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Characteristics of A Corporation
Characteristics of A Corporation
Characteristics of A Corporation
CORPORATION
1. Separate Legal Entity – It may acquire, own, and dispose property in its
corporate name. It may also incur liabilities and enter into other types of
contracts according to the provisions of its charter.
2. Continuous Life – It has a continuous life regardless of changes in the
ownership of their stock. Sales or transfer of stocks by stockholders does not
affect the continuity of the corporation.
3. Transferability of Ownership – Stockholders may transfer their stocks as they
wish. They may sell or trade the stock, give it away, bequeath it in a will, or
dispose of it in any way they desire.
4. No Mutual Agency – Stockholder of a corporation cannot commit the
corporation to a contract (unless he or she is also an officer of the business).
CORPORATION
THE NEW CORPORATION CODE GRANTS AMPLE POWERS
TO THE SECURITIES AND EXCHANGE COMMISSION (SEC)
TO ENABLE IT TO EXERCISE ADEQUATE SUPERVISION
OVER THE OPERATIONS AND ACTIVITIES OF PRIVATE
CORPORATIONS.
DEFINITION
A Corporation 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.
ATTRIBUTES OF A CORPORATION
a. Artificial being – it has a personality separate and distinct from that of a stockholder.
b. Created by operation of law – it is created and organized under a general law and is
considered a legal body with rights and powers.
c. Has the right of succession – it shall continue to exist for the period stated in the Articles
of Incorporation, and the death of any stockholder or director shall not dissolve the
corporation.
d. Has the powers, attributes and properties expressly authorized by law or incident to its
existence – it should be noted that if the corporation exercises powers not within its express,
inherent or implied powers, it commits an ultra vires act which is a ground for its dissolution.
CHARACTERISTICS OF A
CORPORATION
5. Separation of Ownership and Management – Stockholders own the business,
but the board of directors – elected by the stockholders – appoints officers to
manage the business.
6. Limited Liability – A stockholder has limited liability to the extent of his/her
subscription and paid investment in the corporation.
7. Corporate Taxation – Corporations are separate taxable entities and pay a
variety of taxes not borne by proprietorships or partnerships.
8. Government Regulation – Strong government regulation is an important
disadvantage to the corporation.
ADVANTAGES OF A CORPORATION
a. Capacity to act as a legal entity.
b. Continuity of life.
c. Liability of stockholders is limited to their paid investment.
d. Better management because of bigger membership.
e. Unified control given to the Board of Directors.
f. Ease of transferability of shares.
g. Greater source of capital.
DISADVANTAGES OF A
CORPORATION
a. Subject to greater governmental control.
b. Frequent and varied reports are required of a corporation.
c. Can not engage in business outside its charter.
d. Minority stockholders are at the mercy of majority stockholders.
e. Subject to higher taxation than other form of business organization.
f. Greater possibility of abuse of power by the board of directors.
g. Higher cost of organization and operations.
ORGANIZATION OF A PRIVATE
CORPORATION
Creation of a corporation begins when its organizers, called Incorporators, who
shall draft the Articles of Incorporation duly signed and acknowledged by all the
incorporators showing:
1. The name of the corporation.
2. The address of the corporation
3. The specific purpose or purposes of the corporate organization.
4. The term for which the corporation is to exist.
5. The number of directors, which shall not be less than five (5) nor more than
fifteen (15). The names, addresses, and length of appointment for the original
directors.
ORGANIZATION OF A PRIVATE
CORPORATION
Cont.
6. The limitations, qualifications, restrictions, and the rights of each class of
stock, if more than one class is to be issued.
7. The amount of its authorized capital stock, number of shares, and par value of
each share.
8. The name, address, occupation, number of shares held, and amount paid for
shares of each of the incorporators.
The Articles of Incorporation is then filed with other required documents to the
Securities and Exchange Commission and pays the incorporation fees. The
corporation is legally formed when the Corporate Charter or Certificate of
Incorporation is issued by SEC.
The incorporators have to adopt a set of By-laws within one month from the
issuance of the certificate of incorporation which act as the constitution for
governing the corporation. The by-laws may provide the following:
1. The time, place and manner of calling and conducting regular and special
meetings of the directors and stockholders;
2. The required quorum in meetings of the stockholders.
3. The form for proxies of stockholders and manner of voting them.
4. The qualifications, duties, and compensation of directors, officers and
employees.
5. The time for holding the annual election of directors and the manner of giving
notice.
6. The penalties for violation of the by-laws.
7. The manner of issuing stock certificates.
8. Rules and regulations governing corporate officers and rules governing the
election of directors and appointment of officers.
The corporate charter is the basic legal document of the corporation; the by-
laws must not contradict or violate the charter. At all times the directors and
officers must carry out their duties in accordance with the charter and the by-
laws.
COSTS OF ORGANIZATION
Organization Costs – are costs such as incorporation fees,
attorney’s fees, promotional expense, and cost of printing
stock certificates that must be incurred to organize a
corporation.
CORPORATE BOOKS AND
RECORDS
Corporations use many books and records that are similar to those used by
proprietorships and partnerships. Corporate books and records to be kept are:
a. Books and records of business transactions – These are the books of original
and final entries that are similar to those used by proprietorships and
partnerships like special journals, general and subsidiary ledgers.
b. Minutes Book – The minutes of stockholders’ meetings and board of
directors’ meetings are recorded in the corporation’s minute’s book.
c. Subscriptions Record – When a corporation is formed, the incorporators and
others who wish to become owners subscribe for a certain number of shares of
stock at a specified price per share. This is where the account for each
subscriber may be kept in a subsidiary or stock payment record.
CORPORATE BOOKS AND
RECORDS
d. Stock Certificate and Transfer Book – The Corporation issues stock certificates
to each subscriber who has fully paid for his or her stock. Stock certificates
issued and stockholders who transfer their stock to another are recorded in the
stock certificate and transfer book.
e. Stockholders’ Ledger – This contains an account for each stockholder that
shows the number of shares owned as of a particular date but do not include
the peso amounts.
CAPITAL STOCK
A Corporation issues stock certificates to its owners in exchange for their
investment in the business. The basic unit of capital stock is called a share. There
are two classes of capital stock, Common and Preferred.
Authorized Capital Stock is the number of shares of capital stock (common and
preferred) that is stated in the charter that a corporation can sell. Under the
corporation code at least 25% of the authorized capital stock should be
subscribed and at least 25% of the capital stock subscribed is paid.