Chapter 6: Introduction to Corporation

Definition of Corporation

• 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.
• It is a separate entity with a personality distinct from its individual shareholders or members.

Attributes of a Corporation

• A corporation has perpetual existence unless its articles of incorporation provide otherwise.
• It enjoys the right of succession, meaning the death, withdrawal, insolvency, or incapacity of individual shareholders or members will not dissolve the corporation.
• The transfer of ownership of shares of stock does not dissolve the corporation.
• It has the powers, attributes, and properties expressly authorized by law or incident to its existence.

Advantages of a Corporation

• A corporation has a legal capacity to act as a legal entity.
• Shareholders have limited liability.
• It has continuity of existence.
• Shares of stock can be transferred without the consent of other shareholders.
• Its management is centralized in the board of directors.
• Shareholders are not general agents of the business.
• It has greater ability to acquire funds.

Disadvantages of a Corporation

• A corporation is relatively complicated in formation and management.
• There is a greater degree of government control and supervision.
• It requires a relatively high cost of formation and operation.
• It is subject to heavier taxation than other forms of business organizations.
• Minority shareholders are subservient to the wishes of the majority.
• In large corporations, management and control have separated from ownership.
• Transferability of shares permits the uniting of incompatible and conflicting elements in one.

Classes of Corporations

• Stock corporation: A corporation that has share capital divided into shares and is authorized to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held.
• Non-stock corporation: A corporation where no part of its income is distributable as dividends to its members, trustees, or officers.

Other Classifications of Corporations

• Corporation aggregate: A corporation consisting of more than one corporator.
• Sole corporation: A corporation which consists of only one member or corporator and his successors.
• Domestic corporation: A corporation organized under the Philippine laws.
• Foreign corporation: A corporation formed, organized, or existing under laws other than the Philippines.

Classes of Shares

• Par value shares: Shares with a specific amount fixed in the articles of incorporation and appearing on the certificate of stock.
• No-par value shares: Shares without any value appearing on the face of the certificate of stock.
• Voting shares: Shares issued with the right to vote.
• Non-voting shares: Shares issued without the right to vote.

Basic Corporate Organizational Structure

• The ultimate control of the corporation rests with the shareholders.
• The shareholders elect the top governing body of the corporation, the members of the board of directors.
• The board of directors is responsible for the formulation of overall policies for the corporation and for the exercise of corporate powers.
• The board elects the chairman of the board and the professional management team or administrative officers.

One Person Corporation (OPC)

• The OPC is a corporation with a single stockholder, who may be a natural person, trust, or estate.
• One person may incorporate two or more OPCs.
• Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and certain government-owned and controlled corporations may not incorporate as OPCs.
• The OPC has a personality separate and distinct from the single stockholder.
• The sole shareholder's liability is limited to his investment.
• The OPC is not required to have a minimum authorized capital stock except as otherwise provided by special law.
• If the corporation is an OPC, the letters "OPC" are included, either below or at the end of its corporate name.