CHAPTER 6

ed
he

(DEFINITio~ON~~ORATION
or
e
' URE AND FORMATION)
n
CHAPTER OUTLINE

1. Introduction
ut 2. Definition of Corporation 10. Articles of Incorporation
11. By-Laws
3. Characteristics of Corporation
12. Corporate Names
4. Distinction Between Partnership
13. Corporate Records
and Corporation 14. Organization Costs
s. Advantages of a Corporation 15. Rights of Stockholders
6. Disadvantages of a Corporation 16. Share or Stock Certificate
7. Classification of a Corporation 17. Legal Capital of a Corporation
8. (omponents of a Corporation 18. The "Trust Fund Doctrine"
9. Who may form a Cqrporation? 19. Questions for Review and Quizzers

Ltarning Objectives: ,

.,_ studying this chapter, we should be able to:

defme what a corporation is;

~ t'on of a corporation;
the notiffe oltd ,orma ,,
.. . of "legal capital# and the "trust fund doctrine" of
dthemeomng

-,orat, ,ntitY,
 1NTRODUCT~to_N....-.!!!~~~!!!!!!!!!'!!!!!!!!!!!!~!!!!!!!!!!!~
~ ¼
!!!!!!!!!!!!!!!!!!!!!!!!!!!!~~~~~~~~~~~ sh iP accounting, we assumed
. nd partner d. . f
In our study with sole p, opr ietorstup a_ h t i!i separate and istmct rorn the
entity t a h' t'
that the business is regarde d as an . , O rganization, t 15 assump •on turns
f business It h
owner(s). In a corporate t om1 o . artificial person . as a legal
ation ts an
into a reality becau:;e a corµor( . ess under its own name, ca n hold
· transact buSm
personalit\r and as such, ,t r.an sued to court.
and dispose property, can sue and can be

OEFINITtON OF A CORPORATION

Gorporation is defined as:

· ,f /ow having the right of
"an artificial being created by operation 01 , •
'butes and propert,es expressly
succession and the powers, attn
authorized by low or incident to its existence"•

CHARACTERISTICS OF A CORPORATION

. 1) SEPARATE LEGAL ENTITY - this means that a corporation as an "artificial person•

has a legal personality, separate and distinct from it~ shareholders. As such, under
its own corporate name, it may take, hold, or dispose property under its corporate
capacity. It may enter into contract, can sue and can be sued to court. As a
creation of law, it cannot be established by a mere agreement of parties like in the
case of partnership. For them, to come into existence, authority has to be granted
by the state.

2) ~FE~BLE UN,,IT OF ~WNERSHIP .. the ownership of a corporation is divided

mto units called shares which can be transferred ~rom one person to another
without the consent of other shareholder_s.

31
= :-:,~:~E~~LDER~·::::nt
creditors of the corporat:n :a~~:t
thls means that the shareholders are liable
of their capital contrib~tions. Th:
th
shareholders in satisfaction of thel ca fter the personal properties of
.r 1 1ms.
4
) Q>NTtNUtrY OF CJ - this mea th
ntlfl.Ut4••ii*-; ns at a corporation has the capacitY tor
s the right of succession as evidence by t~e
of-. corporation may not exceed fiftY
~bsequently amended to oot
 ~ I o n · Nature and Formation

more than fifty (SO) add· . 257

corporations that • •tionat Years at a r . .
exist rnore th ime. This explains why there are
an one hundred (100) years.
Un,ed 5) GOVERNING BODY _ b
. ecause there ·11 b
n, the share h o Id ers, 1t will be d'tt• wi e hundreds if not thousands of
• I icult for each f
business. Thus, they elect one o them to partake in managing the
turns "Board of Directors" wh a~ong themselves to form a governing body caUed
legal corporation law provides ~hwill formulate the policies of the corporation. The
hold th
five but not more than fiftee~~ e number of board of directors be not less than

DISTINCTIONS BETWEEN PARTNERSHIP AND CORPORATION

Partnership
Corporation

1. Created by mere agreement of parties. 1. Created by operation of Law.

2. Requires at least (2) two persons to 2. Requires at least (S) five incorporators
form a partnership to form a corporation.

l Begins to acquire juridical personality 3. Begins to have a corporate existence

from the moment the partners have and juridical personality at the time the
executed the contract. certificate of incorporation is issued by
SEC.

4. May exercise any power authorized by 4. Can exercise only the powers expressly
the partners provided it is not contrary authorized by law or incident to its
to law, morals and public order. existence.

S. Creditors can run after the personal 5. Creditors cannot run after the personal
assets of a shareholder in case of
assets of a general partner (ex~ep~
liquidation.
Hrnited partner) in case of liqu1dat1on.
A share can be transferred without
&. An Interest of a partner cannot be trans- 6.
the consent of other shareholders.
ferred without the consent of other
:!e'.•rs. 7. It can only be dissolved with the
at any time by the
consent of the state.
rtners.

'flete can be as many shareholders as there

 ~
I
258 . tions In excess of the;,
ob/l(}O ·
r bl to corporate art of the creditors.
2. Shmeholders are not ,a ea disadvantaqe on the p
contribution. This is hnw,?w!r, h corporation because of the
. t di"».-..u/ve t e
Death of any of th,' ~hmcho/rlers wt/I no
3. 'J

tran<Jerobility of shmes. 11
calibered" shareholders Who
• omposed of top
The created governinq body t'> c con be attained.
4. direct the corporate affairs. More !>uccess

DISADVANTAGES OF A CORPORATION .
r ted legal reqwrements.
1 It is not easy to organize because of comp ,ca .
· d'tors to a corporat,on• because
. • b tended by eret 1of the shareholders tn case a
2. A limited credit /me may e ex
creditors cannot run after the personal asse s s.
corporation cannot pay its obligation.
. . ed on Board of Directors who may
3 Since management of a corporat,on ts vest . 'bl
· happen to be the majority shareho Iders, abuse 0'J1 powers ,s poss, e.

4. Subject to strict governmental control.

co
CLASSIFICATION OF CORPORATION
1
1. AS TO PURPOSE

a) Public Corporation - is one that is formed or organized to govern a portion a·

portion of the state. Examples are barangays, municipalities, cities and
provinces.

b) Private Corporation - is one that is formed for some private purpose, benefit,
aim or end.

c) Quasi-Public Corporation - is a private corporation which is given a franchise

to perform public duties but is organized for prQfits like bus and airlines, light
and power, telephone companies, etc.

l. AS TO LAW OF CREATION

a) Domestic Corporation - Is one that Is organized und th .. .

er e Ph1hppme laws,
b) Forelp Corpc,ratlon - is one that ls organized und the
Phffippines. er any law other than

J. AS TO MEMBERSHIP HOLDINGS

atton - II • Pflvttl CO'tflOrltlQn 0 .

o share of stoc '1•nfzect fotlJrofit. Its capital 15
ecorporate profits 00
~tlon - Nature and Farmat,on
.

b) Non-Stock Corp . 259

b . . oration - . .
y incident it g is a private .
attaining the ob~nerates profits s cohrporat1on organized "not for profit". If
. Jectives f . ' uc profit should b
c hantable institur o its creatio E e spent to continue
ion, etc. n. xamples are civic, religious, social, .,,..•
(
I

4. AS TO ADMISSION OF
SHAREHOLDERS
a) Open Corporation .
- is on .
shareholder • e in which an Y person .is welcomed to become a

b) Closely-Held Corp .
oration - is on . .
persons or members of th f . e in which ownership is limited to selected
~. I

close corporation exce t e _a~rnly. Any corporation may be incorporated as

p mining •1
or 01 companies, stock exchanges banks
• I
insurance companies
d ec Iared to be vested . h
bl"
' pu 1c utilities ed
. . , uca t·iona 1 inst1tut1ons
· • . '
and corporations
' .
.,i''-
w,t public interest. &

5. AS TO OTHER PURPOSE
n
~

a) Ecclesiastical Corporation - .is one which

. .1s organized for religious purposes.

b) Lay Corporation - is on e w h"1c h.1s organized

. for a purpose other than religious
purposes.

COMPONENTS Of A CORPORATION
1. CORPORATORS - are those who composed the corporation whether as
shareholders or members. Hence, corporators include incorporators, shareholders
or members (Shareholders to a stock corporation and members to a non-stock
corporation).
2. INCORPORATORS ':' are those who originally formed the corporation who executed
and signed the Articles of Incorporation. They must be natural persons as
distinguished from artificial persons.
s. SHAREHOLDERS _ are owners of stock in a co~porati~n. Share~ol~ers may b~
rtificial persons. A corporation bemg an art1fic1al person ,s
natural persons or a ire shares of another corporation.. '. '
t
allowed by.Jaw to acqu •
· rporators of a non-stock corporation.
EMBERS· theY are co -
the one who undertake to form a group of persons
.. " ' : , ~a corporation. Ttiey procure subscriptions or capital for

veming body formed out of the shareholders. This

y of the corporation. This is composed of not less
ven (11) shareholders or.members duly elected
the Chairman of the Board who is
person in the corporation.
 Ch~
260
. ns who have agreed to b
7. SUBSCRIBERS - they are natural or artificial p~rso U on full payment of ~Y
original and unissued stocks of the corporation. h p Thus they be tts
subscription; share certificates are issued to t em. ' come
shareholders.

WHO MAY FORM A CORPORATION?

Only natural persons (not artificial) of not less than five (5) but n~~ m_ore an fifteen
th
(15), all of legal age and majority of whom are residents of the Philtpp~nes may form a (
private corporation for any lawfu1 purpose or purposes. Each of th e tncorp?rators of
stock corporations must own or be subscribers to at least one (1) share capital of the
corporation.

HOW TO FORM A CORPORATION?

The formation of a corpor-etion usually. constitutes three (3) basics stages.

Organization Stage - this is the stage where persons who do the preliminary
arrangements made by the incorporators will come in. They will set-up a tentative
working organization and procure subscriptions and capital for the corporation. These
persons are referred to as "Promoters".

Incorporation Stage - the Corporation Code of the Philippines provides that the
Securities and Exchange Commission (SEC) shall not accept registration of Articles of
Incorporation of any share corporation unless notarized and accompanied by affidavit
executed by the Corporate Treasurer that at least twenty-five (25'6} percent of the
authorized share capital has been subscribed and at least twenty-five (25'6} percent of
th~ total subscription has been fully paid in actual cash and/or property, the fair
valuation of which is equal to at least twenty-five (25%) percent of said subscription. In
no case, shall the paid up by capital be less than Five thousand Pesos (PS,OOO). This is
the pre-incorporation requirement.

When the t~enty-five(25%) percent. of the subscription payment is made in cash, an

additional requirement by Securities and Exchange Commission on bank certificate to
attest that deposit has been made through that bank in favor of said corporation.
. .
• ,,,i'ft!t...1·•:,ement of subscription and payment is determined and calculated as

lue of the corporation's authorized share ·t f Pl OOo,()()00

P100. cap, a I o ,
~ i o n - Nature and Formayq..

--------- ~ - - -_ _ _ _ _ _ _ _ _ __ 2J26Ul
CALc
ULATIONS:

Authorized Share C .
ap1tal
gg1,.1iv;1lent in Shares
.
x Subscnption RPq . P 1.000,000 l 0,000 share~
. - u1renwnt
Subscnbed
.
Share C .
ap1tal 25%
p 250,000
x Paid-up Requirement 2,500 share~
Paid-in-Capital 25% 25%
.625Jha_res
once the pre-incorporation req .
the required incorporation fe uirements are already complied with and after paying
es the Secu ·r
apProved the Articles of lncorp ' . . n ,es and Exchange Commission will now
iS the birth of a Corporatio o~atio~ a nd issue the "Certificate of Incorporation". This
personality. n. n th1 s date, the corporation acquires its own juridical

d d Stage - du nng
eommencement · •
·its t·irst organizational meeting, the shareholders
form~ 1~te an a opt the by-laws of the corporation. Said by-laws shall be filed with the
Secunt,es and Exchange Commission within one (1) month after the Certificate of
lnCOrporation has been issued. Shareholders then elect among themselves their Board
of Directors. The election of corporate officers such as President, Treasurer, Secretary
and other officers is entrusted to the Board of Directors as may be provided for in the
by-laws. The corporate officers will actually manage or run the affairs of the
corporation under the supervision of the Board of Directors or Board of Trustees. The
corporation should start with its regular business activities within two (2) years from the
date of the incorporation. If it does not, its corporate powers cease and the corporation
nH be deemed dissolved. However, if the corporation has started operating already
but subsequently it failed to operate ~or th~ perio~ of least 5 years, i~ could also be a
ulid ground for suspension or revocation of its Certificate of Incorporation.

Of INCORPORATION
14 of the Corporation Code, the Articles of Incorporation
io
p,cwided for by Sect ;the corporation, specific purpose o_r purposes for whic~ the
the name 0 location or principal place ·o f business, _term of which a
1s formed, nationalities and residences of mcorporators and
5
IJ; \o e;dst, namel ' with number of shares into which it is divided and par
91,,rec•P ta1
.t-A• • • • thlt •unless otherwise prescribed br
~ 1110
II/, d "6 ,_. corporations shall comply
 ARTICLES OF INCORPORATION
OF

(N ~rnc of c urporat,on )

KNOW ALL MEN BY THF SE PRfSf Nl ~ .

e1Lidcnt~ of the Ph 11tppmes. ha:Je th,, d-
The undersigned incnrpo, at on,, all of lrr,.i l tl fi" df"td mJjori t Y o f wh t' nr• •' ' ~, ,,f t ht'
• Hrpu blic. of the Phdippir,f!c ' dY
,nclvr th•• 1iJ W ,.., •·
voluntantv agreed to form a (Sharf'>) (Non '-har,•) 0 por, ,on l
1 1 11

And we h11rrb\ tc rt lf\ .

Inc. or C'J(pr.,ratlon";Seccn,j
I

First: That the ncilH' of thr corpo,;,t,on i;h,lll be " _ _ _ _ _ d (-If thnrf' 1, m ',re than cnP cu · .
That the purp.)'l! ,1r purpO!ie~ for whtCh such corpor.it,on ·1'> inc orpor:itP
· -
arP . ,. J •C.C..f:
,
ind,c~tc r-nmaiy and ,econdary purposec.) ;

Third· Tt: at the> principal office of the corporation is located

m the Citv/ M1:n c .,alrt, cf
_ _ _ _ _ _ _ _ _ _ _ ___ Province ot _ _ _ _ _ _ _ _ __ __, Philippines.

fourth: That the term for which the said corporation is to exist is years from and after t,-,€: c!a·2 i..'
tSSuance of the certificate of incorporation;
•
Fifth: · · · and residence
That the names, nat1onaht1es · of the ·incorporators. o f the corporation are as fo llow s:
Name Nationality Residence

Sixth: That the number of directors of the Corporation shall be five (5) and that the names, nationaLti.::~ a·:
residence of the Directors of said Corporation who shall act as such until their successors are elected and nai:
qu.ilifted as provided for in the by-laws are as follows:
Nationality Residence

Se1enth: That the authorized share capital of the Corporation is (P ) PESOS in lawful money cf the:
Philippines, divided into ( } shares with the a par value of (P l PESOS per share.

f!isht: Thill the auth9fized share capital of the corporation has been fully subscribed representing the sum :J; _
_ _ _ _ _ _ _ _ (P_ _ _ _ _ ___. PESOS, Philippine Currency, and at least twenty-five {25%) percent : f
the total subscription has been paid as follows:
No. of Shares Subscribed Amount Paid-In

- . . na. ·
has been elected by the subscribers as Treasurer of the corporat .:-~
• • as u,dl untH hls/her succe1sor is duly elected and qualified in accordance with
the by-laws· and that a:- >u::r
T.....,•, 1,e/W has been authorized to receive for and in the name and for the benefit of th'e corporat;..-,n a
fSDI 1Www11 ~ tly the subKrlber&.

flNi& M tllnlfer of lh-.S or lntere5t tharatn which will reduce the ownership of filtpino c1tizen.s to le)~
• " " ' '.. ol Iha oar,it,I 1tock required by law shalt be allowed or permitted to be recorded in the
• &NI rettractJan shad bt Indicated in all the share certificates issued by the corporation.
-;a.""~
IJriliit'
a01Ulflld
lts wOHnaneu to d\Mp lti corpcm1te ~me in the event ..rno th t?r
tipl ta UH the uld firm name or on• deceptively or confusingly s11n1lar

• ~ our lllnatures this_ _ _ _ ___,at the CitY 01

 corJ'Oratlon - Nature and F '
-----
,..-- ormatio,,

av-LAWS 263

By-laws refer to the ,, 1

rues and
;nternaI government"· RY-law regulation~
. 0d
opted l1y 11
y includes among others th s dS provide f . h Jt• torporot ion udmmistering it,.
. e following: or Y ~e<.Jii,n 47 of the Corporation Cod;
1. Time, place and
.1 d. manner of
O; rrectors or trust calling and condu t"
2. The manner o' .ees and of sharehold c ing regular and .special meetings
'J vot,ng and ers and members
3. The manner of elect· use of proxies
th
f 4 . Qualifications dut· tng e Boa rd of Directors
' ies and c
employees ompensation of directors or trustees, officers ona
f
5. Procedure of amendin A .
g rttcles of Incorporation and By-Laws, etc
CORPORATE NAME

The Securities and Exchange C . .

public interest and to avoid c f~mmission has adopted some guidelines to safeguard
on ,ct as to the corporate names as follows:

1. The proposed
. corporat
d e name should not be identical with or similar to one
a/readY reg,stere with SEC.

2. The name of the corporation must have at its suffix the word "INC.• or
*Incorporated" unless it includes the word "corporationN as part of its corporate
name.

3. If aproposed company is a subsidiary of a foreign corporation, the word {PHIL.)

or {PHILIPPINES) in parenthesis should be affixed to the corporate name; the
written consent of the mother company should likewise be obtained.

No corporation or partnership s~ould be allowed to use_the v.:ord -Maharlilca" or

11oranga~ part of its busmess name, the same ,s bemg reserved for the
05
gpvernment.

nd k t the same books of accounts as other form of business

1 eprt,ese are General Journals, Cas~ Receipts Book, Cash
tng. ook, Purchase BoOk, General and Subsidiary Ledgers. In
rporatlon keeps the following records:
f sha,..holders or members and that of
Corporate Secretary in
s of entries in the
264 Chapte, 6
~

accounting records such as declaration of dividends, purchase a nd sale of treasury

shares, etc.

2. Stock and Transfer Book - thi'> book principally records the stock issuances and
cancellations. It consist three (3) books, viz:

a) Subscriber's Ledger - this is actually a subsidiary ledger for the controlling

account, subscription Receivable in the General Ledger.

b} Shareholder's Journal - this shows the list of sharehol ders with the
corresponding share certificate number in numerica l sequence and shares
issued to them including share certificates that were cancelled.

c) Shareholder's Ledger - this is a subsidiary tedger for Share Capital account in tlie
General Ledger. The total number of shares indicated in the shareholder's
Journal and the Share Capital account in the Ge,neral Ledger.

These Share (Stock) and Transfer book are presented below.

SHAREHOLDER'S JOURNAL

CERTIFICATE CANCELLED CEERTIFICATE ISSUED

DATE TRANSFERRED LEFT BY
LEDGER CERT. NO.OF TRANSFERRED Ledger Cert.
SIGNATURE No. of Total No. RECEIVED
FOLIO NO. SHARES Folio No. Shares of Shares

SHAREHOLDEWSLEDGER

-= ____________
c.umFICATE CANCEL1.ED
........... Cwtlfk:ate No.
__:_

No. of Shires DATE

Journel FoRo
CERTIFICATE ISSUED
Certificate No. No. of Shares

SUBSCRIBER'S LEDGER

v,1ue
~tion - Nature and Form t·

ORGANIZATION COSTS
a ton

--- _ _ _ _ _ _ _ _ _ _ _ __2_2~65

organization Cost are ex .

. Pend1ture .
s incurred w h"II e in · the process of organizing a
cor Porat1on · Thes e ·meIude expe
t · nses duri ,
incorpora ors, attorney's fees t·1· ng promoters meeting with other prospective
1
·t· t t k
cert1 ,ca e, s oc and transfer b ' ing and ·
pu bl.,cation fee, cost of printing stock
· 00 k, corporat I •
stock issuances before the sta t f e sea, accounting and legal fees related to
r O corporat ·
standards (PAS} No. 38 Jntan .bl e operations. Under Philippine Accounting
' g, e Assets · ·
charged to expense in the pe . d . ' organization costs or pre-operating costs are
no incurred.
RIGHTS OF SHAREHOLDERS

The o~ne~s of share in a corporation are called "Shareholders". Shareholders have four
(4) basic rights namely:

1. To vote and attend annual shareholder's meeting

2. To share in distribution of corporate profit (dividends out of earnings).

3. To share in distribution of assets upon corporate liquidation (liquidating

dividends).

4. To purchase additional shares in the event the corporation issues additional

share capital. This is to maintain the percentage ownership of the shareholders.
The right of a shareholder to be given priority to acquire additional shares is
~olled "Preemptive Right".

1MARE (STOCK) CERTIFICATE

f 0 n is represented by its share capital which is divided into
Oriiwlership in a stock corpora ' h lder's ownership in the corporation is determined by
_..-_,., ..'sh • A share o
WAIi¥ ores · S0 as if an individual shareholder owns 200 shares of
-~ he owns. , .
of sha re9 outstanding, he has a 1/5 interest in that corporat,o~.
tton's 1,000 share 5 document called •share (Stock) Certificate"'. This
p Js evidenced by a h ·ndividual shareholders who have fully paid his
...au be issued to t e ,
ho' .
Vice-President of the corporation, counter
he president Or .
t of the corporatron.

•• is shown on the next page:

LEGAL CAPITAL OF A CORPORATION

Legal capital of a corporation is that portion of the paid-in capital arising from issuance
of share capital which must remain untouched and unimpaired in protection to
corporate creditors and cannot be returned to shareholders in any form during the
lifetime of the corporation, except when a liquidation happens and only after the debts
have been paid. In case of a par value shares, legal capital is the aggregate par value
shares of all issued and subscribed shares. In case of a no par value share, it is the total
consideration received by its corporation for the issuance or its share to the
shareholders including the excess of issue price over the stated value.

DUST FUND DOCTRINE

dot::t.t1ae• is a legal principle that prohibits a private corporation to
I to the shareholders for the protection of corporate creditors
rporation. However, a corporation can declare and paY
ut of it$ 7'ee,. or •unappropriated accumulated profits
SHAREHOLDERS' EQUITY 167

shareholders' Equity is d t·
. e tned as ,, .
corporat,on as a business enf residua/ interest of th .
. lest Ian ua . tty, measured b e owners m the assets of the
sirnP. . ~ ge, It refers to the c . Y th ~ excess of assets over liabilities". _In its
,nod1f1ed basic accounting e . ap,tal section of a corpo t· h f
· Quat1on as: ra ion, t us, ollows the

Shareholders' E .
qu,ty = Total Assets Minus Total Liabilities
If you recall, there are three (3) .
Position under corporate form f b se_ct,ons th at comprises the Statement of Financial
0 usiness o · ·
Shareholders' ·Equity. rgarnzat,on. They are: Assets, Liabilities and

COMPONENTS OF SHAREHOLDERS' EQUITY

The following are the com
ponents of the shareholders' equity.
1. Share Capital
2. Subscribed_Share Capital
3. Share Premium or Additional Paid-in
4. Revaluation Surplus or Reserve
5. Accumulated Profits or Losses or Retained Earnings
6. Treasury Shares

The term "Share Capital" has so many connotations. They are as follows:
~zed Share Capital - refers to the maximum amount fixed by the corporate
rt4tr or articles of incorporation to be subscribed and paid-in by the shareholders,
ln money or property, labor or services at the organization of a corporation or
s W)On which it is to conduct its operation. The equivalent numbers of shares
tt111M1ed share capital are called "Authorized Shares". A corporation may
ltliodted shares by amending the articles of incorporation.
(l,pital .. this. represents the amount of shares which have been ,
m.,,~-.t fully paid. The equivalent numbers of shares are called

mount of shares which have been fully paid

issue~. The equivalent numbers of shares
k certificates cannot be issued unless

tiOn authorized share

ut are available for
nissued Shares'.

n issued but
e is issued
•
2Z,6~8L__________________ __________ _~Ch,aptf•r §

h ca pita I and still on th e hand r

Outstanding Share Capital - this refers to the Issued 5 " are ;anding Shares" . Iss ued >

of the sha reholders. The equivalent sh:Hes are called Outs - . tre;asury h
. when there dre , s arp~
share may not be t ht~ st1me sh,m~s outstan d ing . at the Outst - d.- ·
Treasury shares are dedurtcd forrn thP 1~:.uecJ ., Id
, t res to rtrr ive . d .. . dr& Ing0
i • c:hc.1res ,ssue ,s equc1I to the
shares. If there are no Trec1sury ~. lrnre.,,, howPver, t le J
shares outstanding.
. . . Acco un ting ·
· - Stan - l . Shareholder'
dar d s (PAS) No. . r; equib,
Based on the r.urrent Phtltppine
. s. These are, name ly·· Share Capital, Reserve ~nd
1.s composed of three (3) sub-section -
Accumulated Profits (Losses).

l. Contributed Capital - th is is the first sub-section of sharehol der s' equity consist the
fo11owing elements.

a. Share Capital - this refers to the portion of the paid-in capita l representing the
amount of the total par or stated value of the shares issued .

b. Subscribed Share Capital - this refers to the portion of the share capital that a
prospective investor agreed to subscribe but not yet paid-in fu ll and therefore,
still unissued. Subscribed share capital is to be deducted by t he subscription
receivable before the difference is added to share capital.

c. Subscription Receivable - this refers to the unpaid portion of the share capital
that the prospective investor has agreed to subscribe.

2. Reserve - this is the second sub-section of shareholders' equity. This is o ne of the

• most recent development in the presentation of shareholders' equ ity. This
consisted of the following.

a. Share Premium Reserve - it is otherwise known as "additional paid in capital"

representing the paid in capital in excess of the par value or stated val ue, excess
of the sales proceeds of treasury stock over cost donated capital and other
premiums in relation to the retirement of shares.

b. Revaluation Reserve - also called "Revaluation Increment in Property" or

•Asset Revaluation Reserve". This is the excess of value of plant assets as a
result of appraisal over net book value. This topic is discussed thoroughly in
Financial Accounting under Revaluation and Impairment of Assets.

c. Accumulated Profits (losses) Reserve- it is the portion of the Accumulated

Profitt and Losses that ls appropriated for plant expansion, purchase of
Tr.,asury Shares, etc. Unless reve~ed back to unappropriated accumulated
:.P!'~IJ• losses where It can be available for dividend declaration.

) - previously known as Retained Earnings this account

iome and expense from the start it oper;tes up' to th_e
n Increased or deCJreased due to results of periodic
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'6,f9'!1ion · Naturf! and

income
. . or
. loss ' Pnor
. pp · 269
d1stnbut1on, chan _-nod adjustment k
I ges in ac s nown as f d
ba ance
.
of accumulat d
f
~ounting policie
e Prof 1t
~n amental errors, dividend
s, etc. This ref
po rt ion o Accumulated . sand losses {Unres . ers to the undistributed
Profits and Losses th t tncted, unappropriated or free) or a
The Accumulated P f' a can be declared as dividends.
ro its ( Loss )
es are computed as follows:

Accumulated p f
Add D ro its (Losses). Beginning p xx
( educt). Pnor Periods Adjustments:
Fundamental Errors p xx
fffect of Change in Accounting Policy ~ ~
Accumulated Profits (Losses) a~ Restated p xx
Add (Deduct): Profit (Loss) tor the period ~
Total · p )()(
Less: Dividends Declared __M

Accumulated Profits (Losses), Ending p xx

.
GIii of the y,easury Shares that has been deducted from Accumulated Profits
ta arrtve at the Shareholders' Equity has first appeared in the reserve
the ac,o,unt •Appropriated Accumulated Profits (Losses) for Treasury

,,_, be presented on the foHowing pro-forma on the next

 Shareholders' Equity

Contributed Capital:
Share Capital PXX
Subscribed Share Capital PXX
Less: Subscription Receivable xx xx p xx
.
Reserves:
Share Premium in Excess of Par Value XX
Share Premium from Treasury Share · XX
Appropriated Accumulated Profits
(Losses) for Treasury Share XX
Revaluation lncre"'!ent in Property xx xx
Atcumulated Profits (Losses) (Unrestricted) xx
otal p xx
_._.._,. ... •
~
Shere at Cost xx
lty
PXX