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14 views

SHE Notes

notes

Uploaded by

Jimmy Cortado
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Corporation

Revised Corporation Code of the Philippines, Sec. 2


● 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.
● A corporation is a legal or juridical person with personality separate and apart from the
individual members or shareholders
● A corporation is not in fact and in reality but the law treats it as though it were a person
by process of fiction.

Organization of Corporation

A corporation is created by operation of law


- Corporations cannot exist by mere agreement unlike partnerships

Revised Corporation Code of the Philippines, Sec. 2 is the general law that governs the
creation of private corporations

Section 10 of the Revised Corporation Code provides that any person, partnerships, association
or corporation simply or jointly with others but not more than 15 in number may organize as a
corporation for any lawful 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 law.

One Person Corporation (OPC)


- One shareholder

Section 3 provides that corporations formed may be stock and non-stock corporation

Stock Corporation
- Corporations that have capital stock divided into shares
Non-Stock Corporation
- No part of the income of the corporation is distributable as dividends to its members.

Shareholder’s Equity
- Is the residual interest of owners in the net assets of a corporation measured by the
excess of assets over liabilities
- Assets - Liabilities = SHE
Share Capital
- The portion paid in capital representing the total par or stated value of the shares issued.

Subscribed Share Capital


- the portion of the authorized share capital that has been subscribed but not yet fully paid
and therefore still unissued
Share Premium
- Portion of the paid in capital representing the excess over the par or stated value
Retained Earnings
- Represents the cumulative balance of periodic earnings, dividend distributions, prior
period errors and other capital adjustments
Revaluation Surplus
- Excess of revalued amount over the carrying amount of the revalued assets.
Treasury Shares
- Are the corporation’s own shares that have been issued and then reacquired but not
retired
- Deducted from total shareholders equity
- Issued shares - Treasury shares = outstanding shares
Deposits on subscriptions
- Proposed increase in share capital may be reported as part of SHE as separate item in
the equity section
Certificate of Incorporation
- The corporation commences to have juridical personality and legal existence only from
the moment the Securities and Exchange Commission issues to the incorporators a
certificate of incorporation.
- Formal organization requires the adoption of bylaws which shall be filed with the SEC

Bylaws
- Bylaws may be defined as rules of action adopted by the corporation for its internal
government and for the government of its officers, shareholders, and members

** Section 13 of the RCCP provides that stock corporation shall not be required to have a
minimum capital stock, except as otherwise specifically provided by special law.

Capital Stock
- Capital stock is the amount fixed in the articles of incorporation to be subscribed and
paid in or secured to be paid in by the shareholders of the corporation, either in money
or property or services, at the organization of the corporation, or afterwards and upon
which the corporation is to conduct operations.
- The amount fixed in the articles of incorporation is called authorized share capital
- Share certificate is issued only when the subscription is fully paid.
Par value share
- Is one with the specific value fixed in the articles of incorporation and appearing on the
share certificate. The purpose of par value is to fix the minimum issues price of the
share.
No par share
- Is one without any value appearing on the face of the share certificate.

***Minimum consideration or issue price for no par share as provided for in the RCCP is 5
pesos.

Ordinary Share Preference Share

- Shareholders have the same rights - Preference granted to owners


and privileges - Preference shareholders’ claims on
- Shareholders enjoy no preference dividends and net assets in the event
over each other of liquidation.
- Give the owner the right to vote, to - Limited or fixed return on investments
share income, and in the event of -
liquidation, to share in all assets after
creditors and preference shareholders
claims
- Financial reward is dependent on the
operations of the business
- No fixed or specific return on
investment

Legal Capital
- Portion of the paid in capital arising from issuance of share capital which cannot be
returned to the shareholders in any form during the lifetime of the corporation
Trust fund doctrine
- Holds that the share capital of a corporation is considered as trust fund for the protection
of creditors.
- It is illegal to return such legal capital to shareholders during the lifetime of the
corporation

Issuance of Share Capital


- The RCCP provides that a share shall not be issued for a consideration less than par or
stated value

Share issued at discount


- When share are sold below par or stated value are said to be issued at a discount
- RCCP prohibits issuing shares below par value
- The discount is not considered as a loss to the issuing corporation but the shareholder is
held liable
- The issue itself is not void but the agreement that the share will be paid below par value
cannot be enforced, the shareholder must pay for the discount, this is called discount
liability.

Issuance of share for non-cash consideration


- If share capital is issued for non-cash consideration such as tangible property, intangible
property, intangible property and services, the share capital is recorded at an amount
equal to the following in the order of priority:

1. Fair value of the non-cash consideration received


2. Fair value of the shares issued
3. Par value of the share issued

Issuance of share capital for service


- Shares may be issued for services as long as the services are already rendered
- Shares must be recorded at fair market value

Share issuance costs


- Are direct costs to sell share capital
- Share issuance costs are debited in share premium arising from the issuance and
deducted from equity, net of any income tax benefit
*** if the share premium is insufficient to absorb such expenses, the excess must be
debited to share issuance cost to be reported as contra equity account as a deduction
from the following in the order of priority

1) Share premium from previous share issuance


2) Retained earnings

Watered share
- Watered share is share capital issued for inadequate or insufficient consideration
- The consideration received is less than par or stated value, but the share capital is
issued as fully paid.
- If the share capital is watered, the assets are overstated and correspondingly overstated

Secret reserve
- Reverse of watered share
- Arises when assets is understated or liability is overstated

Delinquent subscription
- The RCCP provides that the board of directors may at any time declare due and payable
unpaid subscriptions
- The official declaration is called call expressed in the form of board resolution stating the
date fixed for payment of unpaid subscriptions
- If the shareholders failed to pay on that date, he is declared delinquent and the
delinquent shares will be sold at public auction to the highest bidder
- Highest bidder is the one who is willing to pay the offer price for the lowest
number of shares

*** Incase of no bidders, the issuing corporation may purchase the delinquent shares

Callable preference share


- Shares can be called for redemption at specified price at the option of the corporation
- Is an equity instrument rather than a financial liability

***Call price>Par value


Debit to:
Order of priority
a. Share premium-Preference
b. Retained earnings
***Call price<par value
- Credit to
Share premium-ordinary

Redeemable shares
- Gives the shareholder the right to require the issuing corporation to redeem the
instrument for a fixed price and date
- ,classified as current or non-current financial liability depending on the redemption
date
Convertible Preference Share
- Gives the holder the right to exchange the holdings for other securities of the issuing
corporation
- Usually converts preference share into ordinary share due to successful operation of the
entity
***IP>PV of Ordinary shares
Preference share XX
Share premium-preference share XX
Ordinary share XX
Share premium-Ordinary XX

***IP<PV of Ordinary shares


Preference share XX
Share premium- Preference XX
Retained Earnings XX
Ordinary shares XX

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