Corporation Accounting
Basic Considerations
BP Blg. 68 - The Corporation Code of the
Philippines
R.A. 11232 - The Revised Corporation Code
of the Philippines
Corporation
• 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 of its existence (The Corporation
Code of the Philippines, Sec. 2).
Question 1
• Which of the following is not an attribute of
a corporation?
a)A corporation is an artificial being with a
personality separate and apart from its
individual shareholders and members.
b)It is created by operation of law.
c)It enjoys the right to succession.
d)It can come into existence by mere
agreement of the parties.
Answer
• D.
Question 2
• Statement 1: Ownership of a corporation is
divided into shares.
• Statement 2: Shareholders act as agents
of the corporation.
a)Both statements are true
b)Both statements are false
c)Only the first statement is true
d)Only the second statement is true
Answer
• C.
• Proprietorship in a corporation is divided
into units known as shares of stocks.
• Management of the business is vested in a
board of directors (BOD) elected by the
stockholders. The BOD is the governing
body or decision-making body of the
corporation.
Question 3
• Which of the following is an advantage of
a corporation?
a)unlimited liability
b)ease of formation
c)limited life
d)unlimited life
Answer
• D.
• The
comparison
betweed
partnership
and
corporation is
shown at the
right ->
Partnership
Corporation
Formed by 2 or more
persons
Formed by 1 or more
persons, not exceeding
15 (RA 11232)
Starts with agreement
among partners; may be
formed orally
Starts with the issuance
of a certificate of
incorporation issued by
SEC
Unlimited liability
Limited liability
Limited life
Unlimited life
Transfer of equity of a
partner needs the
consent of other
partners
Shares can be
transferred from one
shareholder to another
without getting the
consent of other
shareholders
Partner is an agent of
the partnership
Shareholders do not act
as agents of the
corporation
Revisions under the Revised
Corporation Code
• As to number of incorporators: 1 or more person,
partnership, association or corporation, singly or jointly
with others but not more than 15 (removed the “majority
are residents of the PH”)
• As to corporate term: “perpetual existence unless stated in
the articles of incorporation” (removed the 50-year period)
• As to extension of term: That no extension may be made
earlier than three (3) years prior to the original or
subsequent expiry date(s) unless there are justifiable
reasons for an earlier extension as may be determined by
the Commission (previously 5 years)
Question 4
• The following are advantages of
corporation, except
a)The greater degree of government control
and supervision.
b)The corporation has the legal capacity to act
as a legal entity.
c)Shares of stock can be transferred without the
consent of the other shareholders.
d)None of the above
Answer
• A
• 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.
Answer (cont.)
• Disadvantages 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.
Question 5
• The following are not true about stock
corporation, except
a)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
b)is one where no part of its income is distributable as
dividends to its members, trustees or officers.
c) Any profit that a stock corporation may obtain as an
incident to its operation shall, whenever necessary or
proper, be used for the furtherance of the purpose/s
for which the corporation was organized
d)All of the above are false.
Answer
• A
• Letters B and C pertain to non-stock
corporations.
Question 6
• Owners of a stock corporation are called
as
a)members
b)shareholders
c)proprietors
d)partners
Answer
• B.
• in case of non-stock corporations
(members)
Rights of a shareholder
• Right to be issued certificate of stock or other evidence
of share ownership and to transfer such shares.
• Right to attend and vote in person or by proxy at
shareholders’ meetings.
• Right to elect and remove directors.
• Right to adopt, amend or repeal the by-laws.
• Right to purchase a portion of any new shares issued to
maintain the same percentage of stock percentage. This
is known as the pre-emptive right. However, this right is
not absolute and may be denied.
Rights...
• Right to receive dividends when declared.
• Right to inspect corporate books and
records, and to receive financial reports of
the corporation’s operations.
• Right to participate in the distribution of
corporate assets upon dissolution.
Question 7
• A corporation consisting of one
stockholder.
a)
b)
c)
d)
Civil corporation
Corporation aggregate
Corporation by estoppel
None of the above
Answer
• D.
Other classifications of corporations
• According to number of persons:
– Corporation aggregate – consisting of more than one
corporator.
– Corporation sole* or a special form of corporation
usually associated with the clergy – consists of only one
member or corporator and this successors such as a
bishop.
One Person Corporation (RA
11232)
•
•
•
One Person Corporation – a corporation with a single stockholder:
– natural person
– estate
– trust
Banks and quasi-banks, pre-need, trust, insurance, public and
publicly-listed companies, and non-chartered government-owned
and controlled corporations may not incorporate as One Person
Corporations
That a natural person who is licensed to exercise a profession may
not organize as a One Person Corporation for the purpose of
exercising such profession except as otherwise provided under
special laws
Question 8
• Statement 1: Jollibee Foods Corporation, even if
it operates outside the country, is a domestic
corporation.
• Statement 2: Starbucks Co., a popular coffee
shop, may be considered a domestic corporation
because of its operations at some branches in
Philippines.
a)Both statements are true
b)Both statements are false
c) Only the first statement is true
d)Only the second statement is true
Answer
• C
Other classifications...
• According to nationality (incorporation test):
– Domestic corporation – organized under Philippine laws.
– Foreign corporation – organized under foreign laws.
• Starbucks Co. is organized under foreign laws. Only franchise
of Starbucks is operating at PH under some corporation
established here in PH.
• Under the Revised Corporation Code, control test may be
considered for the situs of the corporation.
Question 9
• Statement 1: A partnership may be
established for religious purposes.
• Statement 2: A corporation may be
established for religious purposes.
a)Both statements are true
b)Both statements are false
c)Only the first statement is true
d)Only the second statement is true
Answer
• D.
Other classifications...
• According to whether for religious/charitable purpose or
not:
– Ecclesiastical corporation – organized for religious purposes
– Eleemosynary corporation – established for public charity
– Civil corporation – established for business or profit
Answer
Other classifications...
•According to whether for public or private purpose:
– Public corporation – formed for the government of a portion of
the state
– Private corporation – created for private aim, benefit or
purpose
• GOCCs
• Quasi-public corporations (Meralco, Maynilad, etc.)
• Corporations other than public corporations
Question 10
• Statement 1: De facto corporations are
corporations existing in fact and in law.
• Statement 2: All persons who assume to act as a
corporation knowing it to be without authority to
do so are called corporation by estoppel.
a)Both statements are true
b)Both statements are false
c)Only the first statement is true
d)Only the second statement is true
Other classifications...
• According to their legal right to corporate existence:
– De jure corporation – existing in fact and in law.
– De facto corporation – existing in fact but not in law.
– Corporation by Estoppel – All persons who assume to act as a corporation
knowing it to be without authority to do so.
• According to degree of public participation with regard to their share
ownership:
– Close corporation – share ownership is limited to selected persons or member
of a family not exceeding 20 persons.
– Open corporation – the share is available for subscription or purchase by any
person.
• According to their relation to another corporation:
– 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.
– Subsidiary corporation – a corporation controlled by another corporation
known as a parent corporation.
Question 11
• Shareholders or members mentioned in
the articles of incorporation as originally
forming and composing the corporation
and are signatories to said articles of
incorporation
a)Corporators
b)Incorporators
c)Shareholders
d)Members
Answer
• B.
• Other components of a corporation:
– Corporators are those who compose a
corporation whether as shareholders or
members, at any time. This term includes
incorporators, shareholders or members.
– Shareholders or stockholders are corporators
in a stock corporation (Sec. 5). Shareholders
may be natural or juridical persons.
– Members are corporators of a non-stock
corporation (Sec. 5).
Other components of corporation
• Subscribers are persons who have agreed to take and
pay for original, unissued shares of a corporation formed
or to be formed.
• Promoters are persons who bring about or cause to
bring about the formation and organization of a
corporation.
• Underwriters are usually investment bankers who have:
– 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.
Share Capital and other terms
• Capital stock - amount specified in the articles of
incorporation paid in, or procured to be paid in for
carrying on of the business of the corporation.
– Authorized shares. The maximum number of shares which a
corporation may issue.
– Issued shares. Shares issued to shareholders which at present
may or may not be in the hands of the shareholder.
– Unissued shares. Shares which never been issued and are
available for issuance.
– Outstanding shares. Shares issued to shareholders or
subscribers whether fully or partially paid except for treasury
shares.
– Subscribed shares. Shares which investors have contracted to
acquire.
Classes of shares under the
Corporation Code
• 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 share.
– Section 6 of the Code states that preference (or preferred) shares of stock
may be issued only as par value shares
• No-par value shares. One without any value appearing
on the face of the certificate of stock.
– However, the minimum stated value of a no-par value share is 5 pesos
(P5.00) per share (Sec. 6). In addition, shares issued without par value are
deemed fully paid.
– Banks, trust companies, insurance companies. Public utilities, and building
and loan associations are not permitted to issue no-par value shares of
stock.
Under the Revised Corporation
Code
• Pre-need companies are included among
those not permitted to issue no-par value
shares of stock
• As to effectivity of preferred shares, it shall
be upon the issuance by the SEC of a
certificate (previously at the time of filing
the certificate to SEC)
Classes of shares
• Voting shares. Those issued with the right to vote.
• Non-voting shares. Those issued without the right
to vote.
• Ordinary shares. These shares entitle the holder
to an equal pro-rata division of profits without any
preference.
• Preference shares. These shares entitle the
holder to certain advantages or benefits over the
holders of ordinary shares.
Classes of shares
• 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.
• Treasury shares. A stock that has been issued by
the corporation as fully paid and later reacquired
but not retired.
• Convertible shares. A stock which is convertible
or changeable from one class to another class.
Classes of shares
• Redeemable shares. Those with grant the issuing
corporation the power to redeem or purchase them
after a certain period, subject to rules and
regulations issued by SEC.
• Watered shares. Those issued without or
inadequate consideration.
• Founders' shares. Classified as such in the articles
of incorporation may be given certain rights and
privileges not enjoyed by the owners of other stocks
(not to exceed 5 years subject to approval of SEC)
– exclusive rights not allowed if violate Anti-Dummy Law
(Commonwealth Act No. 108); Foreign Investments Act
(R.A. 7042) and other pertinent laws
Question 12
• Under the Old Corporation Code, the
following are correct about minimum
subscription capital, except
a)At the time of incorporation, at least 25% of the
authorized capital stock (or share capital) as
stated in the articles of incorporation must be
subscribed
b)at least 25% of the total subscription must be
paid upon subscription
c)in no case shall the paid-in capital be less than
5,000 pesos (P5,000)
d)All of these are correct
Answer
• D.
• A, B and C are the minimum requirements
of subscription under the Old Code.
• Under the Revised Code, no minimum
requirements stated.
Question 13
• Under the Old Code, which of the following
subscriptions does not comply with the
requirements at the time of incorporation?
(The order of amounts in PHP is
"authorized," "subscribed," and "paid-up")
a)P1,000,000; P250,000; P62,500
b)P300,000; P75,000; P50,000
c)P100,000; P100,000; P100,000
d)P50,000; P12,500; P3,125
Answer
• D.
Question 14
• Which of the following is not correct?
a)Share of stock represents the rights and
interest of a stockholder in the corporation,
while stock certificate is the written evidence
of such right
b)Share of stock is tangible, while stock
certificate is intangible
c)Share of stock may be issued even if not fully
paid, while stock certificate is issued only if
the subscription is fully paid
d)All of them are correct
Answer
• B
Question 15
• Sec. 13 of the Revised Corporation Code
provides that all corporations organized
under this Code shall file with the SEC
_______ in any of the official languages
duly signed and acknowledged by all of the
incorporators
a)
b)
c)
d)
articles of co-partnership
articles of corporators
articles of incorporation
private contract of incorporation
Answer
• C
• Articles of Incorporation containssubstantially the
following matters except as otherwise prescribed by this
Code or by special law:
– The name of the corporation;
– The specific purpose/s for which the corporation is formed;
– The principal place of business which must be within the
Philippines;
– The term of existence;
– The names, nationalities and residences of the incorporators;
– The number of directors or trustees, which shall not be less than
5 nor more than 15;
Articles of Incorporation...
• The names, nationalities and residences of the persons
who shall act as directors or trustees until the first regular
directors or trustees are elected and qualified.
• if it be a stock corporation:
– Amount of authorized share capital in pesos,
– Number of shares into which it is divided,
– In case the shares are par value shares:
• The par value of each share,
• Names, nationalities and residences of the original subscribers,
• The amount subscribed and paid by each subscriber on his
subscription.
– In case of no par value, the articles need only state such fact,
and the number of shares into which said share capital is divided.
• If it be a non-stock corporation, the amount of its capital,
the names, nationalities and residences of the
contributors and the amount contributed.
Articles of Incorporation (RA
11232)
• In addition:
– An arbitration agreement may be provided in
the articles of incorporation
– The articles of incorporation and applications
for amendments thereto may be filed with the
Commission in the form of an electronic
document, in accordance with the
Commission’s rules and regulations on
electronic filing.
Steps in creation of Corporation
• Promotion – process of bringing together
the incorporators or the persons interested
in business, or procuring subscriptions or
capital for the corporation and of setting in
motion the machinery that leads to the
incorporation of the corporation itself.
Steps…
• Registration and Incorporation
– Verification from the records of SEC that the proposed
corporate name is not the same or similar to an
existing corporation
– Drafting and execution of the articles of incorporation
by the incorporators
– Deposit by the treasurer of the cash paid for the
shares subscribed in the bank in the name of the
treasurer
– Filing of the articles of incorporation
– Payment of filing fees
– Endorsement from other gov’t agencies
– Issuance by the SEC of the certificate of incorporation
Steps…
• Formal organization and commencement
– (Sec. 22) if a corporation does not formally organize and
commence the transaction of its business within 5 years from the
date of its incorporation, its certificate of incorporation shall be
deemed revoked as of the day following the end of the five-year
period (RA 11232).
– However, if a corporation has commenced business but
subsequently becomes continuously inoperative for a period of
at least 5 years, the Commission may, after due notice and
hearing, place the corporation under delinquent status (RA
11232).
– A delinquent corporation shall have a period of two (2) years to
resume operations and comply with all requirements that the
Commission shall prescribe.
By-laws
• Rules of action adopted by the corporation for its internal
government and for the government of its officers,
shareholders or members.
• Within one (1) month after receipt of official notice of the
issuance of its certificate of incorporation by the SEC
(BP 68, not stated in RA 11232)
• For the adoption of by-laws by the corporation, the
affirmative vote of the stockholders representing at least
a majority of the outstanding capital stock, or of at least a
majority of the members in case of nonstock
corporations, shall be necessary (BP 68 & RA 11232).
Provision of By Laws
• (a)The time, place and manner of calling and conducting
regular or special meetings of the directors or trustees;
• (b)The time and manner of calling and conducting
regular or special meetings and mode of notifying the
stockholders or members thereof;
• (c)The required quorum in meetings of stockholders or
members and the manner of voting therein;
• (d)The modes by which a stockholder, member, director,
or trustee may attend meetings and cast their votes;
• (e)The form for proxies of stockholders and members
and the manner of voting them;
Provision of By Laws
• (f)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
Commission
• (g)The time for holding the annual election of directors of
trustees and the mode or manner of giving notice thereof;
• (h)The manner of election or appointment and the term of
office of all officers other than directors or trustees;
Provision of By-Laws
• (i)The penalties for violation of the bylaws;
• (j)In the case of stock corporations, the manner of
issuing stock certificates; and
• (k)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.
Basic Corporate Organizational
Structure
• Hierarchy of Corporate Structure
– Shareholders – owners of the corporation
– Board of Directors/Trustees – responsible for the
formulation of the overall policies for the corporation
– Directors shall be elected for a term of one (1) year from
among the holders of stocks registered in the corporation’s
books,
– trustees shall be elected for a term not exceeding three (3)
years from among the members of the corporation
Basic Corporate Organizational
Structure
– Officers
• President (or CEO) – must be a director, but cannot act as
president and secretary/treasurer at the same time
• Corporate secretary – resident and citizen of PH, make and
keep its records and to make proper entries of the votes,
resolutions and proceedings in management of corporation
• Corporate treasurer (or CFO) – entrusted with the authority
of cash receipts/disbursements as he may be authorized;
must be a resident (RA 11232)
• Compliance Officer
• Other officers as provided in by-laws
– Employees
Corporate Books and Records
•
•
•
•
•
•
•
Minutes book
Stock and transfer book
Books of accounts
Subscription book
Shareholders’ ledger
Subscribers’ ledger
Stock certificate book