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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.
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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
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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
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Corporation
Components of a corporation
1. Corporators
a. Shareholders
b. Members
2. Incorporators
3. Promoters
4. Subscribers
5. Underwriters
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Corporation
Types of corporations
1. Public/GOCC
2. Private
3. Domestic
4. Foreign
5. Stock
6. Non-stock
7. Open
8. Closely-held
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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
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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.
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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.
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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.
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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
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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
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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
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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
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