MODULE 1

RELATED COURSE Prepare journal entries related to share issuances, share subscriptions, treasury shares, donated capital, and
OUTCOMES: retained earnings and solve problems related thereto;

WEEK 1

ACCOUNTING FOR CORPORATION

After this lesson, you are expected to:

• Trace the development of the general law on corporations.

• Define corporation
• Identify the attributes of a corporation
• Identify and explain the advantages and disadvantages of a corporation
• Identify and describe the classes of corporations under the Revised Corporation Code of the Philippines
• Identify and describe the other classifications of corporations
• Detail the components of a corporation
• Define independent director
• Describe the classes of shares
• Determine the minimum capital stock requirement at the time of incorporation
• Interpret the basic corporate organizational structure
• Define a One-Person Corporation (OPC) and discuss its salient feature.

CORPORATION

Nature of a Corporation Classes of Share Capital Issuance of Share Capital

• Characteristics • Ordinary share capital • Methods of recording

• Advantages (common) - Memo entry
• Disadvantages • Preference shares capital - Journal entry
• Classes of corporations (preferred) • Considerations in exchange for
• Components of a corporation - Cumulative share capital
• Steps in organizing a - Noncumulative - Cash
corporation - Participating - Noncash assets
• Rights of a stockholder - Nonparticipating - Services
• Corporate record - Convertible • Share capital subscription
- Redeemable
• Par value share capital
• Stated share value share
capital
• No-par, no-stated value share
capital

DEFINITION

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 incidental to its existence.
CHARACTERISTICS OF A CORPORATION

1. Separate legal entity - artificial being. A corporation is an artificial being with a personality that is separate
from that of its individual owners. Thus, it may, under its corporate name, take, hold or convey property
to the extent allowed by law, enter into contracts, and sue or be sued.
2. Created by operation of law. A corporation is generally created by operation of law. The mere agreement
of the parties cannot give rise to a corporation.
3. Right of succession. A corporation has the right of succession. Irrespective of the death, withdrawal,
insolvency, or incapacity of the individual members or shareholders, and regardless of the transfer of their
interest or share capital, a corporation can continue its existence up to the period of time stated in the
articles of incorporation but not exceed fifty years.
4. Powers, attributes, properties authorized by law. A corporation has only the powers, 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.

ADVANTAGES OF A CORPORATION

1. The corporation has the legal capacity to act as a legal entity

2. The liability of its Investors or shareholders is limited to the extent of their investment in the corporation
3. It has continuity of existence
4. 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

1. It is not easy to organize because of complicated legal requirements and high costs in its organization.
2. It is subject to rigid governmental control.
3. It is subject to more taxes.
4. Minority shareholders are subservient to the wishes of the majority
5. In large corporations, management and control have been separated from ownership.
6. Transferability of shares permits the uniting of incompatible and conflicting elements in one venture.

CLASSES OF CORPORATION

1. Stock corporation - a private corporation in which the capital is divided into shares of stock and is authorized
to distribute corporate earnings to holders on the basis of shares held. The owners of a stock corporation
are called stockholders or shareholders.

2. Non-Stock corporation - For purposes of this Code and subject to its provisions on dissolution, a nonstock
corporation is one where no part of its income is distributable as dividends to its members, trustees, or
officers: Provided, that any profit which a nonstock corporation may obtain incidental to its operations shall,
whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the
corporation was organized.

Nonstock corporations may be formed or organized for charitable, religious, educational, professional,
cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry,
agricultural and like chambers, or any combination thereof.
 Other Classifications of Corporation

a) As to number of persons
1. Corporation aggregate – a corporation consisting of more than one corporator.
2. Corporation sole of special form of corporation usually associated with clergy. It is a corporation
which consists of only one member or corporator or his successors such as a bishop.
b) According to nationality
1. Domestic corporation – a corporation organized under Philippine law.
2. Foreign corporation – a foreign corporation is one formed, organized or existing under laws
other than those of the Philippines’ and whose laws allow Filipino citizens and corporations to
do business in its own country or State.

c) According to whether public or private purposes

1. Public corporation – a corporation formed or organized for the government portion of the state.
(Ex. Provinces, cities, municipalities)
2. Private corporation – a corporation created for private aim, benefit or purpose.

d) According to whether for charitable purpose or not

1. Ecclesiastical corporation – those organized for religious purposes
2. Eleemosynary corporation – those established for public charity.
3. Civil corporation – those established for business or profit.

e) According to their legal right to corporate existence

1. De jure corporation - a corporation which exists in both law and fact. It exists in law because
it has complied with all the legal requirements; it exists in facts because it actually operates as
a corporation.
2. De facto corporation - a corporation which only exists only in fact but not in law. It does not
exist in law because of non-compliance with certain legal requirements

f) According to degree of public participation with regard to share ownership

1. Close corporation – a corporation whose share ownership is limited to selected persons or
members of a family not exceeding 20 persons.
2. Open corporation – a corporation where the share is available for subscription or purchase by
any person
3. Publicly-held corporation – a corporation with a class 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.

g) According to their relation to another corporation

1. 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.
2. Subsidiary corporation – a corporation controlled by another corporation known as parent
corporation.

COMPONENTS OF A CORPORATION

1. Incorporators - are those stockholders or members mentioned in the articles of incorporation as originally
forming and composing the corporation and who are signatories thereof.

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: Provided, that 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.

Artificial beings can be incorporators.

2. Corporators – are those who compose a corporation, whether as stockholders or shareholders in a stock
corporation or as members in a nonstock corporation.

3. Shareholders – are corporators in a stock corporation. Shareholders may be natural or juridical persons.

4. Members – are corporators of a non-stock corporation.

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 must be subscribers, but a subscriber need not to be an
incorporator.

6. Promoter – is a person who, acting alone or with others, take initiative in found and organizing the corporation
and receives consideration therefor.

7. Underwriters- are usually investment bankers who have –

- Agreed, alone or with others, to buy at stated terms an entire or a substantial part of issue of securities;
or
- Guaranteed the sale of an issue by agreement to buy from the issuing corporation the 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
responsibilities as a director.

9. Additional General Powers per Revised Corporation Code of The Philippines (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.

ARTICLES OF INCORPORATION (AOI)

Contents (Sec 13)

All corporations shall file with the Commission articles of incorporation in any of the official languages, duly signed
and acknowledged or authenticated, in such form and manner as may be allowed by the Commission, containing
substantially the following matters, except as otherwise prescribed by this Code or by special law:

a) The name of the corporation

b) The specific purpose of purposes for which the corporation is formed;
c) The place where the principal office of the corporation is to be located, which must be within the
Philippines;
d) The term for which the corporation is to exist, if the corporation has not elected perpetual existence
e) The names, nationalities, and residence address of the incorporators;
f) The number of directors, which shall not be more than fifteen (15) or the number of trustees which
may be more than fifteen
 g) The names, nationalities, and residence address of persons who shall act as directors or trustees until
the first regular directors or trustees are duly elected and qualified in accordance with this Code;

h) If it be a stock corporation, the amount of its authorized capital stock, number of shares into which it
is divided, the par value of each, names, nationalities, and residence addresses of the original
subscribers, amount subscribed and paid by each on the subscription, and a statement that some or
all of the shares are without par value, if applicable;

i) If it be a nonstock corporation, the amount of its capital, the names, nationalities, and residence
addresses of the contributors, and amount contributed by each; and

j) Such other matters consistent with law and which the incorporators may deem necessary and
convenient.

BYLAWS

Contents (Sec 46)

A private corporation may provide the following in its bylaws:

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;
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 or 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;
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.
COMPARISON OF THE ARTICLES OF INCORPORATION AS PER RCCP AND CORPORATION CODE

RCCP (RA 11232) CORPORATION CODE (BP 68)

Name If the corporation is an OPC, the OPC is not allowed
letters “OPC” is included in the
corporate name
Who can be an Any natural person, partnership, Only natural persons
Incorporator corporation, or association
Number of One incorporator is enough At least five (5) incorporators needed
Incorporator(s)
Residence of No residency requirement for A majority of the incorporators must be
incorporators incorporators residents of the Philippines
Term Shall have perpetual term by default Not exceeding 50 years
unless the AOI provides otherwise
Number of directors No minimum number of directors/ Minimum number of directors is five
trustees except for educational
corporations and religious societies
Residence of directors No residency requirements for A majority of the directors must be Phil.
directors residents
Amount of subscribed No minimum capital stock required At least 25% of the authorized capital stock
and Paid-in Capital unless required by special law. There must be subscribed and at least 25% of the
is also no minimum subscribed capital subscribed capital must be paid-up
and no minimum paid-in capital
Statement of Subscribed and paid-in capital are in In two separate clauses (8th and 9th) of the
Subscribed and Paid-in the 8th clause of the AOI AOI
Capital
Treasurer’s Affidavit A separate treasurer’s affidavit is no A separate treasurer’s affidavit is required
longer required but the certification of
the treasurer is part of the AOI
Undertaking to Change No longer required to submit a There is a separate undertaking to change the
Name separate undertaking, see the 10th corporate name to be signed by directors.
clause of the AOI
Signatories The incorporators and the treasurer Only incorporators sign the AOI
sign the AOI

CORPORATE RECORDS

The Corporation generally maintains the following records to keep track of its various transactions:

1. Record of all business transactions (journals, ledgers, vouchers, and other supporting documents).
2. Minutes of all meetings of directors
3. Minutes of all meetings of shareholders
4. Stock and transfer book
a) Shareholders’ journal – chronological and numerical record of stock certificates issued.
b) Shareholders’ ledger – alphabetical record of individual shareholders
c) Subscriber’s ledger – alphabetical record of individual subscribers.

ONE PERSON CORPORATION

A One Person Corporation is a corporation with a single stockholder: Provided, That only a natural person, trust, or
an estate may form a One Person Corporation.

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: Provided,
further, 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.

A One Person Corporation shall not be required to have a minimum authorized capital stock except as otherwise
provided by special law