Corporation –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.
ARTIFICIAL BEING
LEGAL PERSONALITY
RIGHT OF SUCCESSION
CORPORATE OWNERSHIP
LIMITED LAIBILITY
TRANSFERABILITY OF INTEREST
Distinctions between Partnership
and Corporation
• Corporation
1.Created by law
2. Requires at least 5 incor
porators to be organized
Partnership
created by mere agreement
of the parties
may be organized by only 2
3. Capital raising ability is limited
By the profitableness in which
Funds of stockholders are employed
capital raising ability
is limited by the #
of partners
4. Creditors of corp cannot
claim the personal assets
General partners have
unlimited liability
of the stockholders
5. There is continuity of
business life.
6. Can only be dissolved with
the consent of the
state
It has a limited life.
May be dissolved at any
time by the will of the
any or all the partners
Advantages….
 greater amount of capital
Limited liability
Transferability of shares of stocks
Continous existence
Centralized management
Standard creation
Disadvantages ….
• Subject to governmental
control and supervision
• Heavy taxation
• It is more costly to
organize
• Complicated formation
• Stockholders have little
voice in the conduct of the
business
Types of Corporation
 Public corporation
 Private corporation
Stock corp and non – stock corp
 Government Owned or Controlled Corp
 Domestic
 Foreign
 Close
 Open
Kinds of Stocks
AS to value
Par Value – one which has a fixed valuemstated
on the certificate of stock and in the articles of
incorporation.
No Par Value - one without a designed value
stated in the stock cerificate but it can not be
sold at less than P5.00 as provided in the
Corporatin Code of the Philippines.
As to Right…..
•
Common stock – an
ordinary stock issued
by a corporation
entitling the owner to
a pro rata dividend
without priority or
preference over any
other stockholders.
• Preferred Stock – a
class of stock with
preferential rights or
claims over the
common stock
Legal capital – refers to the minimum
permanent investment which can not be
distributed to the stockholders in the
lifetime of the corporation. This is called
the TRUST FUND DOCTRINE/
Illustration ! ! !
• X Corp issued 1,000 shares of stock with a
par value of P100 in exchange for P120,000
cash.
• X Corp issued 1,000 shares of no par value
stock in exchange for P120,000 cash.
Rights of the Stockholders
 Right to share in the corporate profits at the
discretion of the Board of Directors
 Right to vote and to attend annual stockholders’
meetings
 Right to share in the distribution of assets upon
liquidation of the business
 Right to purchase additional shares of stock whenever
there is an increase in the authorized capital stock.
This is called pre-emptive right
Incorporation Requirement:
• The law permits any number of natural persons,
not less than 5 and not more than 15, to form a
private corporation.
• At least 25% of the authorized capital stock
must be subscribed and at least 25% of these
subscriptions must be paid.
Note: the corp code does not mention any minimum authorized
number of shares for as long as the paid up capital is not less than
P5,000.
• A corporation should file its Articles of
Incorporation with the SEC, duly signed
and acknowledged by all incorporators .
Terms to Remember
Authorized Capital Stock –represents the maximum
# of shares or amount the corporation may issue a stated
in the articles of incorporation approved by the SEC.
• Stock Subscription- an agreement to purchase stock
and states the number of shares being subscribed,
the subscription price, term of payment and call dates.
• Capital Stock – this represents the amount paid in by
the stockholders whether in cash , property or service
and for which a certificate of stock is issued as
evidence of stock ownership.
Certificate of Stock – a written evidence of
the holder’s ownership of shares.
• Unissued Capital Stock – difference between the
authorized capital stock and the outstanding capital
stock.
• Subscsription Receivable - amount of contract price
collectible from the subscriber.
• Paid up Capital Stock – the portion of the subscribed
or outstanding capital stock that is paid.
Accounting for stock
transaction!
• Authorization – recording the maximum number of shares
corp is authorized to issue. This is called authorized capital stock.
a
• Sale – when a SH buys and
pays immediately in full, the stocks are
considered sold and a stock certificate is issued.
• Subscription –a subscriber enters into a contract
to buy a
number of shares . A down payment is usually required with the
balance payable on fixed dates.
• Collection of subscription – the subscription may be paid
by the stockholders in cash property, service or in the form of
business.
• Issuance of Certificate – issued once subscription is
fully paid.
2 methods of recording
• Memorandum entry method
• Journal entry method
Things to remember!
• Asset contributions may be in the form of
cash, property, or service
• Properties must be recorded at its fair
market value or the fair market value of the
stock to be issued whichever is clearly
determinable
• Services must be recorded at its billed price
• Capital stock and Subscribed Capital Stock
must be recorded at the par value. Stocks
are issued only when the stocks are fully paid
for