ACCOUNTING FOR

CORPORATION –
BASIC CONSIDERATIONS
Source: Partnership and Corporation, Ballada
Prepared by Greg O. Saclot
for BSBA 1st Year Students
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.
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 operations of law. It 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 New
Corporation Code of the Philippines).
ATTRIBUTES OF A CORPORATION
3. It enjoys the right of succession. A corporation
has the capacity of continued existence. 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. It has the powers, attributes and properties

expressly authorized by law or incident to its
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 shareholders.
ADVANTAGES OF A CORPORATION

5. Its management is centralized in the board of

directors.
6. Shareholders are not general agents of the
business.
7. 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.
DISADVANTAGES OF A CORPORATION

5. Minority shareholders are subservient to the

wishes of the majority.
6. In large corporations, management and 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 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.
CLASSES OF CORPORATIONS

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.
OTHER CLASSIFICATIONS OF CORPORATIONS

1. According to number of persons:

A. Corporation aggregate. A corporation consisting
of more than one corporator.
B. Corporation sole or a special form of corporation
usually associated with clergy. It is a corporation
which consists of only one member or corporator and
has successors such as a bishop.
OTHER CLASSIFICATIONS OF CORPORATIONS

2. According to nationality:
A. Domestic corporation. A corporation organized
under Philippine laws.
B. Foreign corporation. A corporation organized
under foreign laws.
OTHER CLASSIFICATIONS OF CORPORATIONS

3. According to whether for public or private

purposes:
A. Public corporation. A corporation formed or
organized for the government of a portion of the state.
(e.g. provinces, cities, municipalities and barangays).
B. Private corporation. A corporation created for
private aim, benefit or purpose.
OTHER CLASSIFICATIONS OF CORPORATIONS

4. 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.
OTHER CLASSIFICATIONS OF CORPORATIONS

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.
OTHER CLASSIFICATIONS OF CORPORATIONS

6. According to degree of public participation with regard to share

ownership:
A. Close corporation. A corporation whose share ownership is
limited to selected person or members of a family not exceeding 20
persons.
B. Open corporation. A corporation where the shares is available for
subscription or purchase by any person.
C. Publicly-held corporation. A corporation with a class of equity
securities listed on an exchange or with assets in excess of P50,000,000
and having 200 or more holders, at least 200 of which are holding at
least 100 shares of a class of its equity securities.
OTHER CLASSIFICATIONS OF CORPORATIONS

7. According to their relation to another corporation:

A. Parent or holding corporation. A corporation
that is related to another corporation that is has the
power to either directly or indirectly elect majority of
the directors of a subsidiary corporation.
B. Subsidiary corporation. A corporation controlled
by another corporation known as a parent
corporation.
STEPS IN THE CREATION OF A CORPORATION

1. Promotion. It is the process of bringing together

the incorporators or the persons interested in the
business, of procuring subscriptions or capital for the
corporation and of setting in motion the machinery
that leads to the incorporation of the corporation
itself.
STEPS IN THE CREATION OF A CORPORATION

2. Incorporation. This step includes the following:

a. Verification from the records of the Securities and
Exchange Commission (SEC) that proposed corporate
name is not the same or similar to an existing
corporation. The corporate name shall contain the word
“Corporation” or “Incorporated” or the abbreviations
“Corp.” or “Inc.” respectively. The corporate name of a
foundation shall use the word “Foundation”.
STEPS IN THE CREATION OF A CORPORATION

2. Incorporation. This step includes the following:

b. Drafting and execution of the articles of
incorporation by the incorporators. The person
elected as temporary treasurer should execute an
affidavit regarding the share capital subscribed and
paid up. The treasurer should also submit a sworn
statement of assets and liabilities of the corporation.
STEPS IN THE CREATION OF A CORPORATION

2. Incorporation. This step includes the following:

c. Deposit by the treasurer of the cash paid for the
shares subscribed in the bank in the name of the
treasurer in trust for and to the credit of the
corporation. The bank is required to issue a
certificate of deposit.
STEPS IN THE CREATION OF A CORPORATION

2. Incorporation. This step includes the following:

d. Filing of the articles of incorporation with the SEC
together with treasurer’s affidavit, statement of
financial position, certificate of bank deposit, and
certificate as to the name of the corporation.
STEPS IN THE CREATION OF A CORPORATION

2. Incorporation. This step includes the following:

e. Payment of the filing fees. For the article of
incorporation (AI), equivalent to 1/5 of 1% of the
authorized capital stock of the proposed corporation
but not less than P1,000; for the by-laws, P500; for
SEC Form F-100, P2,000; and a legal research for
which is 1% of the filing fee for the AI.
STEPS IN THE CREATION OF A CORPORATION

2. Incorporation. This step includes the following:

f. Endorsement from other government agencies if
the proposed corporation will engage in an industry
regulated by the government, other requirements for
corporation with foreign equity and additional
requirements based on the kind of payment of
subscriptions; and
STEPS IN THE CREATION OF A CORPORATION

2. Incorporation. This step includes the following:

g. Issuance by the SEC of the certificate of
incorporation.
STEPS IN THE CREATION OF A CORPORATION

3. Formal organization and commencement of

business operations. Formal organization requires the
adoption of by-laws and the election of the board of
directors and of the administrative officers. It also
includes the taking of such other steps as are
necessary to enable the corporation to transact the
legitimate business or accomplish the purpose for
which it was created.
STEPS IN THE CREATION OF A CORPORATION

Section 22 of the (Old) Corporation Code states that

if a corporation does not formally organize and
commences the transaction of its business within two
(2) years from the date of its incorporation, its
corporate powers shall cease and the corporation shall
be deemed dissolved.
STEPS IN THE CREATION OF A CORPORATION

However, it a corporation has commenced business

but subsequently becomes continuously inoperative
for a period of at least five (5) years, the same shall
be a ground for the suspension or revocation of its
certificate of incorporation.
ARTICLES OF INCORPORATION
1. The name of the corporation;
2. The specific purpose or purposes for which the
corporation is formed;
3. The principal place of business which must be
within the Philippines;
4. The term of existence;
5. The names, nationalities and residences of the
incorporators;
ARTICLES OF INCORPORATION

6. The number of directors or trustees, which shall

not be less than five(5) nor 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.
ARTICLES OF INCORPORATION

8. If it be a stock corporation:
a. Amount of authorized share capital in pesos,
b. Number of shares into which it is divided,
ARTICLES OF INCORPORATION

8. If it be a stock corporation:
c. In case the shares are par value shares:
 the par value of each share,
 names, nationalities and residences of the original
shareholders,
 The amount subscribed and paid by each subscriber
on his subscription.
ARTICLES OF INCORPORATION

8. If it be a stock corporation:
d. In case of no-par value, the article need only state
such fact, and the number of shares into which share
capital is divided.
BY-LAWS

These are the rules of action adopted by the

corporation for its internal government and for the
government of its officers, shareholders or members.
The by-laws shall be adopted within one (1) month
from the issuance of the certificate of incorporation
by the SEC. Failure to file a code of by-laws shall
render the corporation liable for the revocation of its
registration.
BY-LAWS

A private corporation may provide in its by-laws for:

1. The time, place and manner of calling and
conducting regular or special meetings of the
directors or trustees;
2. The time and manner of calling and conducting
regular or special meetings of the shareholders or
members;
BY-LAWS

3. The required quorum in meetings of shareholders

or members and the manner of voting therein;
4. The form for proxies of shareholders and members
and manner of voting them;
5. The qualifications, duties and compensation of
directors or trustees, officers and employees;
BY-LAWS

6. The time for holding the annual election of

directors, or trustees and the mode or manner of
giving notice thereof;
7. The manner of election or appointment and the
term of office of all officers other than directors or
trustees;
BY-LAWS

8. The penalties for violation of the by-laws;

9. In the case of stock corporations, the manner of
issuing stock certificates; and
10. Such other matters as may be necessary for the
proper or convenient transaction of its corporate
business and affairs.
RIGHTS 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 attend and vote in person or by proxy at
shareholders’ meetings.
3. Right to elect and remove directors.
RIGHTS OF A SHAREHOLDER

4. Right to adopt, amend or repeal the by-laws.

5. Right to purchase a portion of any new shares
issued to maintain the same percentage of stock
ownership. The right is known as pre-emptive
right. However, the right is not absolute and may
be denied.
RIGHTS OF A SHAREHOLDER

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.
COMPONENTS OF A CORPORATION
1. Corporators
2. Incorporators
3. Shareholders
4. Members
5. Subscribers
6. Promoters
7. Underwriters
8. Independent director
CLASSES OF SHARES IN GENERAL
1. Par value shares
2. No-par value shares
3. The minimum stated value
4. Voting shares
5. Non-voting shares
6. Ordinary Shares
7. Preference Shares
8. Promotion shares
9. Treasury shares
10. Convertible shares
BASIC CORPORATE ORGANIZATIONAL STRUCTURE

Shareholders
elect the
Board of Directors
elect the
Officers
hire
Employees
 BASIC CORPORATE ORGANIZATIONAL STRUCTURE

Sec 25 of the (Old) Corporation Code of the

Philippines, states that the president of a corporation
must be a director of the corporation, but he cannot
act as president and secretary or as president and
treasurer at the same time. The president is the only
officer required by law to be a director.
 BASIC CORPORATE ORGANIZATIONAL STRUCTURE

The corporate secretary must be resident and a

citizen of the Philippines. He need not be a director
unless required by the corporate by-laws. It is
generally the duty of the secretary to make and keep
its records and to make proper entries of the votes,
resolutions and proceedings of the shareholders and
directors in the management of the corporation.
 BASIC CORPORATE ORGANIZATIONAL STRUCTURE

The corporate treasurer is the proper officer

entrusted with the authority to receive and keep the
money of the corporation and to disburse them as
may be authorized. The treasurer may or may not be
a director.
 BASIC CORPORATE ORGANIZATIONAL STRUCTURE

There is no prohibition in the law against a

shareholder being a director or officer of two or more
corporations. The (Old) Corporation Code does not
prohibit a corporate officer from accepting the same
position in another corporation organized for the
same purpose. However, such situation may be
prohibited by special law, the article of incorporation
or the corporate by-laws.
Thank you!