Financial Accounting and Reporting
B-ACTG112 : Corporation Formation to Retained Earnings
CORPORATION CONCEPTS
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 (Section 2 of the Revised Corporation Code of the Philippines)
● a corporation is governed by Philippine laws, more specifically by the Corporation Code of the Philippines which was revised
February 2019 under Republic Act 11232
○ these laws describe the requirement for: a) incorporation, b) issuance of shares, c) limitations on dividends, d)
definition of legal capital, and e) procedures for the retirement of stocks
ATTRIBUTES OF A CORPORATION
1. Artificial Being
- a corporation is a separate and distinct personality from the shareholders thus, it may acquire or dispose of properties,
incur and pay obligations, and sue and be sued in its own name (the firm is viewed as a separate and distinct personality
from the people who own it)
2. Legal Personality
- a corporation’s identity is legally created by operation of law and as such is a juridical person with rights, powers, and duties
pertaining thereto
3. Perpetual Existence
- a corporation shall exist for an indefinite period unless its term is expressly limited as provided in its articles of
incorporation
4. Corporate Ownership
- the interest and right over the corporation are divided into shares of stock (an investor buys shares of stock to become a
shareholder whose interest and rights in the firm are based on the number of shares and the kind of shares acquired
5. Limited Liability
- the shareholders are not liable for corporate acts nor they are liable for corporate debts (their personal properties cannot
be confiscated and used to pay for the corporate liabilities)
6. Transferability of Interest
- the shares of stock owned by a shareholder may be sold or transferred without the prior consent of the other stockholders
(such transfer or sale does not affect the business operation)
ADVANTAGES OF A CORPORATION
1. Capital - a large number of resources can easily be acquired by selling the shares through the investment market
2. Liability to Corporate Creditors - a shareholder is only liable to the extent of his/her investment in the corporation
3. Transferability of Interest - shares may be transferred to others through the stock market without other shareholders’ consent
4. Formation - it is very easy to form a corporation with the Revised Corporation Code allowing One Person Corporation
5. Skilled Management - a corporation may be managed by a team of professionals hired to oversee the daily operations of the firm
1
, Financial Accounting and Reporting
B-ACTG112 : Corporation Formation to Retained Earnings
DISADVANTAGES OF A CORPORATION
1. Tax Liability
- on March 2021, the Corporate Recovery and Tax Incentives for Enterprises Act revised the rate from 30% to 20% based on
taxable net income (which should not be more than P5,000,000 and 25% for those who are earning more)
2. Legal Requirements
- corporations have to file for approval not only their Articles of Incorporation but also their Corporate By-Laws to the
Securities and Exchange Commission (they are also required to file periodically their financial reports)
3. Control
- not all of the shareholders have direct or active control over the affairs of the corporation as they are not all directly
involved in its daily operation
KINDS OF CORPORATION
The Corporation Code of the Philippines is the general law by and under whose authority private corporations are created
A. Private Corporation
● one owned and organized for a private purpose or objective
a. stock corporation
- privately owned by individuals or by some non-government units and is organized for profit which is
distributed as dividends to the owners (ownership is sold in units called shares or stock; the owners of
the units are called stockholders or shareholders and profits distributed as dividends are based on the
number of shares they own)
b. non-stock corporation
- non-profit in nature therefore no shares of stock are distributed nor is there dividend or profit distribution
(the corporators or owners are called members and the purpose for its creation may be religious, civic, or
social in nature)
B. Public Corporation
● a government corporation organized for the accomplishment of its public functions such as the national government,
provincial, city, or municipal government
C. Close Corporation
● a family corporation or one whose stock is held by a selected few and not open to any person (also called a privately-held
corporation)
D. Open Corporation
● one where the stock is listed in the stock market available for purchase by any one person or entity (also called a
publicly-held corporation)
AAA KINDS OF STOCKS AAAaaaaAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
A. As to Value
2
B-ACTG112 : Corporation Formation to Retained Earnings
CORPORATION CONCEPTS
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 (Section 2 of the Revised Corporation Code of the Philippines)
● a corporation is governed by Philippine laws, more specifically by the Corporation Code of the Philippines which was revised
February 2019 under Republic Act 11232
○ these laws describe the requirement for: a) incorporation, b) issuance of shares, c) limitations on dividends, d)
definition of legal capital, and e) procedures for the retirement of stocks
ATTRIBUTES OF A CORPORATION
1. Artificial Being
- a corporation is a separate and distinct personality from the shareholders thus, it may acquire or dispose of properties,
incur and pay obligations, and sue and be sued in its own name (the firm is viewed as a separate and distinct personality
from the people who own it)
2. Legal Personality
- a corporation’s identity is legally created by operation of law and as such is a juridical person with rights, powers, and duties
pertaining thereto
3. Perpetual Existence
- a corporation shall exist for an indefinite period unless its term is expressly limited as provided in its articles of
incorporation
4. Corporate Ownership
- the interest and right over the corporation are divided into shares of stock (an investor buys shares of stock to become a
shareholder whose interest and rights in the firm are based on the number of shares and the kind of shares acquired
5. Limited Liability
- the shareholders are not liable for corporate acts nor they are liable for corporate debts (their personal properties cannot
be confiscated and used to pay for the corporate liabilities)
6. Transferability of Interest
- the shares of stock owned by a shareholder may be sold or transferred without the prior consent of the other stockholders
(such transfer or sale does not affect the business operation)
ADVANTAGES OF A CORPORATION
1. Capital - a large number of resources can easily be acquired by selling the shares through the investment market
2. Liability to Corporate Creditors - a shareholder is only liable to the extent of his/her investment in the corporation
3. Transferability of Interest - shares may be transferred to others through the stock market without other shareholders’ consent
4. Formation - it is very easy to form a corporation with the Revised Corporation Code allowing One Person Corporation
5. Skilled Management - a corporation may be managed by a team of professionals hired to oversee the daily operations of the firm
1
, Financial Accounting and Reporting
B-ACTG112 : Corporation Formation to Retained Earnings
DISADVANTAGES OF A CORPORATION
1. Tax Liability
- on March 2021, the Corporate Recovery and Tax Incentives for Enterprises Act revised the rate from 30% to 20% based on
taxable net income (which should not be more than P5,000,000 and 25% for those who are earning more)
2. Legal Requirements
- corporations have to file for approval not only their Articles of Incorporation but also their Corporate By-Laws to the
Securities and Exchange Commission (they are also required to file periodically their financial reports)
3. Control
- not all of the shareholders have direct or active control over the affairs of the corporation as they are not all directly
involved in its daily operation
KINDS OF CORPORATION
The Corporation Code of the Philippines is the general law by and under whose authority private corporations are created
A. Private Corporation
● one owned and organized for a private purpose or objective
a. stock corporation
- privately owned by individuals or by some non-government units and is organized for profit which is
distributed as dividends to the owners (ownership is sold in units called shares or stock; the owners of
the units are called stockholders or shareholders and profits distributed as dividends are based on the
number of shares they own)
b. non-stock corporation
- non-profit in nature therefore no shares of stock are distributed nor is there dividend or profit distribution
(the corporators or owners are called members and the purpose for its creation may be religious, civic, or
social in nature)
B. Public Corporation
● a government corporation organized for the accomplishment of its public functions such as the national government,
provincial, city, or municipal government
C. Close Corporation
● a family corporation or one whose stock is held by a selected few and not open to any person (also called a privately-held
corporation)
D. Open Corporation
● one where the stock is listed in the stock market available for purchase by any one person or entity (also called a
publicly-held corporation)
AAA KINDS OF STOCKS AAAaaaaAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
A. As to Value
2
