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Corporation an artifcial being created by operation of law having

the rights of succession and the power, attributes and properties
expressly authorized by law or incident to its existence.
Characteristics of a Corporation
1. Separate legal entity A corporation is an artifcial being with a
personality separate from that of its individual owners.
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. Rights of succession A corporation continues to exist
notwithstanding the withdrawal, death, insolvency or incapacity
of the individual owners. Changes in the ownership structure do
not dissolve a corporation.
4. Powers, attributes, properties expressly authorized by law
eing a creation of law, a corporation can only exercise powers
provided by law and powers which are incidental to its existence.
5. Ownership divided into shares !roprietorship in a corporation is
divided into units "nown as shares of stoc"s.
6. Board of Directors BOD! #anagement of the business is vested
in a board of directors elected by the stoc"holders. The $% is
the governing body or decision&ma"ing body of the corporation.
Comparison between Partnership and Corporation
Partnership Corporation
'ormed by ( persons. 'ormed by 5 persons
)tarts with agreement among
partners* may be formed orally.
)tarts with the issuance of a
certifcate of incorporation
issued by )+C
,nlimited liability -imited liability
-imited life ,nlimited life
Transfer of e.uity of a partner
needs the consent of other
)hares can be transferred from one
shareholder to another without
getting the consent of the other
!artner is an agent of the
)hareholders do not act as agents
of the corporation.
Advantages of a Corporation
1. The corporation/s power of succession enables it to en0oy a
continuous existence.
2. The continuity of corporate existence enables it to obtain a
strong credit line.
3. igger source of capital may be raised because many individuals
invest funds in the corporation.
4. )hareholders en0oy limited liability. Their liability to corporate
debts extends only to their investment in the corporation.
5. )hares of stoc"s may be transferred without the consent of the
other shareholders.
Disadvantages of a Corporation
1. 1t is not easy to form because of complicated legal and
documentary re.uirements.
2. The limited liability of the shareholders wea"ens or limits its
credit capacity.
3. 1t is sub0ect to more governmental re.uirements.
4. There is possibility of abuse of power by the oard of %irectors.
5. 1t is sub0ect to more taxes.
Types of Corporation
1. Public a corporation formed to render government service
2. Private a corporation formed for a private purpose, aim or
3. "uasi#public a private corporation which is given a franchise to
perform functions of a public character.
4. Do$estic a corporation that is organized under !hilippine laws.
5. %oreign & a corporation that is organized under the laws of other
6. Stoc& a corporation in which the capital is divided into shares of
stoc" and is authorized to distribute dividends to the holders of
such shares. A stock certifcate is a physical evidence of the
shares of stoc". )toc" corporations are generally proft&oriented.
7. 'on#stoc& & a corporation in which capital comes from fees or
contributions given by individuals. 2o part of its income is
distributed as dividends and any proft shall be used to further
the purpose3s4 of the corporation. 2on&stoc" corporations are
generally non&proft in nature.
8. Open a corporation whose ownership is widely held by many
9. Closely held or fa$ily a corporation in which 567 or more of its
stoc" is owned by fve persons or less.
Components of a Corporation
1. (ncorporators persons who originally formed the corporation
and whose names appear in the Articles of 1ncorporation. They
must be 5 but not more than 85 natural persons. They should
not artifcial persons.

2. Stoc&holders or shareholders owners of a stoc" corporation.
3. )e$bers persons who gave fees or contributions to a non&
stoc" corporation.
4. Corporators persons who compose the corporation whether as
stoc"holders or members.
5. Pro$oters persons who underta"e the necessary steps and
procedures to organize the corporation.
6. Subscribers persons who agreed to buy shares of stoc" but will
pay at a later date.
7. *nderwriters + persons who underta"e to sell the shares of
stoc"s to the general public.
Organizing a Corporation
The process of organizing a corporation consists of three stages9
1. Pro$otion ma"es preliminary arrangements and solicits
subscription to raise su:cient capital for the business. The
following are the pre&incorporation re.uirements9
o At least 25% of the authorized share capital must be
o At least 25% of total subscriptions must be paid.
2. (ncorporation formalizes organization of the corporation by
fling with )+C the necessary documentary re.uirements such as
articles of incorporation and treasurer/s a:davit attesting
compliance to the pre&incorporation re.uirements. ,pon
approval, )+C issues a certifcate of incorporation, the date of
which is considered as the date of registration or incorporation.
3. Commencement of the business the business should start its
business within two years from the date of incorporation.
Costs incurred in connection with the formation of the corporation are
recorded as expense. +xamples of organization costs are fling fees,
cost of printing stoc" certifcates, promoters/ commission and legal
fees. The following account titles may be used in recording
organization costs9
!re&operating Costs
!re&operating +xpenses
$rganization +xpense
$rganization Costs
Artices of Incorporation
The Artices of Incorporation en!merates the po"ers and
imitations conferred !pon the corporation #y the government.
1t includes the following information9
1. The name of the corporation*
2. The purpose or purposes for which the corporation is formed*
3. The place of the principal o:ce of the corporation*
4. The term of existence of the corporation, not exceeding 56 years*
5. The names, nationalities and addresses of the incorporators*
6. The names of the directors who will serve until their successors
are duly elected and .ualifed in accordance with the by&laws*
7. The authorized share capital , the classes of shares to be issued
and the number of each class of share indicating the par value if
there is any*
8. The amount of subscription to the share capital , the names of
the subscribers and the number of shares subscribed by each*
9. The total amount paid on the subscriptions and the amount paid
by each subscriber on his subscription.
The #y%a"s of a corporation contain provisions for the interna
administration of the corporation' The by&laws should be fled
within one month from the date of issuance of the certifcate of
incorporation. The by&laws normally include the following9
1. The date, place and manner of calling the annual shareholders/
2. The manner of conducting meetings*
3. The circumstances which may permit the calling of special
meetings of the shareholders*
4. The manner of voting and the use of proxies*
5. The manner of electing the directors*
6. The term of o:ce of the directors*
7. The authority and duties of the directors*
8. The manner of selecting the corporate o:cers*
9. The procedures for amending the articles of incorporation and
Corporate $oo(s and Records
The corporation generally maintains the following boo"s of accounts and
1. ;ournals and -edgers*
2. #inute boo"s for meetings of shareholders*
3. #inute boo"s for meetings of oard of %irectors*
4. )toc" and Transfer oo" & contains records of all stoc"s, names
of stoc"holders, amount paid and unpaid, any sale or transfer of
)inds of *hares
1. Par ,alue a share of stoc" that is given a defnite or fxed value
in the articles of incorporation.
2. 'o Par ,alue a share of stoc" that has no fxed value* it may
not be issued for less than !5.
3. Co$$on or Ordinary shares the basic issue of shares. The
common or ordinary share entitles the holder to the following
basic rights9
a. <ight to vote in shareholders/ meeting*
b. <ight to share in corporate profts 3dividends4*
c. <ight to share in corporate assets upon li.uidation*
d. <ight to purchase additional shares of stoc"s in the event
that the corporation increases its share capital +pre%
emptive right,'
4. Preferred or Preference share & entitles the holder to some
specifc preferences over the common or ordinary share such as
a. !reference as to payment of dividends*
b. !reference as to distribution of assets upon li.uidation.
Terms Pec!iar to a Corporation
1. -uthorized shares refers to the maximum number of shares
which a corporation may issue 3as set forth in the Articles of
2. (ssued shares shares which are issued to shareholders which at
present may or may not be in the hands of the shareholder.
3. *nissued shares shares which have never been issued and are
available for issuance.
4. Outstanding shares shares of stoc"s issued to shareholders or
subscribers whether fully or partially paid except for treasury
5. .reasury shares & shares which have been issued and fully paid
for but subse.uently reac.uired by the issuing corporation.
6. Subscribed shares shares which investors have contracted to
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