CORPORATIONS

By Jennica Rose S. Madela

What is a Corporation?
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. (Section 1 BP Blg. 68)

Classes of Corporation
As to Profit:
a.) Stock Corporation (Sec. 3 BP Blg. 68)

Corporations which have capital stock divided into shares

and are authorized to distribute to the holders of such
shares dividends or allotments of the holders of such
shares dividends/allotments of the surplus profits on the
basis of the shares held.
b. Non Stock Corporation (Sec. 87 BP Blg 68)

No part of its income is distributable as dividends to its

members, trustees or offices. Any profit obtain will be used for
furtherance of the purpose of the corporation.

Classes of Corporation
c. Close Corporations
Articles of Incorporation provides that
(1) Issued stock of all classes (Exclusive of
Treasury Shares) shall be held record by not more
than a specified number of persons not exceeding
20
(2) Issued stock of all classes subject to one or
more specified restrictions
(3) Not listed in any stock exchange
(Section 96 of BP Blg 68)

Classes of Corporation
d. Special Corporations (Title XIII)
(1) Educational Corporations
(2) Religious Corporations
e. Foreign Corporations (Title XV)
formed, organized or existing under any laws
other than those of the Philippines and
whose laws allow Filipino citizens and
corporations to do business in its own
country or state.

Classification of Shares

Ordinary Shares (Sec. 6)

With rights, privileges or restrictions
as may be Stated in the Article of
Incorporation
Preferred Shares
Given preference in the distribution of
assets of the corporation in case of
liquidation and in the distribution of
dividends

Classification of Shares

Treasury Shares
Issued and fully paid for but
subsequently re-acquired by the issuing
corporation by purchase, redemption,
donation or through some other lawful
means. (Sec. 9)

Classification of Shares

Founders Shares (Sec 7)

With rights, privileges not enjoyed by other
owners of other stocks, limited period not to
exceed 5 years, which shall commence from
the date of approval of SEC.
Redeemable Shares (Sec 8)
May be issued by the Corporation when
expressly so provided in the Articles of
Incorporation. Purchase or taken up by the
corporation upon expiration of a fixed period

Incorporation & Organization of

Corporations
Provided in Title II of BP Blg. 68
Number & Qualification of
Incorporators
(a) natural persons not <5 but not > 15
(b) Legal Age
(c) Majority are residents of the
Philippines

Incorporation & Organization of

Corporations

CORPORATE TERM (Sec. 11)

Exist for a period not exceeding Fifty (50) Years
from the date of incorporation.
May be extended for periods not exceeding fifty
(50) years in any single instance by an
amendment of the Articles of Incorporation
(Provided that no extension can be made earlier
than 5 years prior to the original/subsequent
expiry date unless given justifiable reasons as
determined by SEC)

Incorporation & Organization of

Corporations

Amount of Capital Stock to be

subscribed & Paid
(a) At least 25% of the authorized
Capital Stock must be subscribed
(b) At least 25% of the subscribed are
paid and not less than P5,000.00
(Section 13 BP blg. 68)

Incorporation & Organization of

Corporations

Contents of Article of Incorporation

(a)Name
(b)Specific Purpose
(c) Principal Office
(d) Term of Corporation
(e) Names, Nationalities & Residences of Incorporators
(f) No. of Directors/Trustees (not <5 not > 15
(g) Names, Nationalities and residences of Directors
(h) If Stock, Amount of Authorized Capital Stock, No. Of shares
into which it is divided, par value of each, if non-stock, the
contributions
To be accompanied by a sworn statement of the treasurer elected
(Section 14 BP blg. 68)

Powers of Corporations (Title IV Sec. 36)

To sue and be sued

Succession
Adopt & Use a Corporate Seal
Amend articles of Incorporation
Adopt by laws
Issue or sell stocks
Deal with real and personal properties
Enter merger or consolidation
Donations
Pension, Retirement & Other Plans for employees
Other powers essential to carry out purpose

Stocks & Stockholders

Consideration for stocks (Section 62)

Stocks shall not be issued for a consideration less than
the par or issued price thereof, combination of any two
or more of the ff:
(a) Actual cash
(b) Property, Tangible or Intangible
(c) Labor performed
(d) Previously incurred indebtedness of the corporation
(e) Amounts transferred from Unrestricted Retained
Earnings
(f) Outstanding shares exchanged for stocks in the
event of reclassification or conversion

Stocks & Stockholders

Rights & Remedies of Stockholders

1.) Right to attend & Vote in person or by
proxy
2.) Right to elect & Remove Director
3.) Right to approve certain corporate acts
4.) Right to adopt & Amend or repeal the by
laws or adopt new laws
5.) Right to compel the calling of meetings of
stockholders when for any cause there is no
person authorized to call a meeting

Stocks & Stockholders

Rights & Remedies of Stockholders

6.) Right to issuance of certificate of stock or
other evidence of stock ownership and be
registered as shareholder
7.) Right to receive dividends when declared
8.) Right to participate in the distribution of
corporate assets upon dissolution
9.) Right to transfer of stock on the
corporate books

Stocks & Stockholders

Rights & Remedies of Stockholders

10.) Right to pre-emption in the issue of
shares
11.) Right to inspect corporate books &
records and to receive financial report of
the corporations operations
12.) Right to be furnished the most
recent financial statement upon request
and to receive a financial report

Stocks & Stockholders

Rights & Remedies of Stockholders

13.)Right to bring individual and representative or
derivative suits
14.) Right to recover stock unlawfully sold for
delinquency
15.) Right to enter into a voting trust agreement
16.) Right to demand payment of the value of his
shares and withdraw from the Corporation in
certain cases
17.) Right to have the corporation voluntarily
dissolved

Stocks & Stockholders

Pre-emptive Right
Whenever the capital stock of a
corporation is increased and new shares
of stocks are issued, the new issue must
be offered first to the stockholders,
unless such right is denied by the
articles of incorporation or any
amendment thereto (Section 39)

Stocks & Stockholders

Appraisal Right (Section 81)
Refers to his right to demand payment of the fair
value of his shares after dissenting from a proposed
corporate action in cases provided by law.
a. In case any amendment to the articles of
incorporation has the effect of changing or
restricting the rights of any stockholders or class of
shares, or of authorizing preferences in any respect
superior to those of outstanding shares of any class
or of extending or shortening the term of corporate
existence

Stocks & Stockholders

b. In case of sale, lease, exchange,
transfer, mortgage, pledge, or other
disposition of all or substantially all of
the corporate property and assets as
provided in this code; and
c. In case of merger or consolidation

Stocks & Stockholders

Exercise of Appraisal Right
-Written demand on the corporation within 30
days after the date on which the vote was
taken for payment of the fair value of his shares
-60 days from the date of corporate action was
approved by the stockholders, if cannot agree
on Fair Value, it shall be determined by 3
disinterested persons (Named by the
stockholder, named by corporation & the 3 rd by
the two thus chosen)

Stocks & Stockholders

- If he is not paid the value of his
shares within 30 days after the
award, his voting and dividend
rights shall be restored until
payment of his shares. (Section
83)

Disadvantages of a
Corporation
Not easy to organize
High Cost of Formation &
Operation
Credit is weakened by the limited
liability of the stockholders;
Ordinarily lack of personal element
in view of the transferability of
shares

Disadvantages of a
Corporation
Greater degree of governmental
control and supervision than in
any other forms of business
organization
Stockholders voting rights have
become theoretical particularly in
large corporations because of the
use of proxies

Disadvantages of a
Corporation
Stockholders have little voice in
the conduct of business and
In large corporations,
management and control are
separate from ownership.

Advantages of a
Corporation
Legal Capacity to act as a legal
unit
Continuity of existence because
of its non-dependence on the
lives of those who compose it
Credit is strengthened by such
continuity of existence

Advantages of a
Corporation
Its management is centralized in the
board of directors
Its creation, organization, management
and dissolution are standardized as they
are governed under one general
incorporation law
Feasible gigantic financial enterprises
since it enables many individuals to invest
their separate funds in the Enterprise

Advantages of a
Corporation
Shareholders have limited liability
Shares of stock can be transferred
without the consent of other
stockholders
Effective means of raising money
capital for its operations
Capable of getting the most
efficient management

Tips on Incorporating under Philippine

Laws

Choose your corporate name beforehand (6

choices)
Documentation requirements
(a) Reservation of Corporation name
Confirmation
-Articles of Incorporation with undertaking
by the incorporators to change the corporate
name immediately upon receipt of notice or
directive from the SEC that another
corporation/Partnership/person has acquired a
prior right to use that name

Tips on Incorporating under Philippine

Laws

Documentation requirements
(b) By Laws
(c) The Articles of Incorporation, Treasurers
Affidavit, Certificate of Bank Deposit must be
subscribed before a notary public (signed by at
least two instrumental witnesses who must not
be incorporators)
(d) Stock & Transfer Book of the Corporation
must be registered at SEC within 1 month from
the time a Certificate of Incorporation has been
issued by the SEC.

Annexes:
(a) Articles of IncorporationArticles of Incorporation.doc

(b) Applicable Tax Laws PhilippineTaxFacts2.pdf

(c) Sample Computation of Cash DividendDISTRIBUTION OF CASH DIVIDEND.docx