ACCOUNTING FOR

CORPORATIONS
Basic Considerations
DEFINITION OF 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

- The Revised Corporation Code of the Philippines

RA 11232, Sec. 2
ATTRIBUTES OF A CORPORATION
1.) Artificial being with a personality separate and
apart from its individual shareholders or members.

2.) Created by operation of law.

3.) Enjoys the right of succession.

4.) Has the powers, attributes and properties

expressly authorized by law or incident to its
existence.
Comparison between Partnership and
Corporation
ADVANTAGES OF A CORPORATION
• Separate legal entity
• Limited liability of stockholders
• Continuous life
• Transferable ownership rights
• Management is centralized in the Board of
Directors
• Lack of mutual agency for stockholders
• Ease of capital accumulation
DISADVANTAGES OF A CORPORATION
• Complicated in formation and management
• Governmental regulation
• High cost of formation and operation
• Heavier taxation than other forms of business
organizations
• Minority shareholders are subservient to the wishes
of the majority
• Management and control have been separated from
ownership
• Transferability of shares permits the uniting of
incompatible and conflicting elements in one
venture.
CLASSES OF CORPORATIONS
Section 3 of the Revised Corporation Code
classified private corporations
into:
1. Stock corporation – Corporations which
have share capital divided into shares and are
authorized to distribute to the holders of such
shares dividends or allotments of the surplus
profits on the basis of the shares held.
CLASSES OF CORPORATIONS
2. Non-stock corporation
OTHER CLASSIFICATIONS OF
CORPORATIONS
According to number of persons:
• Corporation aggregate – consisting of more than
one corporator.
• Corporation sole or a special form of corporation
usually associated with the clergy – consists of only one
member or corporator and his successors such as a
bishop.

According to nationality:
• Domestic corporation – organized under Philippine
laws.
• Foreign corporation – organized under foreign laws.
OTHER CLASSIFICATIONS OF
CORPORATIONS
According to whether for public or private purpose:
• Public corporation – formed for the government of a portion
of the state
• Private corporation – created for private aim, benefit or
purpose

According to whether for charitable purpose or not:

• Ecclesiastical corporation – organized for religious purposes
• Eleemosynary corporation – established for public charity
• Civil corporation – established for business or profit

According to their legal right to corporate existence:

• De jure corporation – existing in fact and in law.
• De facto corporation – existing in fact but not in law.
OTHER CLASSIFICATIONS OF
CORPORATIONS
According to degree of public participation
with regard to their share ownership:
• Close corporation – share ownership is limited to
selected persons or member of a family not
exceeding 20 persons.
• Open corporation – the share is available for
subscription or purchase by any person.
• Publicly-held corporation – a class of equity
securities listed on an exchange or with assets in
excess of P50,000 and having 200 or more holders,
at least 200 of which are holding at least 100 shares
of a class of its equity securities.
OTHER CLASSIFICATIONS OF
CORPORATIONS
According to their relation to another
corporation:
• Parent or holding corporation – a corporation
that is related to another corporation that it has
the power to either directly or indirectly elect the
majority of the directors of a subsidiary
corporation.
• Subsidiary corporation – a corporation
controlled by another corporation known as a
parent corporation.
Steps in the creation of a corporation
1.) Promotion – It is the process of bringing
together the incorporators or the persons
interested in the business, of procuring
subscriptions or capital for the corporation and of
setting in motion the machinery that leads to the
incorporation of the corporation itself.
Steps in the creation of a corporation
2.) Incorporation
• Verification from the records of the Securities and
Exchange Commission (SEC) that the proposed
corporate name is not the same or similar to an existing
corporation.
• Drafting and execution of the articles of incorporation
by the incorporators. The person elected as temporary
treasurer should execute an affidavit regarding the
share capital subscribed and paid up. The treasurer
should submit a sworn statement of assets and
liabilities of the corporation.
• Deposit by the treasurer of the cash paid for the shares
subscribed in the bank in the name of the treasurer in
trust for and to the credit of the corporation. The bank
is required to issue a certificate of deposit.
Steps in the creation of a corporation
• Filing of the articles of incorporation with the SEC
together with treasurer’s affidavit, statement of
financial position, certificate of bank deposit, and
certificate as to the name of the corporation;
• Payment of the filing fees: for the AI, equivalent to 1/5
of 1% of the authorized capital stock of the proposed
corporation but not less than P1,000; for the by-laws,
P510; for SEC Form F-100, P2,000; and a legal
research fee which is 1% of the filing fee for the AI;
• Endorsement from other government agencies if the
proposed corporation will engage in an industry
regulated by the government, other requirements for
corporations with foreign equity and additional
requirements based on the kind of payment of
subscriptions; and
• Issuance by the SEC of the certificate of incorporation.
Steps in the creation of a corporation
3.) Formal organization and commencement of
business operations – Formal organization requires
the adoption of by-laws and the election of the board of
directors and of the administrative officers. It also
includes the taking of such other steps as are necessary
to enable the corporation to transact the legitimate
business or accomplish the purpose for which it was
created.
ARTICLES OF INCORPORATION
ARTICLES OF INCORPORATION
BY-LAWS
- The rules of action adopted by the corporation
for its internal government and for the
government of its officers, shareholders or
members.
- The by-laws shall be effective only upon the
issuance by the Commission of a certification
that the bylaws are in accordance with the
Revised Corporation Code.
- Failure to file a code of by-laws shall render the
corporation liable for the revocation of its
registration.
BY-LAWS
BY-LAWS
RIGHTS OF A SHAREHOLDER
 Vote at stockholders’ meetings or by proxy
 Sell stock
 Purchase additional shares of stock or any new
shares issued to maintain same percentage of
stock ownership (pre-emptive right)
 Receive dividends, if any
 Share equally in any assets remaining
after creditors are paid in a liquidation
 Be issued certificate of stock or other evidence
of share ownership and to transfer such shares
 Right to elect and remove directors.
 Right to adopt, amend or repeal the by-laws
RIGHTS OF A SHAREHOLDER
 Right to inspect corporate books and records,
and to receive financial reports of the
corporation’s operations
 Right to participate in the distribution of
corporate assets upon dissolution.
COMPONENTS OF A CORPORATION
• Corporators, Incorporators,
Shareholders, Members

Note: A corporation or a partnership can be a corporator, but cannot

be an incorporator. A partnership can be a corporator in a corporation
but a corporation cannot be a general partner in a partnership.
All incorporators are corporators of a corporation, but not all
corporators are incorporators.
COMPONENTS OF A CORPORATION
• Corporators, Incorporators,
Shareholders, Members
COMPONENTS OF A CORPORATION
• Subscribers – persons who have agreed to take
and pay for original, unissued shares of a
corporation formed or to be formed.
Note: All incorporators are subscribers but a
subscriber need not be an incorporator.

• Promoters – persons who bring about or cause

to bring about the formation and organization of
a corporation.
COMPONENTS OF A CORPORATION
• Underwriters – usually investment bankers
who have:
 Agreed, alone or with others, to buy at stated
terms an entire or a substantial part of an
issue of securities; or
 Guaranteed the sale of an issue by agreement
to buy from the issuing corporation any
unsold portion at a stated price; or
 Agreed to use his best efforts to market all or
part of an issue; or
 Offered for sale shares he has purchased
from a controlling stockholder.
COMPONENTS OF A CORPORATION
• Independent director– person who apart
from his fees and shareholdings is independent
of management and free from any business or
other relationship which could, or could
reasonably be perceived to, materially interfere
with his exercise of independent judgment in
carrying out the responsibilities of a director.

A publicy-held corporation shall have at least two

independent directors or at least 20% of the
members of the board, whichever is the lesser
(Sec. 38 of the SRC)
CLASSES OF SHARES IN GENERAL
• Par value shares. One in which a specific
amount is fixed in the articles of incorporation
and appearing on the certificate of stock. The par
value is the minimum issue price of the share.
“Section 6 of the Code states that preference
(or preferred) shares of stock may be issued
only with a stated par value.”
CLASSES OF SHARES IN GENERAL
• No-par value shares. One without any value appearing on
the face of the certificate of stock. A no-par value share may
have a stated value which may be fixed in the articles of
incorporation or by the board of directors or the shareholders.
Thus, the issue price may vary from time to time as it is
usually fixed based on the book value of the corporation’s
shares.

However, the minimum stated value of a no-par value share

is 5 pesos (P5.00) per share (Sec. 6). In addition, shares issued
without par value are deemed fully paid.

Banks, trust companies, insurance companies, public utilities,

and building and loan associations are not permitted to issue
no-par value shares of stock.
CLASSES OF SHARES IN GENERAL
• Voting shares. Those issued with the right to
vote.
• Non-voting shares. Those issued without the
right to vote.
• Ordinary shares. These shares entitle the
holder to an equal pro-rata division of profits
without any preference.
• Preference shares. These shares entitle the
holder to certain advantages or benefits over the
holders of ordinary shares.
CLASSES OF SHARES IN GENERAL
• Promotion shares. Those issued to promoters as
compensation in promoting the incorporation of a
corporation, or for services rendered in launching or
promoting the welfare of the corporation.
• Treasury shares. A stock that has been issued by
the corporation as fully paid and later reacquired
but not retired.
• Convertible shares. A stock which is convertible
or changeable from one class to another class.
CLASSES OF SHARES IN GENERAL
• Authorized shares. The maximum number of
shares which a corporation may issue.
• Issued shares. Shares issued to shareholders
which at present may or may not be in the hands of
the shareholder.
• Unissued shares. Shares which never been issued
and are available for issuance.
• Outstanding shares. Shares issued to
shareholders or subscribers whether fully or
partially paid except for treasury shares.
• Subscribed shares. Shares which investors have
contracted to acquire.
MINIMUM SUBSCRIPTION AND PAID-IN
CAPITAL

𝐒𝐞𝐜𝐭𝐢𝐨𝐧 𝟑𝟕 Power to Increase or Decrease Capital Stock; Incur,

Create or Increase Bonded Indebtedness
Organizational Structure of a Corporation
Shareholders
(owners of corporation stock)

Board of Directors
(elected by stockholders)

Officers
(selected by board of directors)

Employees
BASIC CORPORATE ORGANIZATIONAL
STRUCTURE
• The ultimate control of the corporation rests
with the shareholders. They are the owners of
the corporation. The shareholders elect the
members of the board of directors.
• The board of directors is responsible for the
formulation of the overall policies for the
corporation and for the exercise of corporate
powers. The board also elects a chairman of
the board.
BASIC CORPORATE ORGANIZATIONAL
STRUCTURE
• The president must be a director of the
corporation, but he cannot act as president and
secretary or as president and treasurer at the same
time. The president is the only officer required by
law to be a director. (Sec. 24)
• The corporate secretary must be a resident and a
citizen of the Philippines. He need not be a director
unless required by the corporate by-laws. It is his
duty to make and keep its records and to make
proper entries of the votes, resolutions and
proceedings of the shareholders and directors in the
management of the corporation.
BASIC CORPORATE ORGANIZATIONAL
STRUCTURE
• The corporate treasurer is the officer entrusted
with the authority to receive and keep the money of
the corporation and to disburse them as he may be
authorized. He may or may not be a director.

NOTE: There is no prohibition in the law against a

shareholder being a director or officer of two or more
corporations. The Corporation Code does not prohibit
a corporate officer from occupying the same position
in another corporation organized for the same
purpose. However, such situation may be prohibited
by special law, the articles of incorporation or the by-
laws.
CORPORATE BOOKS AND RECORDS
• Minutes book. It contains the minutes of the
meetings of the directors and shareholders.
• Stock and transfer book. It is the record of
the names of shareholders, installments paid
and unpaid by shareholders and dates of
payment, any transfer of stock and dates thereof,
by whom and to whom made.
• Books of accounts. These represent the
record of all business transactions. These
normally include the journal and the ledger.
CORPORATE BOOKS AND RECORDS
• Subscription book. It is a book of printed blank
subscription.
• Shareholders’ ledger. It is a ledger which details
the number of shares issued to each shareholder.
• Subscribers’ ledger. It is a subsidiary ledger for
the subscriptions receivable account; it reports the
individual subscriptions of the subscribers.
• Stock certificate book. It is a book of printed
blank certificates of stock.
Thank you!