Accounting in Partnership and Corporation
CORPORATION FORMATION
DEFINITION
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
* separate legal entity – an artificial being with a personality separate from that of its individual owners * created by operation of law – mere agreement of the parties cannot give rise to a corporation * right of succession – continues to exist notwithstanding the withdrawal, death, insolvency or incapacity of individual owners; changes in ownership structure do not dissolve a corporation * powers, attributes, properties authorized by law – being a creation of law, a corporation can only exercise powers provided by law and powers which are incidental to its existence * ownership divided into shares – proprietorship in a corporation is divided into units known as shares of stocks * management is vested in a Board of Directors (BOD) – the governing body or decision making body of the corporation elected by stockholders governs the business
ADVANTAGES
* capacity to act as a legal entity * large scale of business undertaking (bigger source of capital because many individuals invest funds) * unlimited life (continuity allows obtain a strong credit line) * limited liability of stockholders for corporate debts (extend only to their investment in corporation) * shares can be transferred without the prior consent of other stockholders * centralized management under Board of Directors
DISADVANTAGES
* not easy to form because of complicated legal requirements * activities limited by the articles of incorporation (limited liability of stockholders weakens/limits credit capacity) * subject to rigid government control * possibility of abuse of powers by the Board of Directors * restricts active participation by stockholders
CLASSES OF
DEFINITION
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
* separate legal entity – an artificial being with a personality separate from that of its individual owners * created by operation of law – mere agreement of the parties cannot give rise to a corporation * right of succession – continues to exist notwithstanding the withdrawal, death, insolvency or incapacity of individual owners; changes in ownership structure do not dissolve a corporation * powers, attributes, properties authorized by law – being a creation of law, a corporation can only exercise powers provided by law and powers which are incidental to its existence * ownership divided into shares – proprietorship in a corporation is divided into units known as shares of stocks * management is vested in a Board of Directors (BOD) – the governing body or decision making body of the corporation elected by stockholders governs the business
ADVANTAGES
* capacity to act as a legal entity * large scale of business undertaking (bigger source of capital because many individuals invest funds) * unlimited life (continuity allows obtain a strong credit line) * limited liability of stockholders for corporate debts (extend only to their investment in corporation) * shares can be transferred without the prior consent of other stockholders * centralized management under Board of Directors
DISADVANTAGES
* not easy to form because of complicated legal requirements * activities limited by the articles of incorporation (limited liability of stockholders weakens/limits credit capacity) * subject to rigid government control * possibility of abuse of powers by the Board of Directors * restricts active participation by stockholders
CLASSES OF