introduction and formation of corporations

7/29/2019 Introduction and Formation of Corporations

1/13

Corporation

Definition

Sec. 2, Corporation Code of the Philippines

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.


2/13

Corporation

Characteristics of a corporation

1. Separate legal entity

2. Created by operation of law

3. Right of succession

4. Has powers, attributes and properties expressly authorized by law or incidental to its

existence


3/13

Corporation

Comparisons among sole proprietorships, partnerships and corporations

Sole Proprietorship Partnership Corporation

Formed by 1 person Formed by at least 2

persons

Formed 5 to 15 persons

Formed simply by

beginning a business

Starts with an agreement

among partners

Existence starts when SEC

issues certificate of

incorporation

Unlimited liability Unlimited liability Limited liability

Limited life Limited life Relatively unlimited life

No transfer of equity Transfer of equity needs the

consent of other partners

Transfer of equity does not

need the consent of othershareholders

Proprietor is the agent of the

proprietorship

Partner serves as an agent of

the partnership

Shareholders do not act as

shareholders of the

corporation


4/13

Corporation

Components of a corporation

1. Corporators

a. Shareholders

b. Members

2. Incorporators

3. Promoters

4. Subscribers

5. Underwriters


5/13

Corporation

Types of corporations

1. Public/GOCC

2. Private

3. Domestic

4. Foreign

5. Stock

6. Non-stock

7. Open

8. Closely-held


6/13

Corporation

Advantages of a corporation

1. Accumulation of capital

2. Limited liability

3. variety of ownership interest

4. Right of succession

5. Continuity of corporate existence

Disadvantages of a corporation

1. Difficult to create, organize and manage2. More reportorial requirements with the SEC

3. Double taxation


7/13

Corporation

Incorporation

Sec. 10 to 13 and 22, Corporation Code of the Philippines

1. Incorporators must be 5 to 15 natural persons, all of legal age and majority of whom

are residents of the Philippines.

2. A corporation may exist for a period not exceeding 50 years, but may extend for

periods not exceeding 50 years.

3. No minimum authorized shares is required by law.

4. At least 25% of the authorized shares must be subscribed, and at least 25% of the total

subscriptions must be paid, provided that it is not less than P5 000.

5. The corporation should start its operations within 2 years from incorporation.


8/13

Corporation

Articles of incorporation

Sec. 14, Corporation Code of the Philippines1. Name of the corporation

2. Purpose

3. Address of the principal office

4. Term for which the corporation is to exist

5. Names, nationalities and residences of the incorporators

6. Number of directors and trustees

7. Names, nationalities and residences of the directors and trustees

8. Amount of authorized shares for a stock corporation

9. Names, nationalities and residences of contributors and amount contributed by each for

a non-stock corporation

10. Such other matters as are not inconsistent with law and which the incorporators may

deem necessary and convenient.


9/13

Corporation

By-laws

Sec. 47, Corporation Code of the Philippines

1. Time, place and manner of calling and conducting regular or special meetings of the

directors or trustees

2. Time, place and manner of calling and conducting regular or special meetings of the

shareholders or members

3. Quorum in meetings and the manner of voting4. Form for proxies for shareholders

5. Qualifications, duties and compensation of directors and trustees, officers and

employees

6. Time for holding the annual election of directors and trustees

7. Manner of election or appointment and the term of office of all officers other thendirectors and trustees

8. Penalties for violation of by-laws

9. Manner of issuing share certificates for stock corporations

10. Such other matters as may be necessary for the proper or convenient transaction of its

corporate business and affairs.


10/13

Corporation

Corporate books and records

1. journals and ledgers2. Minutes books for meetings of shareholders

3. Minutes books for meetings of the board of directors

4. Share and transfer book

Types of shares issued by a corporation

1. Par

2. No par

3. Ordinary

4. Preference


11/13

Corporation

Share System

Authorized shares

maximum number of shares that can be sold to the publicUnissued sharesunsold shares

Issued sharesshares that have been sold

Outstandingowned by shareholders

Treasury

reacquired shares; not an investment of the company

Retired sharespreviously issued, but then reacquired and cancelled

Subscribed sharescontracted to acquire


12/13

Corporation

Variety of Ownership Interests

Ownership rights:1. To share proportionately in profits or losses

2. To share proportionately in management

3. To share proportionately in corporate assets upon liquidation

4. To share proportionately in any new issues of shares in the same class

Ordinary Shares: residual corporate interest that bears the ultimate risks and receives the

benefits

Preference Shares: certain preferences to earnings


13/13

Corporation

Ordinary shares

1. Basic voting shares of the corporation2. Bears ultimate risk of loss

3. Receives the benefits of success

4. Not guaranteed dividends nor assets upon dissolution

5. Dividends determined by the board of directors

Preference shares

1. Generally does not have voting rights

2. Usually have par or stated values

3. Dividend preference over ordinary shares

4. Preference over ordinary shares in the event of liquidation

introduction and formation of corporations

Documents