ACCOUNTING FOR CORPORATION
CHAPTER 5 Basic Considerations
REVISED CORPORATION CODE
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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 Philippines (Corporation
Code) or Batas Pambansa Blg. 68, was the law that governed corporations.
The Corporation Code took effect on May 1, 1980.
The first general law on corporations in the Philippines, 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 introduce the following reforms:
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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
Corporation
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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 (Revised Corporation Code of the
Philippines. Sec 2).
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.
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
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The corporation has the legal capacity to act as a legal entity.
Shareholders have limited liability.
It has continuity of existence.
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
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A corporation is relatively complicated in formation and management.
There is a 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
n 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
Section 3 of the RCCP classified private corporations into:
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.
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 (Sec.
86).
- Non-stock corporations may be formed or organized for charitable,
religious educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civic service, or similar purposes, like trade,
industry, agricultural, and like chambers or any combination (Sec.
87).
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
the clergy: It is a corporation which consists of only one member or
corporator and his successors such as a bishop.
2. According to nationality:
A. Domestic Corporation. A corporation organized under Philippine laws.
B. Foreign Corporation. A corporation formed, organized or existing under
laws other than the Philippines and whose laws allow Filipino citizens and
corporations to do business in its own country or State (Sec. 140).
3. According to whether for public or private purpose:
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.
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.
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 with the law.
B. De facto corporation. A corporation existing in fact but not in law.
6. According to degree of public participation with regard to share ownership:
A. Close corporation. A corporation whose share ownership is limited to
selected persons or members of a family not exceeding 20 persons.
B. Open corporation. A corporation where the share 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 (SRC Rule 3-1.M, Amended IRR of the Securities
Regulations Code (R.A. 8799)).
7. According to their relation to another corporation:
A. Parent or holding corporation. A corporation that is related to another
corporation that it has the power to either directly or indirectly elect the
majority of the directors of a subsidiary corporation.
B. Subsidiary Corporation. A corporation controlled by another corporation
known as a parent corporation.
COMPONENTS OF A CORPORATION
1. Corporators - are those who compose a corporation, whether as stockholders
or shareholders in a stock corporation or as members in a nonstock corporation
(Sec. 51).
2. Incorporators - are those stockholders or members mentioned in the Articles of
Incorporation (AOI) as originally forming and composing the corporation and
who are signatories to said articles of incorporation (Sec. 5).
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Section 10 of the RCCP provides that any person, partnership, association
or corporation, singly or jointly with others but not more than fifteen (15) in
number, may organize a corporation for any lawful purpose or purposes.
Natural persons who are licensed to practice a profession, and partnerships
or associations organized for the purpose of practicing a profession, shall
not be allowed to organize as a corporation unless otherwise provided
under special laws.
Incorporators who are natural persons must be of legal age. Each
incorporator of a stock corporation must own or be a subscriber to at least
one (1) share of the capital stock.
Note: All incorporators (if they continue to be shareholders) are corporators
of a corporation, but not all corporators are incorporators. An incorporator
will always retain his status as such though no longer having an interest in
the corporation.
3. Shareholders or stockholders - are corporators in a stock corporation (Sec. 5).
Shareholders may be natural or juridical persons.
4. Members - are corporators of a non-stock corporation (Sec. 5).
5. Subscribers - are persons who have agreed to take and pay for original,
unissued shares of a corporation formed or to be formed. Note: All incorporators
are subscribers but a subscriber need not be an incorporator.
6. Promoter - is a person who, acting alone or with others, takes initiative in
founding and organizing the corporation and receives consideration therefor.
7. Underwriters - are usually investment bankers who have
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agreed, alone or with others, to buy at stated terms an entire or a
substantial part of an issue of securities; or
guaranteed the sale of an issue by agreement to buy from the issuing
corporation any unsold portion at a stated price; or
agreed to use his best efforts to market all or part of an issue, or
offered for sale shares he has purchased from a controlling stockholder.
8. Independent director - is a person who, apart from shareholdings and fees
received from the corporation, is independent of management and free from
any business or other relationship which could, or could reasonably be perceived
to, materially interfere with the exercise of independent judgment in carrying out
the responsibilities as a director (Sec. 22).
9. Additional General Powers per RCCP. - Every corporation incorporated under
the RCCP is expressly given the power to enter into a partnership, joint venture, or
any commercial agreement with natural or juridical persons (Note under BP68,
only to enter into merger or consolidation with other corporations)
- Also, domestic corporations are allowed to give donations in aid of any political
party or candidate or for purposes of partisan political activity (Sec 35). These
were not allowed in the Corporation Code.
CLASSES OF SHARES
1. Par value shares. - One in which a specific amount is fixed in the articles of
incorporation and appearing on the certificate of stock. The par value is the
minimum issue price of the shares.
- Section 6 of the Code states that preference (or preferred) shares of stock may
be issued only as par value shares.
2. No-par value shares. - One without any value appearing on the face of the
certificate of stock.
- A no-par value share may have a stated value which may be fixed in the articles
of incorporation or by the board of directors or the shareholders. Thus, the issue
price may vary from time to time as it is usually fixed based on the book value of
the corporation's shares.
3. However, the minimum stated value of a no-par value share is five pesos (P5.00)
per share.
4. Voting shares. Those issued with the right to vote.
5. Non-voting shares. Those issued without the right to vote.
6. Ordinary shares. These shares entitle the holder to an equal pro-rata division of
profits without any preference.
7. Preference shares. These shares entitle the holder to certain advantages or
benefits over the holders of ordinary shares.
8. Founders' shares may be given certain rights and privileges not enjoyed by the
owners of other stocks (Sec. 7).
9. Redeemable shares - may be issued by the corporation when expressly
provided in the articles of incorporation.
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They are shares which may be purchased by the corporation from the
holders of such shares upon the expiration of a fixed period, regardless of
the existence of unrestricted retained earnings in the books of the
corporation, and upon such other terms and conditions stated in the
articles of incorporation and the certificate of stock representing the shares
(Sec. 8).
10. Treasury shares. - A stock that has been issued by the corporation as fully paid
and later reacquired but not retired.
11. Promotion shares. - Those issued to promoters as compensation in promoting
the incorporation of a corporation, or for services rendered in launching or
promoting the welfare of the corporation.
12. Convertible shares. - A stock which is convertible or changeable from one
class to another class.
NO MINIMUM CAPITAL STOCK
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Stock corporations shall not be required to have a minimum capital stock,
except as otherwise specifically provided by special law (Sec 12).
The minimum paid-in capital of at least P5,000 under Sec. 13 of the
Corporation Code of the Philippines was deleted.
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There is also no minimum subscribed capital and no minimum paid in
capital requirement.
The requirements under Section 13 of the Corporation Code of the
Philippines, which states: "at the time of incorporation, at least 25% of the
authorized capital stock as stated in the articles of incorporation must be
subscribed and at least 25% of the total subscription must be paid upon
subscription," have been deleted in the RCCP.
Note that the 25% subscribed and 25% paid-up rule is still applicable when
the corporation increases its capital stock (Sec. 37).
BASIC CORPORATE ORGANIZATIONAL STRUCTURE
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The ultimate control of the corporation rests with the shareholders. They are
the owners of the corporation. The shareholders elect the top governing
body of the corporation, the members of the board of directors.
The board of directors is responsible for the formulation of the overall
policies for the corporation and for the exercise of corporate powers. 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 (as defined earlier) must be elected by the shareholders present
or entitled to vote in absentia during the election of directors (Sec. 22).
Hierarchy of Corporate Structure
Shareholders elect the Board of Directors elect the Officers hire Employees
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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. 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.
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.
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If the corporation is vested with public interest, the board shall also elect a
compliance officer (Sec. 24).
RIGHTS OF A SHAREHOLDER
The following are some of the 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 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 repeal 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 records, and to receive financial
reports of the corporation's operations.
8. Right to participate in the distribution of corporate assets upon dissolution.
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. Subscribers' ledger. It is a subsidiary ledger for the subscriptions
receivable account; it reports the individual subscriptions of the
subscribers.
7. Stock certificate book. It is a book of printed blank certificates of stock.
ONE PERSON CORPORATION (OPC)
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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.
The OPC has a personality separate and distinct from the single
stockholder. The sole shareholder's liability is limited to his investment. He has
the burden of affirmatively showing that the corporation was adequately
financed.
Where the single stockholder cannot prove that the property of the OPC is
independent of the stockholder's personal property, the stockholder shall
be jointly and severally liable for the debts and other liabilities of the OPC.
The principle of piercing the corporate veil applies with equal force to OPC
as with other corporations (Sec. 130).
The single stockholder shall be the sole director and president of the OPC
(Sec. 121). Within fifteen (15) days from the issuance of its certificate of
incorporation, the OPC shall appoint a treasurer, corporate secretary, and
other officers as it may deem necessary, and notify the SEC thereof within
five (5) days from appointment.
The single stockholder may not be appointed as the corporate secretary.
The single stockholder may be the treasurer. The single stockholder who is
likewise the self-appointed treasurer of the corporation, shall give a twoyear term bond to the SEC in such a sum as may be required (Sec. 122).
The single stockholder cannot be a corporate secretary in view of its special
function under Section 123 (c), "notify the SEC of the death of the single
stockholder within five (5) days from such occurrence and stating in such
notice the names, residence addresses and contact details of all known
legal heirs."