Chapter 5
Corporation – Nature and Formation
1. As to how created
2. Number of incorporators or partners
3. How managed
4. As to powers
5. Extent of liability of stockholders or partners
6. Transferability of ownership or interest
7. Duration
8. Effects of withdrawal, resignation, or death of a
stockholder or partner
Classes of Private Corporation
• Stock corporation
Corporations with capital stock 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 thus held.
• Non-stock corporation
Are corporations organized for non-profit
purposes, do not issue stocks and are
then composed of members
Components of a Corporation
• Incorporators
those mentioned in the articles of incorporation
as originally forming and composing the
corporation and signatories thereof.
• Corporators
those who compose the corporation as a:
– Stockholders
Or shareholders are owners of a share or shares
in a stock corporation
– Members
Corporators of non-stock corporation
– Subscribers
Persons who have agreed to take and pay for
original, unissued shares of a corporation
formed or to be formed. (all incorporators
are subscribers, but a subscriber need not
be an incorporator)
– Promoters
Are persons who bring about or cause to
bring about the formation and organization
of a corporation.
– Underwriters
Entities who undertake to sell stocks to the
general public
Other Classification of a Corp.
•
According to number of persons
1. Corporation aggregate
2. Corporation sole or a special form of corporation
usually associated with the clergy
•
According to nationality
1. Domestic corporation
2. Foreign corporation
•
According to public or private purpose
1. Public corporation
2. Private corporation
3. Quasi-public
•
According to degree of public
participation with regards to stock
ownership
1. Close corporation – ownership limited to
selected persons or members of a family not
exceeding 20 persons
2. Open corporation- the stock is available for
subscription or purchase by any person
•
According to whether for charitable
purpose or not
1. Ecclesiastical corporation
2. Eleemosynary corporation – those established
for public charity
3. Civil corporation – those established for
business or profit
• According to their legal right to
corporate existence
1. De jure corporation – a corporation
existing in fact and in law. It is
organized in strict conformity with the
law
2. De facto corporation – a corporation
existing in fact but not in law
• According to their relation to
another corporation
1. Parent or holding corporation
2. Subsidiary corporation
Contents of The Articles of
Incorporation
1.
2.
Name of the incorporators
Specific purpose or purposes for which the
corporation is being incorporated.
3. Place of principal office address
4. Term of existence
5. Names, nationality & residences of the incorporators
6. Number of directors or trustees (>5, <15)
7. Names, nationalities, residences of persons who shall
act as directors or trustees
8. Authorized capital stock in Php, number of shares, par
value, names and nationality of the original
subscribers and amount subscribed and paid.
9. For non-stock, amount of capital, names and
nationalities of contributors and the amount
contributed by each.
10. Other matters not inconsistent with law
Classes of Shares in General
• Par value shares
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.
• No-par value shares
Without any value appearing on the face of the certificate of
stock. The corporation law provides that no-par value
stocks may not be issued for an amount less than five
pesos. Shares issued without par value are deemed fully
paid.
• Voting shares
Those issued with the right to vote.
• Non-voting shares
Those issued without the right to vote/
• Common shares
These shares entitles the holder to an equal pro-rata division of
profits without any preference.
• Preferred shares
These shares entitles the holder to certain advantages or benefits
over the holders of the common stock.
• Promotion shares
These are 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 stock
a stock that has been issued by the corporation as fully paid and
later reacquired but not retired.
• Convertible stock
A stock which is convertible or changeable from one class to another
class.
Minimum Subscription and Paidin Capital
At least 25% of the authorized capital stock as
stated in the articles of incorporation must be
subscribed*
At least 25% of the total subscription must be paid
upon subscription, the balance to be paid on the
date fixed in the contract of subscription without
a need of a call. In the absence of the date, upon
call for payment by the board of directors.
Paid in capital should never be less than 5,000
pesos.
* Subscibed shares represent shares which the investors have contracted to
acquire.
Illustration:
Assume that the authorized capital
stock is P2,000,000 divided into
20,000 shares with par value of P100
per share.
The subscribed capital stock must be
P500,000 which is 25% of the
authorized capital stock of
P2,000,000.
The paid-in capital should be P25,000
which is 25% of the subscribed
capital stock of P500,000.
Assume that the authorized capital
stock is P60,000, divided into 6,000
P10 per shares.
The subscribed capital stock is 25% of
P60,000 = P15,000
The paid-in capital 25% of P15,000 =
P3,750, but incorporators must pay
P5,000 as the minimum required by
law.
In case of no-par value shares, the 25%
requirement will be based on the
authorized number of shares.
If the authorized capital is 2,000 nopar shares, then at least 500 no-par
value shares must be subscribed.
Organizing a
Corporation
Steps:
1. Promotion
the process of bringing together the incorporators
or the persons interested in the business; of
procuring subscriptions or capital for the
corporation; and setting in motion the
machinery that leads to the incorporation of
the corporation.
2. Incorporation
a.
b.
c.
d.
e.
f.
Verification for 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 in trust
for and to the credit of the corporation. The bank is
required to issue a certificate of deposit.
Filing of the articles of incorporation with the SEC together
with treasurer’s affidavit, statement of assets and liabilities,
certificate of bank deposit, and certificates as to the name
of the corporation.
Payment of the filing and publication fees
Issuance by the SEC of the certificates of incorporation.
3. Formal organization and
commencement of business operation
a. Adoption of by-laws and the election of the board
of directors and of the administrative officers.
b. Taking such other steps necessary to enable the
corporation to transact the legitimate business or
accomplish the purpose for which it was created.
c. If the corporation does not formally organize and
commence the transaction of its business within 2
years from the date of incorporation, the
corporation shall cease or deemed dissolved.
d. If the corporation commenced its business but
consequently becomes continuously inoperative
for a period of at least 5 years, the same shall be
a ground for suspension or revocation of its
certificate of incorporation.