CORPORATION

Basic Considerations
 Corporation
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.
 Advantages
• Has legal capacity to act as a legal entity.
• Shareholders have limited liability.
• Has continuity of existence.
• Shares of stocks can be transferred.
• Management is centralized in the BOD.
• Shareholders are not general agents of the
corporation.
• Greater ability to acquire funds.
 Disadvantages
• Complicated formation and management.
• Government control and supervision.
• High cost of formation and operation.
• Heavier taxation.
• Minority shareholders.
• Management and control separated from
ownership.
• Transferability of shares permits the uniting of
incompatible and conflicting elements in one
venture.
 Classes of Corporations
• Stock corporation
– Share capital is divided into shares and are
authorized to distribute dividends to
shareholders on the basis of shares held.
• Non-stock corporation
– No part of its income is distributable as
dividends to its members, trustees or officers.
– Organized for charitable, religious, educational,
professional, cultural, recreational, fraternal,
literary, scientific, social, civic purposes.
 Other classification
• Corporation aggregate
• Corporation sole
• One-person corporation
• Domestic corporation
• Foreign corporation
• Public corporation
• Ecclesiastical corporation
• Eleemosynary corporation
• Civil corporation
 Other classification
• De jure corporation
• De facto corporation
• Close corporation
• Open corporation
• Publicly-held corporation
• Parent or holding corporation
• Subsidiary corporation
 Creation of a corporation
• Promotion
– Bringing together the incorporators,
procuring subscriptions (or capital) for the
corporation, and setting in motion the
processes leading to incorporation.
 Creation of a corporation
• Incorporation
– Verification of name.
– Drafting and execution of the articles of
incorporation with and affidavit regarding
the share capital subscribed and paid, and a
sworn statement of assets and liabilities.
– Deposit of cash paid for shares subscribed
with a certificate of deposit from the bank.
– Filing of the AI with the SEC together with
other documents.
 Creation of a corporation
• Incorporation
– Payment of the filing fees.
– Endorsement from other government
agencies if the corporation will engage in a
regulated industry.
– Issuance of the certificate of incorporation.
 Creation of a corporation
• Formal organization and commencement
– Adoption of by-laws.
– Election of the BOD and administrative
officers.
 Creation of a corporation
Note:
If a corporation does not formally commence its
operations within 2 years from incorporation, its
corporate powers shall cease and it will be deemed
dissolved.

If a corporation subsequently becomes

continuously inoperative for at least 5 years, the
same will be a ground for suspension or revocation
of its certificate of incorporation.
 Articles of Incorporation
• Name of the corporation.
• Specific purpose(s) for which it is formed.
• Principal place of business.
• Term of existence.
• Names, nationalities and residences of
incorporators.
• Number of directors or trustees.
• Names, nationalities and residences of the
persons who shall act as directors or trustees
until the first regular directors or trustees are
elected and qualified.
 Articles of Incorporation
• For a stock corporation:
– Amount of authorized share capital in pesos.
– Number of shares into which it is divided.
– Par value shares:
• Par value
• Names, nationalities and residences of original subscribers
• Amount subscribed and paid by each upon subscription
– No par value shares:
• State that shares are no par value shares
• Number of shares into which share capital is divided
 Articles of Incorporation
• For a non-stock corporation:
– Amount of capital.
– Names, nationalities and residences of the
contributors and the amount contributed.
 By-laws
The rules of action adopted by the corporation for
its internal government and for the government of
its officers, shareholders or members.

This should be adopted within one month from the

issuance of the certificate of incorporation.
 Rights of a shareholder
• To be issued a certificate of stock or other evidence of
ownership and to transfer such shares.
• To attend and vote in person or by proxy at shareholders’
meetings.
• To elect and remove directors.
• To adopt, amend or repeal the by-laws.
• Pre-emptive right.
• To receive dividends when declared.
• To inspect corporate books and records, and to receive
financial reports.
• To participate in the distribution of corporate assets
upon dissolution.
 Components of a
corporation
• Corporators
• Incorporators
• Shareholders/stockholders
• Members
• Subscribers
• Promoters
• Underwriters
• Independent director
 Classes of shares
• Par value shares
• No-par value shares
• Voting shares
• Non-voting shares
• Ordinary shares
• Preference shares
• Promotion shares
• Treasury shares
• Convertible shares
 Classes of shares
• At the time of incorporation, at least 25% of the
authorized capital must be subscribed, and at
least 25% of the total subscription must be paid
upon subscription.

In no case shall the paid-in capital be less than

P5,000.
Basic corporate organizational structure
Shareholders elect BOD >> BOD elect officers >>
Officers hire employees
President – must be a director; cannot act as
secretary and treasurer at the same time

Corporate secretary – makes and keeps corporate

records; makes entries of the votes, resolutions and
proceedings of the shareholders and directors

Corporate treasurer – entrusted with the authority

to receive and keep the money of the corporation
and to disburse them as authorized
 Corporate books and records
• Minutes book
• Stock and transfer book
• Books of accounts
• Subscription book
• Shareholders’ ledger
• Subscribers’ ledger
• Stock certificate book