Basic Concepts of Corporation

 Define Corporation and identify its attributes

based on the Corporation Code of the
Philippines. (CO1)
 Compare and contrast the different
classifications of corporations. (CO1)
Learning  Be familiar with the basic steps of incorporating
Objectives a business as mandated by the law. (CO1)
 Be familiar with the rights of a shareholder.
(CO1)
 Identify the classes of shares. (CO1)
 Determine the minimum subscription and the
required paid in capital. (CO1)
  A corporation is an artificial being
created by operation of law, having the
right of succession and the powers,
Definition and attributes and properties expressly
Attributes authorized by law or incident to its
existence.
-Corporation code of the Philippines
 1. Separate legal entity
2. Limited liability of stockholders
3. Transferable ownership rights
4. Continuous life
Advantages of a 5. Lack of mutual agency for
stockholders
Corporation
6. Ease of capital accumulation
7. Management is vested to the board
of directors
 1. Relatively complicated in formation and
management.
2. Greater degree of government control
and supervision.
Disadvantages
3. Required relatively high cost of
of a formation and operation.
Corporation 4. Subject to heavier taxation
5. Minority shareholders are subservient to
the wishes of the majority.
  Corporate governance is the system
by which companies are directed
and controlled.
Corporate  Stockholders
Organization and  Board of Directors
Management  President, Vice President, and other
Officers
 Employees of the Corporation
  Stockholders: Control operation.
Stockholders usually meet once a year.
 Board of Directors: Selected by a vote of
the stockholders. Overall responsibility for
Corporate managing the company.
Organization and  President
Management  Secretary
 Vice President Finance
 Vice President Production
 Vice President Marketing
  Stock corporation is a for-profit corporation
which has shareholders (stockholders), each of
whom receives a portion of the ownership of the
corporation through shares of stock.
These shares may receive a return on their
Classes of investment in the form of dividends.
Corporation  Non-stock corporation is one where no part of
its income is distributable as dividends to its
members, trustees or officers. Any profit that it
may obtain as an incident to its operation shall
be used for the furtherance of its purpose.
  According to Number of persons:
a. Corporation aggregate
b. Corporation sole – associated with
the clergy
Other
 According to Nationality:
Classifications of
Corporations a. Domestic corporation
b. Foreign corporation
 According to Purpose:
a. Public
b. Private
  According to Charitable Purpose or Not:
a. Ecclesiastical – organized for
religious purposes
b. Eleemosynary – established for
public charity
Other
c. Civil – established for business or
Classifications of profit
Corporations  According to Legal Right to Corporate
Existence
a. De jure – existing in fact and in law
b. De facto – existing in fact but not in
law
  According to Degree of Public Participation
with regard to share Ownership
a. Close corporation – ownership is limited to
selected persons or members of a
family not exceeding 20 persons.
Other b. Open corporation – share is available for
Classifications of subscription or purchase
Corporations c. Publicly-held corporation – one in which
the equity securities are listed on an exchange
or with assets > P50M and having 200 or more
holders, at least 200 of which are holding at
least 100 shares of its class of equity securities.
  According to their Relation to Another
Corporation
a. Parent or holding corporation is
one that is related to another corporation
Other that it has power to either directly or
Classifications of indirectly elect the majority of the directors
Corporations of a subsidiary corporation.
b. Subsidiary corporation is one that
is controlled by another corporation known
as parent corporation.
 1. Promotion
2. Incorporation
3. Formal organization and commencement
of business operations
Steps in the Notes:
Creation of a  For AI, payment of filing fee: 1/5 of 1% of
Corporation the authorized capital stock but not less
than P1,000; for by-laws, P510; SEC, P2,000,
legal research fee 1% of the AI filing fee.
 Commencement must be within 2 years
from incorporation date.
  Articles of incorporation is a set of
formal documents filed with a
government body to legally document
Articles of the creation of a corporation.
Incorporation &  By-Laws are sets of rule adopted by
By-Laws an organization chiefly for the
government of its members and the
regulation of its affairs
 1. Vote at stockholders’ meetings (or
register proxy votes electronically)
2. Sell stock
3. Purchase additional shares of stock –
pre-emptive right
Rights of a 4. Receive dividends, if any
Shareholder 5. Share equally in any assets remaining
after creditors are paid in a liquidation
6. Adopt, amend or repeal the by-laws
7. Inspect corporate books and records
and receive financial reports of the
corporation’s operations
  Corporators
 Incorporators
 Shareholders
 Members
Components of  Subscribers
a Corporation  Promoters
 Underwriters
 Independent director – at least 2 or at
least 20% of the members whichever is
lesser
 ORDINARY SHARES

 These carry no special rights or

restrictions. They rank after preference shares
as regards dividends and return of capital but
carry voting rights (usually one vote per share).

Classes of Shares PREFERENCE SHARES

 These shares have a right to receive a fixed

amount of dividend every year. This is received
ahead of ordinary shareholders. The amount of
the dividend is usually expressed as a
percentage of the nominal value.
  Each unit of ownership is called a share
of stock.
 A stock certificate serves as proof that a
stockholder has purchased shares.

Stock Certificate

When the stock is sold, the stockholder signs a

transfer endorsement on the back of the stock
certificate.
 Authorized: Maximum number of shares
that a corporation’s charter is authorized to
sell.
Issued: Total amount of stock that has been
fully paid for or sold to stockholders.
Subscribed: shares purchased by an
investor subject to an installment payment
Basics of Capital contract or which have not been fully paid
Stock for.
Outstanding shares: these are issued
shares which are in the hands of he
shareholders. Equal to issued less treasury.
Treasury shares: issued but reacquired by
the corporation, no longer outstanding.
  Par value is an arbitrary amount
assigned to each share of stock when it is
authorized. ≠ Market price is the amount
that each share of stock will sell for in the
market.
Basics of Capital  Classes of Stock
Stock – Par Value
– No-Par Value
– Stated Value

Minimum stated value : P5 per share

Shares issued without par value are deemed fully paid
 CORPORATION SHAREHOLDERS

Authorized Sold and Issued

Authorized Subscribed Collected Issued

Reacquired either
to be resold or Issued
retired

Movement of Stock
  At least 25% of the authorized capital
stock must be subscribed and of the
subscribed, at least 25% must be paid
upon subscription.

Minimum  The balance of the subscription must be

Subscription and paid on the date fixed in the subscription
Paid-In Capital contract.
 In no case shall the paid in capital be less
than P5,000.
 The total subscription shall be the basis
of the 2nd 25% and not the individual
subscription.
  Assume that the authorized share
capital is P3,000,000 divided into
30,000 shares with P100 par value per
share.
 How much should be subscribed
Illustration share capital?
 P750,000
 How much should at least be paid-up?
 P187,500
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