Accounting for

Corporations
Basic Considerations
 Learning Objectives
After studying this module, the students should be able to:
1. define and explain the nature of a corporation and its formation;
2. identify essential attributes of a corporation, characteristics and the basic organizational struc-
ture;
3. differentiate a Corporation from other forms of business organization such as partnership; ex-
plain its advantages and disadvantages;
4. enumerate and describe the different kinds of corporation under Philippine laws;
5. describe the classes of shares of a corporation and the different books and records for
financial reporting.
 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.
 For over 39 years, the Corporation Code of the Philippine
(Corporation Code) or Batas Pambansa Bld. 68, was the law that
governed corporations.
 The Corporation Code took effect on May 1, 1980.
 Not all of the provisions of the Corporation Code were amended by the RCCP, but Congress

decided to re-enact the unchanged provisions and include new provisions in order to pass a

complete Revised Corporation Code of the Philippines.

 The first general law on Corporations in the Philippine, which was practically a codification of the

American law on corporations, was the Corporation Law or Act 1459.

 The Philippine Commission passed this law and it took effect on Apr. 1, 1906.
 The RCCP aims to include the following terms:
 Policies that would enhance the ease of doing business in the
Philippines;
 Rules that prioritize corporate and stockholder protection;
 Provisions that instill corporate and civic responsibility; and
 Amendments that will strengthen the country’s policy and regulatory
corporate framework.
 Definition of Corporation

A corporation is an artificial being created by

operation of law, having the right of succession
and the powers attributes and properties
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 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.
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. 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.
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.
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 share permits the uniting of incompatible and conflicting
elements in one venture.
 Classes of Corporations
Stock Non-stock
Result 2
Corporation
Corporation

corporations which have share capital
divided into shares and are authorized to
the holders of such shares, dividends or
allotment of surplus profits on the basis of
the shares held.
Is one where no part of its income is
distributable as dividends to its members,
trustee or officers.
 Other Classifications of Corporations
1. According to number of persons

2. According to nationality

3. According to whether for public or private purpose

4. According to whether for charitable purpose or not

5. According to their legal right to corporate existence

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

7. According to their relation to another corporation

 Components of a Corporation

1. Corporators
2. Incorporators
3. Shareholders
4. Members
5. Subscriber’
6. Promoter
7. Underwriters
8. Independent Director
9. Additional General Powers per RCCP
 Classes of Shares
4. Voting Shares 7. Preference Shares
5. Non-voting Shares 8. Founders Shares
6. Ordinary Shares 9. Redeemable Shares
1. Par Value Shares
2. No-par Value Shares
3. Minimum stated value

10. Treasury Shares

11. Promotion Shares
12. Convertible Shares
 Articles of Incorporation (AOI)

Pr
Co e sc
nt r ib
en e
t Fo
rm
 Comparison of the Articles of Incorporation per RCCP and Corporation Code
RCCP Corporation Code
(RA 11232) (BP 68)

If the corporation is an OPC, the

Name letters “OPC” is included in the OPC is not allowed
corporation name

Any natural person, partnership,

Who Can Be An Incorporator Only natural person
corporation, or association

At least five (5) incorporators

Number of Incorporator (s) One incorporator is enough
needed

A majority of the incorporators

No residency requirement for
Residence of Incorporators must be residents of the
incorporators
Philippines
 Shall have perpetual term by default
Term Not exceeding 50 years
unless the AOI provides otherwise

No minimum number of
Minimum number of directors is five
Number of Directors directors/trustee except for educational
(5)
corporations and religious societies

A majority of the directors must be

Residence of Directors No residency requirement for directors
Phil, residents

No minimum capital stock required At least 25% of the authorized capital

Amount of Subscribed and Paid-In
Capital
Statement of Subscribed and
Paid-In Capital
unless required by special law. There is stock must be subscribed and at least
also no minimum subscribed capital 25% of subscribed capital must be
and no minimum paid-in capital paid-up.
Subscribed and paid-in capital In two (2) separate clauses (8th and
are in the 8th clause of the AOI 9th) of the AOI, (Sec. 15,
(Sec. 14, RCCP) Corporation Code)
Registration, Incorporation, and Commencement of Corporate Existence
 These are the rules of action adopted by BY-LAWS
the corporation for its internal government and for the
government of its officers. shareholders or members. Under Section 46, 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 and mode of notifying the
stockholders or members thereof;
3. The required quorum in meetings of stockholders or members and the manner of voting therein;
4. The modes* by which a stockholder, member, director, or trustee may attend meetings and cast their
votes;
5. The form for proxies of stockholders and members and the manner of voting them;
6. The directors' or trustees' qualifications, duties and responsibilities, the guidelines for setting the
compensation* of directors or trustees and officers, and the maximum number 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;
7. The time for holding the annual election of directors of trustees and the mode or manner of giving
notice thereof;
8. 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. In the 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.
Question
Time
 Basic Corporate Organizational Structure

 The ultimate control of the corporation rests with the shareholders.

 The board of directors is responsible for the formulation of the overall policies for the
corporation and for the exercise of corporate power.
 The board also elects a chairman of the board.
 Directors shall be elected for a term of one (1) year from among the holders of stocks
registered in the corporation’s books (sec. 22).
 Independent directors must be elected by the shareholders present or entitled to vote
in absentia during the election of directors (sec. 22).
 The election of the professional management team or the administrative officers is
entrusted to the board.
 This team may include the president; executive vice-president; vice-president in charge of
sales; manufacturing; accounting; finance; administration and other key areas; secretary;
treasurer; and controller.
 Hierarchy of
Corporate Structure

Section 24 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
 The corporate secretary must be a resident and a citizen of the
Philippines.
 He need not be a director unless required by the corporate by-laws.
 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.
 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
he may be authorized.
 The treasurer may or may not be a director but is required per Sec. 24 of
the RCCP to be a resident of the Philippines.

 If the corporation is vested with public interest, the board shall also elect a
compliance officer (Sec. 24)
 There is no prohibition in the law against a shareholder being a director or
officer of two or more corporations.

 The Corporation Code does not prohibit a corporate officer from occupying
the same position in another corporation organized for the same purpose.
 Rights of Shareholders

The following are some of the rights of a shareholders:

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 (Note: under BP68,
in person or by proxy only) at shareholders meetings (Sec. 57)
3. Right to elect and remove directors.
4. Right to adopt, amend or appeal the by-laws.
5. Right to purchase a portion of any new shares issued to maintain the same
percentage of stock ownership. This right is known as the pre-emptive
right. However, this right is not absolute and may be denied.
6. Right to receive dividends when declared.
7. Right to inspect corporate books and record, and to receive financial reports
of the corporation’s operations.
8. Right to participate in the distribution of corporate assets upon distribution.
 Corporate Books and
Records
Every private corporation , stock or non-stock, is required to keep books and
records at its principal office of the following:
1. Minutes book – It contains the minutes of the meetings of the directors
and shareholders.
2. Stock and transfer book – It is a record of the names of shareholders,
installments paid and unpaid by shareholders and dates of payment, any
transfer of stock and dates thereof, by whom and to whom made.
3. Books of accounts – These represent the record of all business
transactions. The books of accounts normally include the journal and the
ledger.
4. Subscription book – It is a book of printed blank subscription.
5. Shareholders’ ledger – It is a ledger which details the number of shares
issued to each shareholder.
6. Subscriber’s ledger – It is a subsidiary ledger for the subscriptions
receivable account; it reports the individual subscriptions of the subscriber.
7. Stock certificate book – It is a book of printed blank certificate of stock.
Section 73 provides that every corporation shall keep and carefully
preserve at its principal office all information relating to the
corporation including, but not limited to:

1. The articles of incorporation and by-laws of the corporation and all their amendments;
2. The current ownership structure and voting rights of the corporation, including list of
stockholders or members, group structure, intra-group relations, ownership data, and
beneficial ownership;
3. The names and addresses of all the members of the board of directors or trustee and the
executive officers;
4. A record of all business transactions;
5. A record of the resolutions of the board of directors or trustee and the stockholders or
members;
6. Copies of the latest reportorial requirements submitted to the Commission; and
7. The minutes of all meeting of stockholder or members, and of the board of directors or
trustee.
Section 74 states that a corporation shall furnish a stockholder or member, within ten
(10) days from receipt of their written request, its most recent financial statement, in
the form and substance of the financial reporting required by the SEC. At the regular
meeting of stockholders or members, the board of directors or trustee shall present to
such stockholders or members a financial report of the operations of the corporation
for the preceding year, which shall include financial statements, duly signed and
certified in accordance with the RCCP, and the rules the SEC may prescribe. However,
if the total assets or total liabilities of the corporation is less than 600,000, or such
other amount as may be determined appropriate by the Department of Finance, the
financial statements may be certified under oath by the treasurer and the president.
 One Person
Corporation (OPC)

 The Revised Corporation Code of the Philippines added a new type of

corporation, the One Person Corporation (OPC).
 OPC is a corporation with a single stockholder, who may be a natural
person, a trust or an estate (Sec. 116).
 One person may incorporate two or more OPCs.
 Bank and quasi-banks, pre-need, trust, insurance, public and publicly-listed
companies, and non-chartered government-owned and controlled
corporations may not incorporate as OPCs.
 A natural person who is licensed to exercise a profession may not organize
as an OPC for the purpose of exercising such profession except as
otherwise provided under special laws (Sec. 116)
 The OPC has a personality separate and distinct from the single
stockholder.
 The sole shareholders liability is limited to his investment.
 The OPC shall not be required to have a minimum authorized capital stock
except as otherwise provided by special law (Sec. 117).
 If the corporation is an OPC, the letters “OPC” is included, either below or
at the end of its corporate name (Sec. 120).
 The OPC is not required to submit and file corporate by-laws (Sec. 119)
 But, the OPC is required to file the AOI in accordance with Section 14. It
shall likewise substantially contain the following:
 If the single stockholder is a trust or an estate, the name, nationality,
and residence of trustee, administrator, executor, guardian,
conservator, custodian, or other person exercising fiduciary duties
together with the proof of such authority to act on behalf of the trust or
estate; and;
 Name, nationality, residence of the nominee and alternate nominee,
and the extent coverage and limitation of the authority (Sec. 118)