 Conceptual Framework and Accounting Standards
 Corporation
 Basic Consideration
 Week 1
 Concept of Corporation
Attribute of a Corporation
The attributes of a corporation are:
 It is an artificial being
 It is created by operation of law
 It has the right of succession by its name; and
 It possesses the powers, attributes, and properties expressly authorized by law or incident to its
existence
Reference: Corporation Code. Section 2
 Artificial Being – Doctrine of Corporate Entity
Also called as “Doctrine of Separate Personality”
Corporation are juridical persons to which the law grants a juridical personality, separate and distinct
from that of each shareholder
Civil Code, Art 40
 Artificial Being (continued)
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from
its stockholders and from other corporations to which it may be connected. But, this separate and
distinct personality of a corporation is merely a fiction created by law for convenience and to promote
justice.
 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.
 How Private Corporations are created:
1. By General Law – Private corporations are generally created under the provision of the
Corporation Code. This is done by filing the appropriate Articles of Incorporation (AOI) with
Securities and Exchange Commission (SEC).
2. By Special Law – Private corporation, as a general rule, cannot be created by special laws. The
only exception is the creation of government-owned or controlled corporation which may be
organized under the Corporation Code or by special law.
 Right to succession
A corporation has the capacity of continued existence subject to the period stated in the Articles of
Incorporation.
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 partnership.
 Power, attributes and
properties expressly authorized
by law
A corporation has only the power, attributes and properties expressly authorized by law or incident to
its existence.
Being a mere creation of law, a corporation can only exercise powers provided by law and those powers
which are incidental to its existence.
 Other notable attributes of Corporation
 Advantages of a Corporation
 The corporation has the legal capacity to act as a legal entity.
 Shareholders have limited liability.
 It has the continuity of existence.
 Shares of stock can be transferred without the consent of the other shareholders.
 Its management is centralized in the board of directors.
 Shareholders are not general agent of the business.
 Greater ability to acquire funds.
 Disadvantage of a corporation
 A corporation is relatively complicated in formation and management.
 The greater degree of government control and supervision.
 It requires a relatively high cost of formation and operation.
 It is subject to heavier taxation than other forms of business organizations.
 Minority shareholders are subservient to the wishes of the majority.
 Classes of Corporation