Corporate Governance and Compliance Quiz

Module 1 - Shareholders' Equity (Issuance and Reacquisition of Stocks)

• Learning Outcomes:

  • Identify different sources of corporate capital
  • Describe features of different classes of share capital
  • Accurately record share capital subscriptions and issuance
  • Accurately record treasury share transactions and share capital retirement
  • Accurately record dividend transactions
  • Allocate cash dividends between preference and ordinary shares

• Core Value/Biblical Principles:

  • Shareholders' equity represents shareholder investments
  • Management responsibility to safeguard this wealth to build investor trust
  • A biblical principle to consider: "Wealth gained hastily will dwindle, but whoever gathers little by little will increase it." (Proverbs 13:11)

• Key Considerations (Stop and Think):

  • Accounting for stock issuance: corporations account for stock issuance by issuing stock certificates and recording the number of shares held by shareholders.
  • Repurchasing shares: corporations account for repurchase of issued shares
  • Issuing Dividends: Corporations account for dividends issued
  • Examples of accounting treatments for such scenarios are presented in the module.

Introduction

• Corporations: characterized by absentee ownership and limited liability
• Separate legal entity from owners
• Funding corporations: involves raising funds from public investors.
• Government regulation: aim to protect the interests of investors

Definition of Terms

• Corporators: those who compose the corporation; shareholders or members, or both
• Incorporators: corporators who originally formed and composed the corporation and mentioned in the articles of incorporation
• Shareholders/Stockholders: share owners in a stock corporation; can be natural or artificial persons. Natural persons can be incorporators but not the only ones
• Members: corporators of a non-stock corporation
• Directors: entitled to exercise corporate powers, conduct business, and control assets; cease to be a director if they no longer own at least one share or cease to be a member of the corporation
• Stock Corporation: has capital stock divided into shares and distributes dividends to shareholders
• Nonstock Corporation: does not have capital stock divided into shares

Contents of Articles of Incorporation

• RA 11232 Section 13: details the required contents for articles of incorporation
• Name of Corporation: must be provided
• Purpose of the Corporation: specific purpose(s), including primary and secondary purposes
• Location of the Principal Office: must be located within the Philippines
• Duration of the Corporation: stated in the article if a perpetual existence is not elected
• Names of the Incorporators: nationality and address included
• Number of Directors: if limited, the number will not exceed 15. If the corporation is a trustee, the number should not exceed 15
• Names and Addresses of Directors/Trustees: required until the first regularly elected directors/trustees have been qualified
• Capital Stock of the Stock Corporation: if the corporation is a stock corporation, the amount of its authorized capital stock, the number of shares, and the par value of each share, will be stipulated
• Contributors of the Nonstock Corporations : if the corporation is a non-stock corporation, the amount of its capital, names, nationalities, and residence addresses of contributors will be present as well as the amount contributed by each
• Other Matters: other important information as determined necessary by the incorporators

When Articles of Incorporation or Amendment May be Disapproved

• RA 11232 Section 16: grounds for disapproval
• Form: must be in the prescribed official language and format
• Purpose: may not be unconstitutional, illegal, immoral, or contrary to government rules
• Certification: regarding subscribed and paid-in capital must be accurate
• Required percentage of Filipino ownership must be met, as per existing laws

Share Capital Issued to Non-Employees

• Priority Considerations: Fair value of property or services received must be recorded accurately.
• Recording Transactions: The method of recording will depend on fair value of the share capital issued relative to the property or services received and will be based on the property or service value.

Share Capital Issued for Cash

• Par Value shares: issued for cash at fair value
• No Par Value shares: shares issued for cash at fair value

Share Issue Costs and Stock Assessments

• Transaction Costs: registration and legal fees are recorded as deductions from equity
• Required Disclosure: share issue costs are disclosed separately in the changes in equity statement
• Reacquisition of Share Capital: corporations may acquire their own shares, may be used for various business purposes

Treasury Shares

• Nature: not an asset but a contra-account to shareholders' equity; holders have no voting or preemptive rights, do not receive cash dividends or any liquidation proceeds

Share Capital Sold Upon Subscription

• Contracts: legally binding agreements between a corporation and a subscriber
• Value: transactions recorded at the values established in agreements.

Treasury Shares Acquired by Purchase

• Nature: corporation's own shares reacquired after being issued and fully paid

Problem 1 in Module 1

• Ordinary Shares:
  • Issued
  • Unissued
• Preference Shares:
  • Issued
  • Unissued
• Additional paid in capital for ordinary shares
• Additional paid in capital for preference shares
• Total contributed capital
• Total legal capital Total Shareholders' Equity

Problem 2 in Module 1

• Calculating Legal Capital, given various situations.