INTEGRATED ACCOUNTING REVIEWER Benefits derived from the information

should outweigh the costs

GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
OBJECTIVITY QUALITATIVE ATTIBUTES OF CONCEPTUAL
FRAMEWORK
Assets acquired must be verifiable and
substantiated. 1. RELEVANCE
REPORTING PERIOD Data should influence user to make a sound
decision
Basic accounting period is one year
2. COMPARABILITY
BUSINESS ENTITY CONCEPT
Reports can be compared over a period of
The business is separate from the owner time
COST CONCEPT 3. UNDERSTANDABILITY
Recording of amounts is based on its cost Reports should be simple and clear
MONEY MEASUREMENT 4. TIMELINESS
Transactions are measured and recorded in Reports should be submitted promptly
terms of money
FAITHFUL REPRESENTATION - Information
CASH BASIS CONCEPT
is correct and not misleading
Recognition is based on the period the cash
SUBSTANCE OVER FORM - Economic
was exchanged
Reality vs Legal Form = Economic Reality
GOING CONCERN
NEUTRALITY – without bias
Business is expected to continue
indefinitely PRUDENCE – caution over estimates

ACCRUAL CONCEPT Accounting consists of three basic

activities—it. identifies, records, and
Recognition is based on the period they communicates the economic events of an
relate to organization to interested users.
MATERIALITY The accounting process includes the
Depends on the influence to economic bookkeeping function.
decisions Who uses accounting data?
CONSISTENCY Internal Users
Accounting treatment is the same across • Marketing
periods • Management
DOUBLE ENTRY • Finance
• Human Resources
Recording debit and credit
External Users
COST-BENEFIT
• Investors
 • Creditors records only transaction data that can be
expressed in terms of money.
Ethics in Financial Reporting
ECONOMIC ENTITY ASSUMPTION requires
• Recent financial scandals include: that activities of the entity be kept separate
Enron, WorldCom, HealthSouth, AIG, and distinct from the activities of its owner
and other companies. and all other economic entities.
• Regulators and lawmakers
concerned that economy would Forms of Business Ownership
suffer if investors lost confidence in
✓ Proprietorship
corporate accounting. In response,
- Congress passed Sarbanes-Oxley Owned by one person
Act (SOX).
• Effective financial reporting depends Owner is often manager/operator
on sound ethical behavior. Owner receives any profits, suffers any
Generally Accepted Accounting Principles losses, and is personally liable for all debts
(GAAP) ✓ Partnership
Standards that are generally accepted and Owned by two or more persons
universally practiced. These standards
indicate how to report economic events. Often retail and service-type businesses
Standard-setting bodies: Generally unlimited personal liability
► Financial Accounting Partnership agreement
Standards Board (FASB)
✓ Corporation
► Securities and Exchange
Commission (SEC) Ownership divided into shares of stock

► International Accounting Separate legal entity organized under state

Standards Board (IASB) corporation law

Measurement Principles Limited liability

HISTORICAL COST PRINCIPLE Assets = Liabilities + Owner’s Equity

(or cost principle) dictates that companies Basic Accounting Equation

record assets at their cost. ► Provides the underlying framework
FAIR VALUE PRINCIPLE for recording and summarizing
economic events.
states that assets and liabilities should be
reported at fair value (the price received to ► Assets are claimed by either
sell an asset or settle a liability). creditors or owners.

* Selection of which principle to follow ► If a business is liquidated, claims of

generally relates to trade-offs between creditors must be paid before
relevance and faithful representation. ownership claims.

Assumptions Assets

MONETARY UNIT ASSUMPTION requires ✓ Resources a business owns.

that companies include in the accounting ✓ Provide future services or benefits.
 ✓ Cash, Supplies, Equipment, etc. ✓ Not all activities represent
transactions.
Liabilities ✓ Each transaction has a dual effect
✓ Claims against assets (debts and on the accounting equation.
obligations). Companies prepare four financial
✓ Creditors (party to whom money is statements:
owed).
✓ Accounts Payable, Notes Payable, - Income Statement
Salaries and Wages Payable, etc. - Owner’s Equity Statement
- Balance Sheet
Owner’s Equity - Statement of Cash Flows
✓ Ownership claim on total assets. Financial Statements
✓ Referred to as residual equity.
✓ Investment by owners and revenues Balance sheet and income statement are
(+) needed to prepare statement of cash flows.
✓ Drawings and expenses (-).
Income Statement
• Reports the revenues and expenses
for a specific period of time.
• Lists revenues first, followed by
Increases in Owner’s Equity expenses.
✓ Investments by owner are the • Shows net income (or net loss).
assets the owner puts into the • Does not include investment and
business. withdrawal transactions between
✓ Revenues result from business the owner and the business in
activities entered into for the measuring net income.
purpose of earning income.
Owner’s Equity Statement
- Common sources of revenue
• Reports the changes in owner’s
are: sales, fees, services, commissions,
equity for a specific period of time.
interest, dividends, royalties, and rent.
• The time period is the same as that
Decreases in Owner’s Equity covered by the income statement.

✓ Drawings An owner may withdraw Balance Sheet

cash or other assets for personal
• Reports the assets, liabilities, and
use.
owner's equity at a specific date.
✓ Expenses are the cost of assets
• Lists assets at the top, followed by
consumed or services used in the
liabilities and owner’s equity.
process of earning revenue.
• Total assets must equal total
- Common expenses are: salaries liabilities and owner's equity.
expense, rent expense, utilities expense, • Is a snapshot of the company’s
tax expense, etc. financial condition at a specific
moment in time (usually the month-
Transactions are a business’s economic end or year-end).
events recorded by accountants.
Statement of Cash Flows
✓ May be external or internal.
Information on the cash receipts and of analysis, recording, classifying,
payments for a specific period of time. summarizing, and communicating
all transactions involving receipt
Answers the following: and deposition of government fund
✓ Where did cash come from? and property
✓ What was cash used for? ✓ Government Accounting Manual
✓ What was the change in the cash (GAM)
balance? ✓ Commission on Audit (COA) –
keeper of accounts
BRANCHES OF ACCOUNTING ✓ Department of Budget and
Management (DBM)
Financial Accounting
✓ Bureau of Treasury (BTr)
✓ primarily handling the recording of ✓ Other National Government
financial transactions of a business Agencies
✓ Philippine Financial Reporting ✓ Financial Statements
Standards (PFRS) ✓ Government Reports
✓ Philippine Accounting Standards
Tax Accounting
(PAS)
✓ Internal Users ✓ Enables the taxing authorities to
✓ External Users exact taxes
✓ Preparation of Financial Statements ✓ National Internal Revenue Code
(NIRC)
Management Accounting
✓ Bureau of Internal Revenue (BIR)
✓ focuses on the preparations of the ✓ Tax Returns
financial reports use of managers in
Auditing
their day to day decision making
✓ Need not follow accounting ✓ an unbiased examination and
standards evaluation of the financial
✓ Code of Ethics statements of an organization
✓ Internal Users ✓ Philippine Auditing Standards (PAS)
✓ Management ✓ Securities and Exchange
✓ Management Reports Commission
✓ Budgets ✓ Certified Public Accountants (CPA)
✓ Audited Financial Statements (with
Cost Accounting
auditor’s opinion)
✓ provides information for
Management Accounting and
Financial Accounting Accounting Education
✓ subset of Financial Accounting and
Management Accounting ✓ responsible for training future
✓ Internal Users accountants
✓ Cost Analysis ✓ Finish Bachelor of Science in
✓ Cost Identification Accountancy
✓ Cost Assignment ✓ Pass the CPA Board Exams
✓ Colleges and Universities
Government Accounting ✓ Board of Accountancy (BoA)
✓ Financial Accounting and Reporting
✓ defined as an accounts system
✓ Management Advisory Services
which is encompassing the process
 ✓ Advanced Financial Accounting and FORMS AND TYPES OF BUSINESS
Reporting ORGANIZATIONS
✓ Auditing
✓ Taxation FORMS: SOLE PROPRIETORSHIP
✓ Regulatory Framework for Business ADVANTAGES
Transactions
✓ All profits are subject to the owner
Accounting Research ✓ There is very little regulation for
✓ continuous improvement of the proprietorships
accountancy field ✓ Owners have total flexibility when
✓ Research Guidelines running the business
✓ Accounting Framework ✓ Very few requirements for starting—
✓ All users of Accounting Information often only a business license
✓ Researches and Studies DISADVANTAGES
✓ Owner is 100% liable for business
BUSINESS AND ACCOUNTING debts (Unlimited liability)
✓ Equity is limited to the owner’s
GENERAL PURPOSE FINANCIAL personal resources
STATEMENTS ✓ Ownership of proprietorship is
difficult to transfer
Statement of Financial Position – Assets ✓ No distinction between personal and
and Liabilities business income
Income Statement – Revenues, costs, and ✓ Difficult to raise additional capital
expenses ✓ Usually has a short life

Statement of Cash Flows – Cash receipts FORMS: PARTNERSHIP

and disbursements ADVANTAGES
Statement of Owner’s Net Worth – Changes ✓ Shared resources provide more
in wealth capital for the business
THOROUGH KNOWLEDGE ✓ Each partner shares the total profits
of the company
As an accountant ✓ Similar flexibility and simple design
WORKING KNOWLEDGE of a proprietorship
✓ Inexpensive to establish a business
As a financial statement user partnership, formal or informal
✓ A limited partner is only liable up to
HISTORY his investment in the partnership
First Accounting Book: Cotrugli in Naples only

Modern Double Entry Bookkeeping System: DISADVANTAGES

Summa de Aritmetica by Italian Fr. Luca ✓ Each partner is 100% responsible for
Pacioli, 1494 debts and losses
Philippines: Tenedor de Libro ✓ Selling the business is difficult—
requires finding new partner
✓ Partnership ends when any partner
decides to end it – very limited life
 ✓ Dissolution – a partnership is MANUFACTURING
dissolved and a new one is formed
✓ Liquidation – a partnership ceases ✓ Manufacturing is the processing of
to exist for good raw materials or parts into finished
goods using tools, human labor,
FORMS: CORPORATION machinery, and chemical
processing.
ADVANTAGES ✓ They make the product and sell it to
✓ Virtually unlimited life (50 years, merchandisers.
and renewable) ✓ Has Inventory
✓ Limits liability of the owner to debts - Raw Materials
or losses - Work in Process
✓ Personal assets of the owners - Finished Goods
cannot be collected to pay for INTERNAL USERS
business debts (limited liability)
✓ Profits and losses belong to the MANAGERS
corporation (separate legal entity)
✓ Can be transferred to new owners The one responsible for running the
easily (by shares of stocks) business

DISADVANTAGES OWNERS

✓ Corporate operations are costly The source of capital

✓ Establishing a corporation is costly EMPLOYEES
and complicated
✓ Corporate business requires The bloodline of a business
complex paperwork EXTERNAL USERS
✓ With some exceptions, corporate
income is taxed twice - suppliers
- auditors
TYPES OF BUSINESS OPERATIONS
- creditors
SERVICE - academe
- customers
✓ A commercial enterprise that - government
provides work performed in an
expert manner by an individual or PARTNERSHIP FORMATION AND
team for the benefit of its OPERATION
customers.
✓ No Inventory - In a contract of partnership, two or
✓ Offers Intangible Products more persons bind themselves to
✓ Non-Standard Output contribute money, property, or
industry to a common fund, with the
MERCHANDISING intention of dividing the profit among
✓ A commercial enterprise dedicated themselves. Two or more persons
to the purchase of finished goods may also form a partnership for the
and their resale for a profit. exercise of a profession (Civil Code
✓ Buy and Sell of the Philippines, Article 1767)
✓ With Inventory
✓ Goods are sold with no alteration to CHARACTERISTICS OF A PARTNERSHIP
the physical form of the product
 • Mutual Contribution the issuance of certificate of
• Division of Profit or Losses incorporation by the Securities and
• Co-ownership of Contributed Assets Exchange Commission.
• Mutual Agency • Management. In a partnership, every
• Limited Life partner is an agent of the
• Unlimited Liability partnership if the partners did not
• Income Taxes appoint a managing partner; in a
• Partner’s Equity Accounts corporation, management is vested
• on the Board of Directors.
Advantages/Disadvantages of a partnership • Extent of Liability. Every partners,
except limited partner is liable to the
ADVANTAGES VS. PROPRIETORSHIPS
extent of personal assets;
1. Brings greater financial capability to Corporation, stockholders are liable
the business. only to the extent of investment
2. Combine special skills, expertise and • Right of Succession. Partnership –
experience of the partners. no right of succession; Corporation-
3. Offers relative freedom and flexibility with capacity
of action in decision making • Terms of Existence. Partnership –
ADVANTAGES VS. CORPORATIONS any time period; Corporation –
1. Easier and less expensive to perpetual
organize
2. More personal and informal Articles of partnership
DISADVANTAGES
The following are the essential provisions:
1. Easily dissolved
2. Mutual agency and limited liability 1. The partnership name, nature,
may create personal obligation to purpose, and location;
partners 2. The names, citizenship, and
3. Less effective than a corporation in residences of the partners;
raising large amounts of capital 3. The date of formation and the
duration of the partnership;
Partnership distinguished from a 4. The capital contribution of each
corporation. partner, the procedure for valuing
• Manner of Creation. A partnership is non-cash investments, treatment of
created by mere agreement of the excess contribution (as capital or as
partners while a corporation is loan) and the penalties for a
created by operation of law. partner’s failure to invest and
• Number of Persons. Two or more maintain the agreed capital;
persons may form a partnership; in a 5. The rights and duties of each partner;
corporation not exceeding fifteen 6. The accounting period to be adopted,
(15); the nature of accounting records,
• Commencement of Juridical financial statements and audits by
Personality. In a partnership, independent CPAs.
juridical personality commences 7. The method of sharing profit or loss,
from the execution of the articles of frequency of income measurement
partnership; in a corporation, from and distribution, including any
 provision for the recognition of b. Universal Partnership of Profits. All
differences in contributions; that the partners may acquire by
8. The drawings or salaries to be their industry or work during the
allowed to partners; existence of the partnership and the
9. The provision for arbitration of use of what ever the partners
disputes, dissolution and liquidation. contributed at the time of the
institution of the contract belong to
KINDS OF PARTNERS the partnership.
• General Partner. One who is liable to c. Particular Partnership. The object of
the extent of his separate property. the partnership is determinate. A
• Limited Partner. One who is liable partnership formed to carry out one
only to the extend of his capital business venture or to complete one
contribution. undertaking.
• Capitalist Partner. One who 2. ACCORDING TO LIABILITY
contributes money or property a. General. All partners are liable to the
• Industrial Partner. One who extent of their separate properties.
contributes his knowledge or b. Limited. The limited partners are
personal service liable only to the extent of their
• Managing Partner. One whom personal contributions.
partners has appointed as manager 3. ACCORDING TO DURATION
• Liquidating Partner. One who is a. Partnership for a fixed term or for a
designated to wind up the business particular undertaking
after dissolution b. Partnership at will. One in which no
• Dormant Partner. One who does not term is specified and is not formed
take active part in the business of the for any particular undertaking
partnership and it not known as a 4. ACCORDING TO PURPOSE
partner. a. Commercial or Trading Partnership
• Silent Partner. One who does not b. Professional or Non-Trading
take active part in the business of the Partnership
partnership though may be known as 5. ACCORDING TO LEGALITY OF EXISTENCE
a partner. a. De Jure Partnership. Compliant with
• Secret Partner. One who takes active legal requirements for its
part in the business but is not known establishment
to be a partner by outside parties b. De Facto Partnership. Not compliant
• Nominal Partner or Partner by with all legal requirements for
Estoppel. One who is actually not a establishment
partner by who represents himself
as one.
OWNER’S EQUITY ACCOUNTS
CLASSIFICATION OF PARTNERSHIPS LOANS RECEIVABLE FROM OR PAYABLE TO
1. ACCORDING TO OBJECT PARTNERS
a. Universal Partnership of All Present
• If a partner withdraws a substantial
Property. All contributions become
amount of money with the intention
part of the partnership fund.
of repaying it, the debit should be to
 Loans Receivable-Partner instead of b. Two or more sole proprietors form a
Partner’s Drawing Account. partnership.

• A partner may lend amounts to the

partnership in excess of his intended Rules for the distribution of profits or losses
permanent investment. These (cont.)
advances should be credited to
PROFITS
Loans Payable to Partner account
and not to Partner’s Capital account a. The profits will be divided according
classified among the liabilities but to partner’s agreement.
separate from liabilities to outsiders. b. If there is no agreement:
• As to capitalist partners, the profits
PARTNERSHIP FORMATION
shall be divided according to their
VALUATION OF INVESTMENTS BY capital contribution (according to the
PARTNERS ratio of original capital investments
or in its absence, the ratio of capital
• Partners may invest cash or non-
balances at the beginning of the
assets to the partnership.
year).
• Non-cash assets are to be recorded
• As to industrial partner (if any), such
in the following order of priority
share at be just and equitable under
1. Values agreed upon by the partners;
the circumstances, provided that the
2. In the absence of agreement, it will
industrial partner shall receive such
be recognized at their fair market
share before capitalist partners shall
values.
divide the profits.
LOSSES
ADJUSTMENT OF ACCOUNTS PRIOR TO
a. The losses will be divided according
FORMATION
to partner’s agreement.
In cases when the prospective partners b. If there is no agreement as to
have existing businesses, their respective distribution of losses but there is an
books will have to be adjusted to reflect the agreement as to profits, the losses
fair market values of their assets or to shall be distributed according to the
correct misstatements in the accounts. profit sharing ratio.
c. In the absence of any agreement
Opening entries of a partnership upon • As to capitalist partners, the losses
formation shall be divided according to their
A partnership may be formed in any of the capital contribution (according to the
following ways: ratio of original capital investments
1. Individuals with no existing business form or in its absence, the ratio of capital
a partnership. balances at the beginning of the
2. Conversion of a sole proprietorship to a year).
partnership • As to purely industrial partner (if
a. A sole proprietor and an individual any), shall not be liable for any
without an existing business form a losses.
partnership.
 LIQUIDATION - Realization of non-cash asset is the
Process of winding up of the affairs of the process of converting it to cash thru
business and termination of business the means of selling it.
activities. - The effect of the realization of non-
SOME REASONS WHY A PARTNERSHIP IS cash assets to the partnership is it
LIQUIDATED: increases the cash balance and it
•Bankruptcy / Insolvency either increase or decrease the
•Once a partnership with a fixed term or a capital balances of the partners if
particular undertaking has terminated or there is a gain or loss on realization.
accomplished. - A gain or loss on realization is
•Court order and etc. allocated to the partners based on
•Mutual agreement among the partners to their p&l ratio, if the proceeds
close the business. received is not equal to the book
TYPES OF LIQUIDATION: value of the non-cash assets
I. Lump sum liquidation (Total realized.
Liquidation) - If the proceeds > book value of the
-Liquidation process is non-cash assets, a gain is
completed within a reasonably allocated to the partners based on
short period of time. their p&l ratio. This gain directly
-No distributions are made to increases the capital balances of the
partners until the realization partners.
process is completed. - If the proceeds < book value of the
II. Installment liquidation non-cash assets, a loss is
(Piecemeal liquidation) allocated to the partners based
-Liquidation process is done for on their p&l ratio. This loss directly
a longer period of time because decreases the capital balances of the
of difficulty converting the non- partners.
cash assets to cash.
During the process of realization, there
–Distributions are made to some
are instances wherein certain expenses
or all of the partners as it
may be incurred which are called
becomes available even before
liquidation expenses. Example of these
all the non-cash assets are
liquidation expenses are sales
realized.
commissions, shipping cost and other
expenses relating to the disposal of the
The process of liquidation is summarized in
assets. The effect of these liquidation
the STATEMENT OF PARTNERSHIP
expenses in the process of liquidation is
LIQUIDATION. This statement serves as a
it decreases the cash balance and at the
basis for the journal entries during the
same time decreases the partner’s
liquidation process.
capital balances. Liquidation expenses
1. Realization of non-cash assets and increases the loss on realization and
allocation of any gain or loss to the decreases the gain on realization.
partners base on their profit or loss
II. Payment of liabilities to third parties
ratio.
(Partnership creditors)
After realization of non-cash assets and assets over personal liabilities) , the
elimination of capital deficiencies if there remaining partners will absorb the
are any , the next step is the cash capital deficiency based on their
distribution. When it comes to cash profit or loss ratio.
distribution it pertains to the settlement of IV. Payment of liabilities to partners
the interests of the partnership creditors
After settlement of the liabilities of the
and also the interests of partners in the
partnership to third parties ,the partnership
partnership business. The order of priority
will now settle its liabilities to the partners
when it comes to the cash distribution is the
of the partnership.
settlement first of the liabilities of the
partnership to the partnership creditors/ V. Payment of capital accounts to
outside creditors (other than partners). partners.
III. Elimination of capital - After settlement of the liabilities of the
deficiencies. partnership to partners ,the partnership will
now settle the capital interest of the
After realization of non-cash assets , there
partners. Take note that the final distribution
are instances wherein the capital balances
of cash to partners is based on partner’s
of the partners after the distribution of gain
capital balances.
or loss on realization has a negative balance
(capital deficiency). If this is the case, *The status whether a partner is solvent, or
elimination of the capital deficiency must be insolvent is sometimes not explicitly stated
done by applying these concepts in order of in the problem. The personal assets and
priority: personal liabilities of a partner is given and
is used to know whether a partner is solvent
a.) If the deficient partner has a loan
or not. If the personal assets of a partner is
balance (the partnership has a
greater than his personal liabilities, a
liability to the deficient partner),
partner is said to be solvent but if the
exercise the offsetting of the loan
personal assets are less than personal
balance to capital deficiency.
liabilities, the partner is insolvent.
b.) If the deficient partner does not have
a loan balance or the loan balance is CORPORATION
not enough to cover to capital
deficiency, the deficient partner must A corporation is an artificial being created by
be known whether he is solvent or operation of law having the right of
insolvent. succession and the powers, attributes and
properties expressly authorized by law or
incident to its existence.
- If the deficient partner is (Sec 2 of Revised Corporation Code of the
SOLVENT(has excess personal Philippines)
assets over personal liabilities) , he
should have an additional investment Attributes
to partnership to cover his capital 1. It is an artificial being.
deficiency. 2. It has a legal personality.
- If the deficient partner is 3. It has a perpetual existence.
INSOLVENT(has no excess personal
 4. It has only the powers, attributes and DISADVANTAGES OF A CORPORATE
properties expressly authorized by FORM OF BUSINESS
law or incident to its existence. ORGANIZATIONS
5. It has corporate ownership.
5. In large corporations, management
6. It is subject to limited liability.
and control has been separated from
ownership.
ADVANTAGES OF A CORPORATE FORM OF
6. By and large corporations are
BUSINESS ORGANIZATIONS
subject to governmental restrictions,
1. The capacity to hold property, to controls, and report requirements
contract, to sue and be sued as a not imposed on other forms of
legal unit or distinct entity. business organizations.
2. Exemption of shareholders from 7. Corporate sphere of activity is
individual liability. limited in the transaction of its
3. Continuity of existence in spite of business to the state of the
death or changes of members. organization.
4. Transferability of shares. 8. The corporate form involves “double
5. Centralized management under a taxation” on corporation income.
board of directors.
6. Standardized methods of
organization, management and
finance for the protection of
shareholders and creditors under
statutory regulations.

DISADVANTAGES OF A CORPORATE FORM

OF BUSINESS ORGANIZATIONS
1. The limited liability of the
stockholders serves to limit the
credit available to the corporation.
2. The transferability of shares permits
the uniting of incompatible and
KINDS OF CORPORATION
conflicting interests in one
• Government-owned or controlled –
enterprise.
are entities organized by the
3. The minority stockholders are
government or corporations of which
usually subservient to the wishes of
the government is a majority
the majority.
stockholder.
4. In big corporations, the stockholders’
• Domestic – one incorporated under
voting rights have become largely
Philippine laws.
theoretical because of widespread
• Foreign – one formed, organized, or
ownership, disinterest in
existing under any laws other than
management, and inaccessible
those of the Philippines.
meeting places.
• Corporation aggregate – one
composed of more than one member
or corporator.
 • Corporation sole – consists of one 4. Members – are those corporators in
member or corporator and his a non-stock corporation.
successors. 5. Promoters – is a self-constituted
• Ecclesiastical – organized for organizer who finds an enterprise or
religious purposes. venture and helps to attract
• Eleemosynary – organized for investors, form a corporation and
charitable purposes. launch it in business, all with a view
• Close – one wherein all the to promotion profits.
outstanding stock is owned by few
persons who are active in RIGHTS OF SHAREHOLDERS
management and conduct of the
1. Share in the corporate profits at the
business.
discretion of the Board of Directors
• Open – one in which stocks are
2. Vote and attend annual stockholders’
available in the market for purchase.
meeting.
• Multi-national – one having been
3. Share in the distribution of assets
created or organized in one state
upon liquidation of the business.
conducts business or activities
4. Sell or dispose of their shares.
across national boundaries and but
5. Receive the same dividends given to
subject to the legal sanctions of the
all ordinary shareholders.
countries in which they operate.
6. Receive timely financial reports.
• Non-profit – organized without
7. Purchase additional shares of stocks
contemplation of gains, profits or
whenever there is an increase in the
dividends to their members on
authorized share capital stock of the
invested capital.
corporation: Pre-emptive Right
• De Jure – one created in strict or
substantial conformity with the
SHARE OF STOCKS
statutory requirements for
incorporation. A “stock” or share of stock is one of the units
into which the capital stock has been
COMPONENTS OF A CORPORATION divided. It represents the interest or right
that the holder of the stock or stockholder
1. Corporators – are those who
has in the corporation.
composed a corporation, whether as
A stock certificate certifies that one is a
stockholders of members. The term
holder or owner of a certain number of
includes incorporators, stockholders
shares of stock in the corporation. It is a
or members.
mere documentary evidence of the holder’s
2. Incorporators – are those
ownership of shares and a convenient
stockholders or members mentioned
instrument for the transfer of title.
in the articles of incorporation as
originally forming and composing the
Kinds of Stocks
corporation and who are signatories
As to Value
thereof.
• Par Value Stock – is one in which
3. Stockholders or shareholders – are
there is a given fixed or definite value
those owners in a stock corporation.
of a share in the articles of
incorporation; minimum value
 • No Par Value Stock – one without a • The specific purpose or purposes for
designated value in the articles of which the corporation is being
incorporation incorporated.
As to Right • The place where the principal office
of the corporation is to be located,
• Common or Ordinary Stock – entitles
which must be within the Philippines.
the owner to a pro rata dividend
• The term for which the corporation is
without any priority or preference
to exist.
over other stockholders. These
• The names, nationalities and
shares can be issued at par or no par.
residences of the incorporators.
• Preferred or Preference Stock – one • The number of directors or trustees
with preferential rights or claims which shall not be less than five (5)
over the common stock. Only par nor more than fifteen (15).
value shares can be issued for this • The names, nationalities and
stock. residences of the person who shall
act as directors or trustees until the
Number and Qualifications of Incorporators first regular directors or trustees
1. Any number but not more than are duly elected and qualified.
fifteen (15) • If it be a stock corporation, the
2. All of legal age amount of its authorized capital
3. Majority are residents of the stock in lawful money of the
Philippines Philippines, the number of shares
which it is divided, and in case the
Capital Stock Requirements shares are par value shares, the par
1. No minimum capital stock value of each, the names,
requirement nationalities and residences of the
original subscriber, and the amount
When a capital stock is to be increased, subscribed and paid by each on his
subscription, and if some or all of the
2. At least twenty five percent (25%) of
shares are without par value, such
the increase in capital stock must be
fact must be stated.
subscribed
• If it be a non-stock corporation, the
3. At least twenty five percent (25%) of
amount of its capital, the names,
the total subscription must be paid
nationalities and residences of the
Articles of Incorporation contributors and the amount,
contributed by each.
Shall be filed with the Securities and
Exchange Commission in any of the By-Laws
official languages, duly signed and
• Filed with SEC and adopted within
acknowledged by all of the incorporators
one month after SEC issues a
Matters of the Articles of Incorporation certificate of incorporation

• Name of Corporation • Rules of actions concerning internal

administration of the corporation and
include qualifications, manner of
conducting meetings, etc.