Accounting for

Business
Incorporation

Corporation
Sec. 2 of the Corporation Code:
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.
Artificial Being
not a real or natural person
Has a juridical personality separate and
distinct from the stockholders
Can enter into contracts
Own & dispose properties
Incur and pay obligations
Sue and be sued
Personal liabilities of stockholders are not
obligations of the corporation

Created by Operation of Law
Cannot come into existence by mere
agreement
Requires special authority by the State
(Legislature)
Governed by statute or law
For lawful purposes only
Right of Succession
Exist for the period provided in Articles of
Incorporation
Can continue to exist despite:
Death
Withdrawal
Insolvency
incapacity
Existence = not exceed 50 years from the
date of incorporation, which can be
extended for another 50 years.
Powers, attributes and properties expressly
authorized by law or incident to its
existence
Exercise powers as expressly and impliedly
authorized by:
Corporation Code
Articles of Incorporation
By-Laws
Other special laws
Incidental powers can be exercised as long
as they are inherently necessary for its
existence or for the accomplishment of its
objectives.
Other Characteristics of
Corporation
Corporate ownership
represented by shares of stock
Limited Liability
shareholders are liable up to the
extent of his contribution
Transferability of Interest
- shareholder may sell his share
without the consent of other shareholders

Advantages
Limited Liability
Transferability of
interest/shares
Continued life
existence
Greater source of
funds


Disadvantages
Complicated in
formation and
operation
Greater degree of
government control
and supervision
Centralized
management/Lack of
Control
Weakened credit
standing
Heavier income tax

PARTNERSHIP
Created by :
a contract
Organized by :
at least 2 partners
Start of acquiring a juridical
personality is :
from the EXECUTION
of contract of
partnership
Powers:
any powers authorized
by partners, but not
contrary to law, m, gc,
po & pp
Management:
Every partner is an
agent of the
partnership
CORPORATION

law or operation of law

At least 5 incorporators, except:
corporation sole


from the date of issuance of the
certificate of incorporation by SEC


Only powers expressly granted
by law or implied from those
granted or incident to its
existence

Power to manage the business is
vested in BOD or BOT

PARTNERSHIP
Effect of mismanagement:
A partner may sue his co-
partner for mismanagement

Right of succession
None = can be easily
dissolved

Extent of liability to 3
rd

persons
General & Industrial
partners (except limited) are
liable personally &
subsidiarily, sometimes
solidarily

CORPORATION

Suit against one of the BOD
must be in the name of the
corporation
Has power of succession
life=max 50yrs; renew for
another 50

SH are liable up to the
extent of the shares
subscribed (limited liability)

PARTNERSHIP
Transferability of
interest
needs consent of
all partners (Delectus
Personae)

Firm name
Limited partnership =
Ltd.

Dissolution:
at any time upon the will
of a partner(s)
CORPORATION


SH can transfer their
shares w/out prior
consent of other SH

Any name so long as it is
not confusingly/
deceptively the same to
any registered firm name
With the consent of the
State
Kinds of Corporation
Private Corporations engaged in business
affecting public interest
Stock Corporations
issued shares of stock to the stockholders
- purpose: to earn profit
- entitled to receive dividends
- composed of stockholders
Non-Stock Corporations do not issue shares of
stocks
- created for civic, charitable, educational or
religious purposes
- composed of members

As to Nationality
Domestic Corp.
organized through the operation of Philippine
laws (Corporation Code of the Philippines & other
special corporate laws)
Subject to corporate tax 30% unless exempted
Foreign Corp.
- under the laws of other country
Resident Foreign Corp. taxable as a domestic
corporation 30 % for all income derived within
the Philippines
Non-resident Foreign subject to final tax of 32%
of gross income derived within the Philippines
Multi-National Corp
domestic or foreign corp. which extends its
business to other countries.

As to Purpose
Government Corp.
- Formed by the government either for
governmental or proprietary functions
Privately Owned Corp
Civil for business or profit
Wasting Asset to extract natural resources
Eleemosynary for charitable purposes
Ecclesiastical - for religious purposes
As to Legal Right
De Jure duly registered for having complied
with all the requirements of the law for its legal
existence
De Facto fails to comply completely


Extent of Ownership
Open Corp. stocks are listed in the stock
market which are open for public
subscription (Publicly-held corp.)
Close Corp. owned and managed by a
family or close relatives not exceeding 20
persons (Privately-held corp.)
Relation to other corporation
Parent Corp acquires significant influence
over another corp.
- Has power to elect the majority directors of a
subsidiary corp.
Subsidiary Corp controlled by parent
corp.
Components of a Corporation
Sec. 5 of the Corporation Code:
A corporation may comprise of
a. Incorporators
b. Corporators
c. Stockholders or members
d. Subscribers

Incorporators
founders of a corporation
original organizers whose name appears in the
Article of Incorporation
- artificial persons CANNOT be an incorporator
- consists of at least 5 but not more than 15
NATURAL persons
- of legal age
- owners or subscribers of at least one share of
capital stock
- majority of whom must be a resident of the
Philippines

Incorporators are promoters
- Those who first associate themselves together for the
purpose of organizing the company issuing its prospectus,
procuring subscriptions to the stock, securing the charter.


Corporators
- owners of the corporation AFTER its
formation

* A corporation is NOT allowed to become
a general partner in a partnership
Buuuuuuuut
a partnership or corporation may
become a stockholder of another
corporation.


Stockholders (SH)
- also called Shareholders
- Owners of shares in a stock corp. either by:
- subscription, or
- key direct purchase or
- By transfer of stock from another SH
- Either natural or an artificial person
Members
- Corporators of a non-stock or non-profit corp.

Subscribers
- Those who have made an agreement
with the corporation to buy the capital
stock at future payments
*A subscriber who does not pay his
subscriptions at the date agreed upon may
be declared ??? by the Board of
Directors
Delinquent

*However, the holder of subscribed shares
not fully paid but are not declared
delinquent shall have all the rights of a SH.
Rights of Stockholders
Right to vote
-common stockholders or proxy at all meetings
except: preferred, redeemable and treasury
shareholders
Right to profit
- to receive his proportionate share from
the corporate profits
Right to inspect
- corporate books, records, and financial
statements
Right to corporate assets
- to participate in the liquidation
Pre-emptive right
- right to purchase additional shares when there is
an increase in the authorized capital stock

Board of Directors
- responsible for the overall supervision of
the firm
- evaluate management performance
and act on legal matters
- decide on matters involving the
corporation such as:
expansion programs
dividend declaration
introduction of new products
entry in new market
President & other Officers
- implement the rules, policies & plans
drawn by BOD
- operate the business of the corporation
Organization of the Corporation
Promotion Stage

Incorporation Stage

Formal Organization and
Commencement of Business Operation
Promotion Stage
A preliminary step where in it involves the
issuance of prospectus, procuring of
subscriptions from prospective investors, &
securing a charter for the proposed
corporation
Incorporation Stage
Registration of Corporate name to SEC
- name must not be deceptively/
confusingly similar to the name of an existing
registered corporation
Drafting and Execution of the Articles of
Incorporation
Execution of Sworn Affidavits and Bank
Deposit Certificate
Payment of the filing and publication fees
Issuance of Certificate of Incorporation
Formal Organization&
Commencement of Operation
Adoption of By-Laws within one month
after SEC issues a Certificate of
Incorporation
Election of BOD/BOT & officers
Other steps necessary to transact
legitimate business or to accomplish the
purpose for which it was created.
Effects of Inoperative
If the corporation does not formally
organize and commence its operation
within 2 years from the date of its
incorporation corporation shall be
deemed dissolved

If it has commenced its transaction but
subsequently becomes continuously
inoperative for a period of at least 5 years
ground for suspension of corporate
franchise or certificate of incorporation
Pre-Incorporation
Subscription Requirement
The SEC shall not accept the Articles of
Incorporation unless accompanied by:
1. Sworn Statement of the Treasurer showing that
at least 25% of the Authorized capital stock has
been SUBSCRIBED
2. And at least 25% of the subscribed share has
been FULLY PAID (in cash or property)
3. Provided that the paid-up capital is at least
P5,000
Articles of Incorporation
a basic instrument by which a corporation is
formed and serves as an evidence of its
corporate existence.
Filed with SEC
Written in any of the official languages
Duly signed & acknowledged by all the
incorporators

Contents of Articles of Incorporation, unless prescribed by
Corporation Code or by special law
1. Name of the Corporation
2. Specific purpose for which it is being incorporated
a. Primary purpose
b. Secondary purpose must be germane to the primary
purpose
3. Principal place of business which must be within the
Philippines
4. Term of existence not to exceed 50 years, renewable for 50
yrs.
5. Names, nationalities and residences of Incorporators
6. Number of Directors/Trustees (5-15 only)
7. Names, nationalities and residences of Directors or Trustees
8. If a STOCK Corporation = amount of authorized capital stock,
no. of shares into w/c it is divided
If with par = par value
including the amt. subscribed and payment made
If without par = stated value
9. If NON-STOCK Corporation = amount of capital

By - Laws
Rules & regulations, ordinances or laws
adopted by any association or corporation
governing the internal affairs or administration
of the corporation
In accordance with Constitution, Corporation
Code, & Articles of Incorporation
Filed & adopted with SEC within 1 month
after the issuance of Certificate of Incorporation
by SEC


Provided in the by-laws are:
1. Time, place & manner of calling & conducting
regular/special meetings of BOD/BOT
2. Time, place & manner of calling & conducting
regular/special meetings of SH
3. Required Quorum in meetings & manner of voting
4. Form of proxies for SH
5. Qualifications, duties & compensation of directors,
trusteed, & officers
6. Time & manner of holding annual election of
BOD/BOT & officers
7. Penalties
8. Manner of issuing stock certificate (Stock
Corporation)