The Nature and the Laws on the
According to the purpose of its
Formation of a Corporation
Corporation
 It 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 incident to its
existence. (Section 2, Corporation
Code of the Philippines)
Attributes of a Corporation
a. artificial being
b. created by operation of law
c. has the right of succession
d. has the powers, attributes, and
properties expressly authorized by
law or incident to its existence
Nationality or Citizenship of a
Corporation
a. Domestic Corporation - the
corporation is organized in
accordance with Philippine laws.
b. Foreign Corporation - the
corporation is organized in
accordance with the laws of
countries other than the
Philippines.
Characteristics of a Corporation
 Greater capital
 Unlimited life
 Limited liability
 Transferability of interest
 Better management
 Separate entity
Kinds of Corporation
1.
operation
a. Public corporations
 those formed or organized for the
government (e.g. Securities and
Exchange Commission (SEC),
Development Bank of the
Philippines (DBP)), or a portion of
the state, such as town, city,
province, and barangay
b. Private corporations
 those which are created, wholly or
in part, for purposes of private
emolument, such as PLDT,
Meralco, San Miguel Corporation,
Bank Of Philippine Islands,
cooperatives, religious and
charitable institutions, and others
2. According to share authorized to
issue
a. Stock corporations
 corporations which have capital
stocks divided into shares and are
authorized to distribute to
stockholders of such shares
dividends or allotment of the
surplus profits on the basis of
shares held
b. Non-stock corporation
 generally non-profit in nature,
like religious and charitable
institutions; the owners are called
members
3. According to number of
stockholders or members
a. Corporation aggregate
 composed of more than one
member or stockholder, like the
San Miguel Corporation, PLDT,
RCBC, Meralco, and others
b. Corporation sole
 composed of a single member and
his successors in office
4. Ecclesiastical and lay
a. Ecclesiastical corporation
 created to secure the public
worship of God
b. Lay corporation
 established for temporal purposes
and is comprised of laymen
5. De jure and de facto
a. De jure corporation
 created in strict or substantial
conformity to the requirements of
the law governing corporation
b. De facto corporation
 defectively created that its
creation does not conform strictly
or substantially with laws
governing corporation
6. Eleemosynary and civil
a. Eleemosynary corporation
 created for purposes of charities,
such as orphanage, hospitals,
schools, and the like
b. Civil corporation
 created to facilitate the
transaction of business
7. As to nationality
a. Domestic corporation
 corporation created or existing
under the laws of the Philippines
b. Foreign corporation
 corporation created or existing
under the laws of other states or
countries other than the
Philippines
8. Open and close
a. An open corporation
 the general public may become a
stockholder or members thereof
b. A close corporation
 the stockholders or members are
limited to a few persons such as the
members of a family
9. As to relationship to other
corporations
a. A parent or holding corporation
 has the power to directly or
indirectly own more than 50%
shares of voting stock of another
corporation and can elect the
majority of the board of directors
of such other corporation which is
called subsidiary corporation
b. A subsidiary corporation
 related to another corporation
that a majority of its directors can
be elected directly or indirectly by
such other corporation called
parent corporation; the parent
corporation owns more than 50%
shares of the subsidiary
corporation.
c. An affiliated corporation
 has a significant influence by
another corporation owning at
least 20% but not more than 50% of
its outstanding common stock, or
by a long-term lease of its
properties or other control device.
10. Other kinds of corporations
a. A wasting assets corporation
 the sole purpose of which is to
invest its capital in a specific
property and afterwards to
consume that property or extract
it's value at a profit, such as mining
a property and oil or gas well
b. A government owned or
controlled corporation
 organized by the government or of
which the government is the
majority stockholder, such as the
Philippines Railways, NAPOCOR,
Land Bank of the Philippines, and
National Development Corporation
c. A corporation by prescription
 where corporate powers have
been exercised by a body of men
for such a length of time to raise
presumption of the grant of an
ancient charter to their predecessor
such as the Roman Catholic
Church
d. A corporation by estoppel
 is not really a corporation but
which has represented itself to the
public as a real corporation and
which cannot be permitted to deny
such representation
e. A quasi-public corporation
 a private corporation which has
accepted from the state the grant of
a franchise or contract involving
the performance of public duties
such as Meralco, PLDT, LRT, and
MRT
f. A quasi corporation
 an association of government or
political institution or officers
which is not a corporation in the
full sense but which is invested by
law with some of the attributes of a
corporation
Advantages and Disadvantages of a
Corporation
Advantages of a Corporation
 capacity to act as a juridical
person with legal personality
 continuity of life
 the liability of the stockholders is
limited to capital investment
 there is better management as the
best service may be extracted from
the bigger membership of a
corporation
 there is a more unified form of
control which is reposed in the
board of directors
 shares of stocks may be
transferred even without the
consent of other stockholders
 there is a greater source of capital
Disadvantages of a Corporation
 A corporation is subject to greater
government control.
 Frequent and varied reports are
required of a corporation.
 A corporation may not engage in
any business other than the
business specified in the Articles of
Incorporation.
 Minority stockholders may be at
the mercy of the majority
stockholders.
 A corporation cannot transact
business in another state unless it
obtains a license for that purpose.
 It is subject to double taxation.
 Outstanding stocks cannot be
more than the authorized capital
stock.
 Financial obligations of a
corporation is limited on account of
limited liability of stockholders.
Owners of a Corporation
1. The incorporators
 stockholders or members
mentioned in the Articles of
Incorporation as originally forming
and composing the corporation and
who are signatories thereof.
2. Corporators
 those who composed the
corporation whether stockholders
or members.
3. Stockholders or shareholders
 owners of shares in a corporation
which has capital stocks
4. Members
 corporators of a corporation
which has no capital stock.
5. Subscriber
 one who has agreed to take shares
of stock from the corporation
under a subscription agreement on
the original issue of such stock but
not fully paid.
The Four Rights of Stockholders
1. the right to vote in an annual
stockholders meeting
2. the right to share in corporate
profit
3. the right to share in the
distribution of asset upon
corporate liquidation
4. the pre-emptive right or the right
to purchase additional shares of
stock in the event that the
corporation increases the amount
of stock outstanding
The Officers of a Corporation
Directors or
trustees in the
board of the
President
Others as
Corporate stated in
Secretary
the by-
Corporate
Treasurer
Important Qualifications of
Corporate Officers
 President - must be a director.
 Treasurer - may or may not be a
director.
 Secretary - may or may not be a
director but must be a resident and
citizen of the Philippines.
 any two or more positions may
be held concurrently by the same
person, except that no one shall act
as president and secretary or as
president and treasurer at the same
time.
Classes of Shares of Stocks
1. Common and Preferred Stock
a. Common stock
 entitles the owner the power to
vote to elect a director in the board
and to a pro rata dividends,
without any priority or preference
over any other stockholder.
b. Preferred stock
 class of stock which is entitled to
certain preferences over common
stock such as over dividends and
assets of the corporation in case of
liquidation.
2. Voting and Non-voting Stocks
a. Voting stock
 a class of shares of stock which
entitles the holder to vote in the
meeting of the corporation; the
common stocks or ordinary shares
b. Non-voting stock
 a class of shares of stock which is
not entitled to vote in the meeting
of the corporation; normally called
the preferred stock or preference
share.
3. Par and No-par Value Stock
a. Par value stock
 a class of stock with a par value
appearing on the face of the
certificate of stock
b. Non-par value stock
 a class of stock without any
nominal or par value on the face of
the stock certificate
c. Preferred stock
 required by law to have par value;
should the corporation issue
preferred no-par value stocks; such
stocks should always have stated
values as required by law.
The corporation law provides that
no-par value share of stock may
not be issued for an amount less
than P5.00.
4. Other classes
a. Formative stock
 the starting minimum number of
stocks to be subscribed as required
by the charter and not necessarily
by the law.
b. Over-issued or spurious stock
 issued in excess of the authorized
capital stock and is therefore void.
c. Treasury stock
 stock lawfully issued by the
corporation and subsequently
reacquired by it.
d. Watered stock
 stock which has been issued by the
corporation as fully paid up when
in fact it is not because it has been
issued as bonus or otherwise,
without any consideration at all, or
for less than par or for property,
labor, or services at an
overvaluation.
e. Bonus stock
 stock issued to persons who
subscribe for bond of a corporation
under the condition that they shall
receive an equal amount of
ordinary shares therewith, and the
money paid on the subscription is
payment for the bond alone
f. Promotion stock
 stock issued to those who, in the
case of a mining company, may
originally own the mining ground
or valuable rights connected
therewith, in consideration of their
deeding the same to the mining
company when the company is
incorporated.
g. Founder's stock
 stock issued to the founders or
organizers of a corporation.
h. Shares in escrow
 shares subject to an agreement
under which the shares are
deposited by the grantor or his
agent with a third person, to be
delivered by the depository to the
grantee (buyer) or subscriber upon
the happening of certain
conditions.
i. Callable or Redeemable
Preferred Stock
 this share can be redeemed by the
corporation at a specified rate,
which is usually higher than par
value or original issued price.
j. Convertible Preferred Stock
 is another type of preferred stock
which can be changed or converted
to another class of stock (usually
common stock), at a certain price
within a specified period of time at
the option of the holder.
Advantages and Disadvantages of
Par Value Shares
Advantages of par value share
a. the convenience or ease of sale
b. greater protection to the
creditors, since the shares cannot
be sold below par.
c. shareholders and investors are
secured of sale either at par or
above par as well as fair
computation of dividends.
Disadvantages of par value share
a. the subscribers are liable for
unpaid subscriptions or in case of
default, refund of what has been
previously paid may not be made.
b. misrepresentation of its stock
value
Required Minimum Authorized
Capital Stock and Minimum Paid-
up Capital
The new corporation code
does not require any minimum
authorized capital stock as long as
the paid-up capital is not less than
P5,000.
Minimum Subscription and
Minimum Paid-up Capital
As required by law, 25% of the
total authorized capital stock
should be subscribed and 25% of the
total subscription should be paid-
up.

Stock Certificate
 This is the document issued when
an investor purchases shares of
stock and pay his subscription in
full.
Articles of Incorporation
 It "enumerates the powers and
restrictions conferred upon the
corporation by the government,"
and also constitute a contract
among the incorporators.
 "All corporations organized
under this code shall file with the
securities and exchange
commission articles of
incorporation in any of the official
languages duly signed and
acknowledged by all of the
incorporators."
By-Laws
 The by-laws of the corporation
supplement the articles of
incorporation. The by-laws usually
govern the internal administration
of the organization.
Contents of By-Laws
1. the date, place, and manner by
which annual stockholders’
meetings are to be called
2. the manner of conducting
meetings
3. the manner of voting and the use
of proxies
4. the manner of electing the board
of directors
5. the term of office of the directors
6. the duties of the directors
7. the procedures for amending the
articles of incorporation
8. the procedures for amending the
by-laws
Subscriptions and Subscribed
Capital Stock
 A subscription is an agreement to
purchase shares of unissued stock.
It may exist before incorporation
or after incorporation.
 Subscriptions which are not yet
paid in full are known as
subscribed capital stock. In
accounting, the account title is
subscribed share capital.
Legal Capital
 Par value shares - amount equal
to the aggregate of all issued and
subscribed par value shares
multiplied by its par value
 No-par value shares - aggregate of
cash or fair value of non- cash
assets received as compensation for
all issued no-par value shares