CORPORATION ACCOUNTING
Atty. Joyce Marie T. Marapao, CPA
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 Corporation
Code of the Philippines, Sec. 2)
One way of corporations to raise new capital is by
issuing stock (share capital).
KINDS OF CORPORATION
According to the purpose of its creation
a. Public Corporation – those formed or organized for
the government (e.g. Securities and Exchange
Commission (SEC)
b. Private Corporation – those created, wholly or in
part, for purposes of monetary profit or moral profit
for private individuals who own them.
According to shares authorized to issue
a. Stock Corporation – those which have capital stocks
divided into shares and are authorized to distribute
to the holders of share dividends or allotments of the
surplus profits on the basis of the shares held.
b. Non-stock Corporation – those where there is no
such stock, instead there is membership.
KINDS OF CORPORATION
According to Number of Stockholders or Members
a. A corporation aggregate – compose of more than one
member or stockholder, like San Miguel Corporation
b. A corporation sole – composed of a single member and his
successors in office.
Ecclesiastical and Lay
a. Ecclesiastical corporation – one created to secure the
public worship of God.
b. Lay corporation – one established for temporal purposes
and is comprised of laymen.
De Jure and De Facto
a. De Jure corporation – one created in strict or substantial
conformity with the requirements of the law governing
corporation.
b. De Facto corporation – one so defectively created that its
creation does not conform strictly or substantially with
laws governing corporation
KINDS OF CORPORATION
Eleemosynary and Civil
a. Eleemosynary corporation – created for the purpose of
charities
b. Civil corporation – created to facilitate the transaction of
business.
As to Nationality
a. Domestic Corporation – created or existing under the
laws of the Philippines
b. Foreign Corporation – created or existing under the laws
of other States or countries other than the Philippines
Open and Close
a. Open Corporation – one in which the general public may
become a stockholder or members thereof.
b. Close Corporation – one in which the stockholders or
members are limited to a few persons such as the
members of a family.
KINDS OF CORPORATION
As to Relationship to Other Corporations
a. Parent or holding corporation – one which has the
power to directly or indirectly own more than 50%
shares of voting stock of another corporation and
can elect the majority of Board of Directors
b. Subsidiary Corporation – one which is related to
another corporation that a majority of its directors
can be elected directly or indirectly by such other
corporation
c. Affiliated Corporation – one which has a significant
influence by another corporation owning at lest 20%
but not more than 50% of its outstanding common
stock
KINDS OF CORPORATION
Other Kinds of Corporations
a. Wasting Assets Corporation – sole purpose is to
invest its capital in a specific property and
afterwards to consume that property or extract its
value at a profit (ex. Mining and Oil, Gas Well)
b. Government Owned or Controlled Corporation – is
organized by the government or of which the
government is the majority stockholder
c. Corporation by Prescription – where corporate
powers have been exercised by a body of men for
such a length of time to raise presumption of the
grant of an ancient charter
d. Corporation by Estoppel – one which is not really a
corporation but which has represented itself to the
public as a real corporation and which cannot be
permitted to deny such representation
KINDS OF CORPORATION
Other Kinds of Corporations
e. Quasi-Public Corporation – a private corporation
which has accepted from the state the grant of a
franchise or contract involving the performance of
public duties (ex. Meralco, PLDT, LRT, MRT)
f. Quasi Corporation – an association of
government or political institution or officers which
is not a corporation in the full send but which is
invested by law with some of the attributes of a
corporation, such as the capacity to sue or be sued
as a corporate body, to have corporate existence
unaffected by death or disability of members, or to
make particular contracts or hold particular
property or rights as a corporation.
ADVANTAGES OF A CORPORATION
Capacity to act as a juridical person with legal
personality
Continuity of life
The liability of the stockholders is limited to their
fully paid investment in the corporation
There is better management as the best service
may be extracted from the bigger membership of
a corporation
There is more unified form of control which is
reposed in the Board of Directors
Shares of Stock may be transferred even without
the consent of other stockholders
There is a greater source of capital
DISADVANTAGES OF A CORPORATION
Subject to greater government control
Frequent and varied reports are required of a
corporation
A corporation may not engage in any business other
than the business specified in the Articles of
Incorporation
Minority Stockholders may be at the mercy of the
majority stockholders.
A corporation cannot transact business in another
state unless it obtains a license for that purpose
Subject to double taxation
Outstanding stocks (share capital) cannot be more
than the authorized capital stock (share capital)
Financial Obligations of a corporation is limited on
account of limited liability of stockholders.
PARTNERSHIP VS. CORPORATION
PARTNERSHIP CORPORATION
1. As to creation By voluntary agreement and By operation of law
mutual consent of the partners
2. As to life or Not time limit but easily May exist for 50 years subject to
duration dissolved. Dependent on the extension of another 50 years.
agreement of the partners.
3. As to Liability General Partners, including Stockholders (shareholders) are
industrial partners, are liable for liable only to the extent of their
the partnership’s contractual subscriptions.
liabilities up to the extent of their
personal assets.
Limited Partners are liable only
to the extent of their
contributions
4. As to transferability No partner may transfer his A stockholder may sell his
of interest share in the partnership to a shares in a corporation to a third
third person without the consent person even without the consent
of all other partners of the other stockholders. Must
be duly recorded in the stock and
transfer book of the corporation.
PARTNERSHIP VS. CORPORATION
PARTNERSHIP CORPORATION
5. As to ability to As a mutual agent, a Stockholders cannot
bind the organization partner can bind the bind the corporation
partnership in a in a contract. Only
contract even without the Board of
the consent of other Directors and other
partners provided he authorized officers of
is with authority the corporation can
do so.
6. As to power of A partnership has no A corporation has the
succession power of succession. power of succession.
Dissolution takes Death, insolvency or
place upon death, incapacity of a
insolvency or director, an officer, or
incapacity of any of a stockholder does
the partners. not dissolve the
corporation.
OWNERS OF A CORPORATION
Incorporators – stockholders or members mentioned
in the Articles of Incorporation as originally forming
and composing the corporation and who are
signatories thereof.
Corporators – those who compose the corporation
whether stockholders or members. Persons who own
the Corporation which include the incorporators, the
stockholders, and/or members.
Members – corporators of a corporation which has no
capital stock
Subscriber – one who has agreed to take shares of
stock from the corporation under a subscription
agreement on the original issue of such stock but not
yet fully paid.
OFFICERS OF A CORPORATION
Directors or Trustees in the Board of the
Corporation
President – must be a director
Corporate Secretary – may or may not be a
director but must be a resident and citizen of the
Philippines
Corporate Treasurer – may or may not be a
director
Others as stated in the by-laws
Any two or more positions may be held
concurrently by the same person, except that no
one shall act as President and Secretary or as
President and Treasurer at the same time.
MINIMUM SUBSCRIPTION AND MINIMUM
PAID UP CAPITAL
25% of the authorized capital stock should be
subscribed and 25% of the total subscriptions
should be paid up. The total paid up capital must
not be less than P5,000.00
Example:
Authorized Capital Stock is 1,000 shares @ P100 PAR Value
Minimum Subscription – 250 shares – P25,000
Minimum Paid Up Capital – P6,250 (25,000 x 25%)
ILLUSTRATIVE PROBLEM 1
On January 5, 2014, A,B,C, D, and E formed a corporation named
Alphabet Co. Inc. and filed with the Securities and Exchange
Commission its Articles of Incorporation for approval. The articles of
Incorporation was approved by the SEC on February 1, 2014. it has an
authorized capital stock of 10,000 shares with a par value of P100 per
share or a total of P1,000,000.
Question 1: How much is the authorized capital stock?
Answer: The authorized capital stock is equivalent to the maximum
number of shares as stated in the articles of incorporation times the
par value.
10,000 shares x P100 par = P1,000,000
Question 2: How much is the minimum amount to be subscribed by
the incorporators as prescribed by the SEC?
Answer: The incorporations must subscribe to at least 25% of the
authorized capital stock of P1,000,000 amounting to P250,000. But
this amount need not be divided equally among the incorporators.
Question 3: How much of the subscribed amount must be paid up in
cash or other property?
Answer: At least 25% of the subscribed capital of P250,000 must be
paid up. The paid up capital should be a minimum of P62,500.00.
SUBSCRIPTIONS AND SUBSCRIBED CAPITAL
STOCK
Subscription – an agreement to purchase shares
of unissued stock.
The journal entries are as follows:
At the time the subscription contract is entered into,
Subscription Receivable is debited
account credited is Subscribed Share Capital.
Upon collection from the subscriber:
Cash
Subscription Receivable
When subscription is paid in full, the subscriber is issued a
certificate. When certificate of stock has been issued, such
shares of stock are then known as Issued Capital Stock or
Issued Share Capital.
ISSUED AND OUTSTANDING SHARES
Shares of Stock is issued when its stock
certificate is already in the hands of the
stockholder. Issued shares are always
outstanding shares.
Outstanding Shares includes Issued Shares
and Subscribed Share Capital less Treasury
Share
ILLUSTRATIVE PROBLEM 1
Given:
Another Account Title
Authorized Capital Stock, P1,000,000 Authorized Share Capital
10,000 shares, par P100
Capital Stock (issued 2,500 250,000 Share Capital
shares)
Subscribed Capital Stock (3,000 300,000 Subscribed Share Capital
shares)
Subscription Receivable 50,000 Subscription Receivable
APIC in excess of PAR Value 55,000 Share Premium
(5,500 x P10)
Q1: How much is the authorized share capital?
A: P1,000,000 (given)
Q2: How much is the issued share capital?
A: P250,000 (given)
Q3: How many shares of stock have been issued?
A: 2,500 shares (given)
If not given, it can be computed: P250,000/P100 par = 2,500 shares
ILLUSTRATIVE PROBLEM 1 CONT.
Q4: How many shares of stock are still unissued?
A: 7,500 shares (Authorized Share Capital minus Issued)
10,000 shares – 2,500 shares = 7,500 shares
Q5: How many shares are subscribed?
A: 3,000 shares (given) If not given, it can be computed:
Subscribed Share Capital/Par Value = no. of shares
P300,000 / P100 par = 3,000 shares
Q6: How many shares are outstanding?
A; 5,500 shares Outstanding shares includes all issued shares
plus subscribed share capital less treasury shares.
Issued Shares 2,500 shares
Subscribed Share Capital 3,000 shares
Less: Treasury Shares 0
Outstanding Shares 5,500 shares
