Corporation

Definition
Sec. 2, Corporation Code of the Philippines 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.

Corporation
Characteristics of a corporation
1. Separate legal entity 2. Created by operation of law 3. Right of succession 4. Has powers, attributes and properties expressly authorized by law or incidental to its existence

Corporation
Comparisons among sole proprietorships, partnerships and corporations
Sole Proprietorship Formed by 1 person Formed simply beginning a business Unlimited liability Limited life No transfer of equity Formed persons Partnership by at least Corporation 2 Formed 5 to 15 persons

by Starts with an agreement Existence starts when SEC among partners issues certificate of incorporation Unlimited liability Limited life Limited liability Relatively unlimited life

Transfer of equity needs the Transfer of equity does not consent of other partners need the consent of other shareholders

Proprietor is the agent of the Partner serves as an agent of Shareholders do not act as proprietorship the partnership shareholders of the corporation

Corporation
Components of a corporation
1. Corporators a. b. 2. 3. Shareholders Members

Incorporators Promoters

4.
5.

Subscribers
Underwriters

Corporation
Types of corporations
1. 2. 3. 4. 5. Public/GOCC Private Domestic Foreign Stock

6.
7. 8.

Non-stock
Open Closely-held

Corporation
Advantages of a corporation
1. Accumulation of capital 2. Limited liability 3. variety of ownership interest 4. Right of succession 5. Continuity of corporate existence

Disadvantages of a corporation
1. Difficult to create, organize and manage

2. More reportorial requirements with the SEC

3. Double taxation

Corporation
Incorporation
Sec. 10 to 13 and 22, Corporation Code of the Philippines 1. Incorporators must be 5 to 15 natural persons, all of legal age and majority of whom are residents of the Philippines. 2. A corporation may exist for a period not exceeding 50 years, but may extend for periods not exceeding 50 years.

3. No minimum authorized shares is required by law.

4. At least 25% of the authorized shares must be subscribed, and at least 25% of the total subscriptions must be paid, provided that it is not less than P5 000. 5. The corporation should start its operations within 2 years from incorporation.

Corporation
Articles of incorporation
Sec. 14, Corporation Code of the Philippines 1. Name of the corporation

2. Purpose
3. Address of the principal office 4. Term for which the corporation is to exist 5. Names, nationalities and residences of the incorporators 6. Number of directors and trustees 7. Names, nationalities and residences of the directors and trustees 8. Amount of authorized shares for a stock corporation

9. Names, nationalities and residences of contributors and amount contributed by each for
a non-stock corporation 10. Such other matters as are not inconsistent with law and which the incorporators may deem necessary and convenient.

Corporation
By-laws
Sec. 47, Corporation Code of the Philippines 1. Time, place and manner of calling and conducting regular or special meetings of the directors or trustees 2. Time, place and manner of calling and conducting regular or special meetings of the shareholders or members 3. Quorum in meetings and the manner of voting 4. Form for proxies for shareholders 5. Qualifications, duties and compensation of directors and trustees, officers and employees 6. Time for holding the annual election of directors and trustees 7. Manner of election or appointment and the term of office of all officers other then

directors and trustees 8. Penalties for violation of by-laws 9. Manner of issuing share certificates for stock corporations 10. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs.

Corporation
Corporate books and records
1. 2. journals and ledgers Minutes books for meetings of shareholders

3.
4.

Minutes books for meetings of the board of directors

Share and transfer book

Types of shares issued by a corporation

1. 2. 3. 4. Par No par Ordinary Preference

Corporation
Share System
Authorized shares maximum number of shares that can be sold to the public Unissued shares unsold shares

Issued shares shares that have been sold

Outstanding owned by shareholders Treasury reacquired shares; not an investment of the company Retired shares previously issued, but then reacquired and cancelled Subscribed shares contracted to acquire

Corporation
Variety of Ownership Interests
Ownership rights: 1. To share proportionately in profits or losses

2. To share proportionately in management

3. To share proportionately in corporate assets upon liquidation 4. To share proportionately in any new issues of shares in the same class Ordinary Shares: residual corporate interest that bears the ultimate risks and receives the benefits Preference Shares: certain preferences to earnings

Corporation
Ordinary shares
1. Basic voting shares of the corporation 2. Bears ultimate risk of loss

3. Receives the benefits of success

4. Not guaranteed dividends nor assets upon dissolution 5. Dividends determined by the board of directors

Preference shares
1. Generally does not have voting rights 2. Usually have par or stated values 3. Dividend preference over ordinary shares 4. Preference over ordinary shares in the event of liquidation