual suit, representative
suit, and derivative suit.
Corporate Officers
Requirement for Independent Directors
 Corporation – such as those with public int –
must have independent directors which
make up 20% of the board.
 RA 8799 – Securities Regulation Code.
Securities registered with the Commission,
corporations listed w/ an exchange OR w/
an asset of at least 50 MIL PESOS and
having 200 HOLDERS OF SHARES.
 Cont. RA 8799. banks, quasi-banks, and
various financial institutions. Pre-Need,
trust, and Insurance Companies are also
included. Other corporations deemed to
have public interest must comply, as
determined by the Commission.

1. President – Must be a director at the time Independent Directors - someone who is

he assumes office, not at the time of the independent of management and any
appointment. relationships that could interfere with their
judgment. They must be elected by shareholders
2. Treasurer – May/ may not be a director present or entitled to vote, either in person or in
(resident); as a matter of sound corporate absentia.
practice, must be a resident.
GR: Qualifications, Term Limits, and
3. Secretary – Need not be a director unless Disqualifications of Independent Directors are
required by the by-laws; must be a resident handled by The Commission.
and citizen of the Philippines (Sec. 24) and
 Typical Records Used in a Corporation Book
(Min,StoTrans,SHLe,SubLe)
1. Minutes Book – contains minutes of the
meeting of directors & stockholders.
2. Stock and Transfer Book – record of names
of shareholders, installments paid & unpaid
by shareholders and dates of payment,
transfers of shares, and dates thereof.
3. SH’s Ledger – subsidiary record of SC issued
indicating # of shares issued to each SH.
4. Subscriber’s Ledger – subsidiary record of
subscriptions made indicating the individual
subscriptions of subscribers.
5. Books of Accounts – details all transactions
of the corporation.
6. Share Certificate Book – Lists certificate of
ownership in the company. When bought
shares online, an e-receipt will be provided.
Mandatory Requirements of the Code
(Exec,Pay,Submit,Issuance)
1. Execution of Constitutive Documents (AOI,
By-Laws);
2. Payment/Delivery of Contributions –
delivered to and held in trust by a
designated trustee;
3. Submission of Constitutive documents to
SEC for review or evaluations; and
4. SEC Action – issuance of certificate of
registration.
GR: (Mandatory Requirements of the Code) Once
contributions are made before incorporation, such
subscription are irrevocable for a period of 6 months.
XPN: (Mandatory Requirements of the Code) When
all the other subscribers’ consent to the revocation
of documents.
XPN: (Mandatory Requirements of the Code) When
the incorporation fails to materialize (SEC 60).
ONE-PERSON CORPORATIONS
One-Person Corporations – corporation w/ a single
stockholder. Provided that they are a natural person,
trust, or an estate.
XPN: (OPC) Corporations controlled by government,
banks, and publicly listed companies may not
incorporate as OPC.
GR: (OPC) A natural person who is licensed to
exercise a profession may not organize OPC to
exercise professions.
XPN: (OPC) A natural person can run an OPC only if
provided by special laws that allow them to do so.
Minimum Capital Stock & AOI of OPC
 OPC is not required to have minimum ACS,
unless specified by special law.
 The OPC must file AOI according to SEC 14.
Requirements, including s. details if single
SH is a trust or an estate.
By-Laws & Corporate Name Display of OPC
 OPC is exempt from submitting and filing
corporate by-laws.
 The corporate name of an OPC must include
the letters "OPC" either below or at the end
of its name.
Leadership Structure of OPC
 The single stockholder serves as the sole
director and president of the OPC.
 Within 15 days of incorporation, the OPC
must appoint members for the corp.
XPN: the single stockholder from the
position of corporate secretary.
Nominees & Alternate Nominees of OPC
 The single stockholder must designate a
nominee and an alternate nominee.
  The AOI should specify the details of both
nominees, along with their authority
limitations.
 Written consent from the nominee and
alternate nominee must accompany the
incorporation application.

Term & Replacement of Nominees in OPC

 The nominee acts as director until the single

stockholder regains capacity in the case of
temporary incapacity.
 In case of death or permanent incapacity,
the nominee continues as director until the
legal heirs are determined or agree on a
new director or designate the estate as the
single stockholder.
 The alternate nominee takes over if the
nominee is unable, incapacitated, deceased,
or refuses to act, under the same terms and
conditions.

Records & Meetings in OPC

 The OPC must maintain a minute’s book

containing all actions, decisions, and
resolutions.
 Written resolutions signed by the single
stockholder and recorded in the minutes
book suffice for decision-making purposes.

Reportorial Requirements & Liability in OPC

 The OPC must submit annual financial

statements audited by an independent
certified public accountant.
 The single stockholder is liable for OPC
debts unless they prove the corporation was
adequately financed, facing joint and
several liability otherwise.
 Principles of piercing the corporate veil
apply to OPCs.

Conversion & Requirements from Corporation to

OPC

 Conversion from an ordinary corporation to

an OPC is possible if a single stockholder
acquires all stocks of the former.
 An OPC can revert to an ordinary stock
corporation after due notice to the
Commission and compliance with relevant
requirements and rules.