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Equity

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Mary Grace Aligua
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7 views19 pages

Equity

Uploaded by

Mary Grace Aligua
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INTERMEDIATE

ACCOUNTING 2
It is always good to close the books each year,
especially if you are in a partnership with
others. Frequent accounting makes for long
friendship.
- Luca Pacioli
Three Forms of Business Organization

• Single Proprietorship
• Partnership
• Corporation
Corporation Defined
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 incidental to its
existence. (Sec 2 of the RCC)
Attributes of a Corporation
Artificial Being
• Separate and distinct from its individual
stockholders or members
Created by operation of law
• Not by mere agreement of the incorporators
• Not the execution of Articles of Incorporation
• By general law (RCC)- private corporations
• Special law- GOCC
Attributes of a Corporation
Rights of Succession
• Not synonymous to immortality but the power
to exist continuously (perpetual existence)
Powers, Attributes and Properties expressly
authorized by law or incidental to its existence
• Can only exercise powers conferred upon it
by the law, its AOI, implied powers or
incidental to its existence
• Acts outside these powers are considered
ultra vires
Piercing the Corporate Veil
Under the doctrine of "piercing the veil of corporate
fiction," the court looks at the corporation as a mere
collection of individuals or an aggregation of persons
undertaking business as a group, disregarding the separate
juridical personality of the corporation unifying the group.
Another formulation of this doctrine is that when two business
enterprises are owned, conducted and controlled by the
same parties, both law and equity will, when necessary to
protect the rights of third parties, disregard the legal fiction
that two corporations are distinct entities and treat them as
identical or as one and the same. (Pantranco Employees
Association (PEA-PTGWO) v. National Labor Relations
Commission, G.R. No. 170689, March 17, 2009, 581 SCRA 598,
613-614)
Number and Qualifications of Incorporators
Any person, partnership, association or
corporation, singly or jointly with others but not more
than fifteen (15) in number, may organize a
corporation for any lawful purpose or purposes:
Provided, That natural persons who are licensed to
practice a profession, and partnerships or
associations organized for the purpose of practicing
a profession, shall not be allowed to organize as a
corporation unless otherwise provided under special
laws. Incorporators who are natural persons must be
of legal age.
Corporate Term

A corporation shall have perpetual


existence unless its articles of incorporation
provides otherwise.

Prior to the amendment, corporations were only initially granted


a term of 50 years, subject to extension in accordance with the provisions of the
old Code.
Minimum Capital Stock Not Required of Stock
Corporations

Stock corporations shall not be required to have


minimum capital stock, except as otherwise
specially provided by special law.

Previously, at least 25% of the authorized capital stock must be


subscribed and at least 25% of the subscribed capital should be paid at the
time of incorporation. However, the “25% subscribed and 25% paid”
requirement was retained in case of an increase in capital stock.
Board of Directors or Trustees of a Corporation

Unless otherwise provided in this Code, the board


of directors or trustees shall exercise the
corporate powers, conduct all business, and
control all properties of the corporation.
One Person Corporation

A One Person Corporation is a corporation with a


single stockholder: Provided, That only a natural
person, trust, or an estate may form a One Person
Corporation. (Sec 116 of the RCC)
Articles of incorporation

After filing of the articles of incorporation, the


corporation commences to have judicial personality
and legal existence only from the moment the SEC
issues to incorporators a certificate of incorporation.
By-laws

Rules of action adopted by the corporation for its


internal government and for the government of its
officers, shareholders or members.
Classes of Corporations

Corporations formed or organized under this


Code may be stock or nonstock corporations.
Stock corporations are those which have capital
stock divided into shares and are authorized to
distribute to the holders of such shares, dividends,
or allotments of the surplus profits on the basis of
the shares held. All other corporations are
nonstock corporations.
Corporators and Incorporators,
Stockholders and Members
Corporators are those who compose a
corporation, whether as stockholders or
shareholders in a stock corporation or as a
members in a nonstock corporations.
Incorporators are those stockholders or members
mentioned in the articles of incorporation as
originally forming and composing the corporation
and who are signatories thereof.
Definition of terms
•• Capital stock;
• Subscribed share capital;
• Share Premium
• Retained Earnings
• Treasury Shares
• Ordinary Share Capital- If there is only one class of
share capital, it is necessarily ordinary share. The
ordinary shareholders have the same rights and
privileges. The ordinary shareholders enjoy no
preference over each other, they have no fixed or
specific ROI and the reward is dependent on the
operations of the entity.
• Preference Share Capital- the preferences usually
relate to the preference shareholders’ claim on
dividends and net assets upon liquidation. The
shareholders have limited or fixed ROI.
Trust Fund Doctrine
• It holds that the share capital of a corporation is
considered a trust fund for the protection of the
creditors. It is thus illegal to return the legal capital to
the shareholders during the lifetime of the corporation.
Nonetheless, it can still pay dividends but limited only
to the RE balance.
• It is established doctrine that subscriptions to the
capital of a corporation constitute a fund to which
creditors have a right to look for satisfaction of their
claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription
in order to realize assets for the payment of its debts.
(Velasco vs. Poizat, 37 Phil., 802)
10-minute break

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