How A Corporation Is Created

1.
By General Law – private corporations are created by provisions of the Corporation Code
2. By Special Law – public corporations are created by Special Laws
PROCEDURE
1. Draft and execution of AOI by incorporators and other documents signed by all.
2. Person chosen as Temporary Treasure pending incorporation must execute an Affidavit
certifying compliance with Subscription and Paid-up Capital Stock
3. File to the SEC of the AOI
4. Payment of filing and publication fees
5. Issuance of the Certificate of Incorporation by the SEC (Life of Corp begins)
FORMATION OF A CORPORATION
1. Adoption of By-Laws and filing the same to SEC
2. Election of Board of Directors/Trustees, and Officers
3. Principal Office
4. Subscription and payment of Capital Stock
ARTICLES OF INCORPORATION
 Contract document
THREE-FOLD NATURE
1. Contract between the State and the Corporation
2. Contract between the Stockholders and the State
3. Contract between the Corporation and its Stockholders
CAPITAL STOCK REQUIREMENT
 No minimum authorized capital stock as long as the Paid-up Capital is not less than P5,000.

TRUST FUND DOCTRINE

 The subscriptions to the capital stock of a corporation constitute a fund to which the creditors
have a right to look for satisfaction of their claims.
 The “trust fund” doctrine considers the subscribed capital stock as a trust fund for the payment
of the debts of the corporation, to which the creditors may look for satisfaction.
 The requirement of Unrestricted Retained Earnings to cover the shares is based on the trust
fund doctrine which provides that the capital stock, property and other assets of a corporation
are regarded as equity in trust for the payment of corporate creditors.
INSOLVENCY OF CORPORATION
 Subscribe Capital Stocks (paid in capital) is a fund to which the creditors may look into and
extends to the assets when insolvent.
DISSOLUTION
 The dissolution of a juridical entity does not by itself cause the extinction or diminution of the
rights and liability of such entity, since it is allowed to continue as a juridical entity for 3 years
for the purpose of prosecuting and defending suits by or against it and enabling it to settle and
close its affairs, to dispose of and convey its property, and to distribute its assets.
 The rights and remedies against, or liabilities of, the officers shall not be removed or impaired
by reason of the dissolution of the corporation.
 In dissolution, to file action, it cannot sue in its name if beyond the period. only in the name of
Trustees.
INSTANCES STOCKHOLDERS ENTITLE TO VOTE

1. Amendment of articles of incorporation (Sec. 16)
2. Election of directors and trustees (Sec. 24)
3. Investment in another business or corporation (Secs. 36 and 42)
4. Increase and Decrease of capital stock (Sec. 38)
5. Incurring, or increasing bonded indebtedness (Sec. 38)
6. Sale, disposition or encumbrance of all or substantially all of the corporate assets (Sec. 40)
7. Declaration of stock dividends (Sec. 43).
8. Management contracts (Sec. 44)
9. Adoption, amendment and repeal of by-laws (Sec. 48).
10. Fixing of consideration of no par value shares (Sec. 62)
11. Merger and consolidation (Sec. 72)
CAPITAL STOCK
 Entire property or assets of the corporation including the amount invested by stockholders and
undistributed earnings less losses and expenses
AUTHORIZED CAPITAL STOCK

 Amount fixed in the AOI that may be subscribed and paid by the stockholders of the corporation.
It is synonymous to Capital Stock where the shares of the corporation have par value, otherwise
the corporation have no authorized capital stock but a mere capital stock the amount of which
is not specified and determined until all shares have been issued.
SUBSCRIBED CAPITAL STOCK

 The total amount of the capital stock subscribed in whole or part except treasury shares.
OUTSTANDING CAPITAL STOCK

 That portion of the stock issued to subscribers WON full or not
PAID-UP CAPITAL
 That portion of the subscribed or outstanding capital stock that is actually paid or subscribed.
UNISSUED CAPITAL STOCK

 That portion of the capital stock not issued or subscribed

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1.

TRUST FUND DOCTRINE

INSTANCES STOCKHOLDERS ENTITLE TO VOTE

AUTHORIZED CAPITAL STOCK

SUBSCRIBED CAPITAL STOCK

OUTSTANDING CAPITAL STOCK

UNISSUED CAPITAL STOCK

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