Formation of Corporation
Formation of Corporation
CORPORATION
“An artificial being created by operation of law, having the right of succession
and powers, attributes and properties expressly authorized by law or incident to its
existence” (New Corporation Code)
CHARACTERISTICS:
1. Separate legal entity – artificial being
2. Created by operation of law
3. Right of succession
4. Powers, attributes, properties authorized by law
5. Ownership divided into shares
6. Management is vested in a Board of Directors
ADVANTAGES:
1. capacity to act as a legal entity
2. large scale of business undertaking
3. unlimited life
4. limited liability of stockholders for corporate debts
5. shares can be transferred without the prior consent of other stockholders
6. centralized management under Board of Directors
DISADVANTAGES
1. not easy to form because of complicated legal requirements
2. activities limited by the articles of incorporation
3. subject to rigid government control
4. possibility of abuse of powers.
5. restricts active participation by stockholders
CLASSES OF CORPORATION
1. Stock Corporation -capital is divided into shares of stock.
2. Non-stock Corporation- capital comes from fees paid by individuals
composing it.
3. Public Corporation-organized to govern a portion of the state.
4. Private Corporation-organized for private benefit, aim or end
5. Quasi-public Corporation- private corporation performing public functions.
6. Domestic Corporation -organized under Philippine laws
7. Foreign Corporation-organized under the laws of other countries.
8. Open Corporation- ownership is widely held by many investors.
9. Closely-held Corporation -50% or more of its stock is owned by 5 or less.
COMPONENTS
1. Incorporators – persons who originally formed the corporation.
2. Corporators – persons who compose the corporation. (stockholders or
members)
3. Stockholders – corporators of stock corporation.
4. Members– corporators of non-stock corporation.
5. Subscribers – persons who agreed to take original, unissued shares but
will pay at later date.
6. Promoters – persons who undertake the formation of a company, set it
going and take necessary steps to accomplish its purpose.
7. Underwriters – in charge of disposing the shares of stock to the gen.
public.
PRE-INCORPORATION REQUIREMENTS
Example
The corporation was authorized the issue 100,000 shares of share capital at
P100 par value.
1) 1,000,000 X 25% P250,000
2) 250,000 X 25% P62,500
3. Collection of Subscription
Memorandum Entry Method Journal Entry Method
Cash xx Cash xx
Subscription Receivable xx Subscription Receivable xx
3. Collection of Subscription
Memorandum Entry Method Journal Entry Method
Cash xx Cash xx
Subscription Receivable xx Subscription Receivable xx
SAMPLE TRANSACTIONS:
TRANSACTIONS MEMO ENTRY METHOD DR CR
ISSUANCE OF STOCKS AT PAR VALUE
1. ABC Corporation was Jan 5 Authorized to issued 10,000 share
authorized to issue 10,000 capital at P10 par value
share capital with P10 par value
2. The 5 incorporators 5 Subscription Receivable 25,000
subscribed to 500 shares each Subscribed Share Capital 25,000
at par To record subscription.
3. The incorporators paid 25% 5 Cash 6250
of their subscription. Subscription Receivable 6250
To record 25% payment.
4. Attorney’s fees and other 6 Pre-Operating Expense 7,000
expenses incurred in the Share Capital 7,000
formation of the corporation Issued 1,000 shares at par.
totaled P7,000. Issued 700
shares.
5. Sold 1,000 shares at par. 7 Cash 10,000
Share Capital 10,000
Issued 1,000 shares at par.
6. Collected 50% of the Cash 9,375
incorporators’ subscription Subscription Receivable 9,375
balance. To record collection.
7. Issued 500 shares in 9 Office Equipment 5,000
exchange for office equipment Share Capital 5,000
worth P5,000 Issued 500 shares at par.
8. Collected the subscription 10 Cash 9,375
balance of the incorporators in Subscription Receivable 9,375
full and issued stock certificates. To record collection in full
10 Subscribed Share Capital 25,000
Share Capital 25,000
Issued stock certificate.
ISSUANCE OF STOCKS ABOVE PAR VALUE
9. Received subscriptions for Subscription Receivable 12,000
1,000 shares at P12 per share. Subscribed Share Capital 10,000
Share Premium 2,000
To record subscription.
10. Issued 1,000 shares at P15 15 Cash 15,000
per share Share Capital 10,000
Share Premium 5,000
Issued 1,000 shares at par.