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corpo 1 - Introduction to Corporation Accounting...

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Introduction to Corporation Accounting CORPORATION - 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 (New Corporation Code of the Philippines). A corporation is an entity created by law that is separate and distinct from its owners and its continued existence is dependent upon the corporate statutes of the state in which it is incorporated. Characteristics of a Corporation The characteristics that distinguish a corporation from proprietorships and partnerships are: 1. Separate legal entity – A corporation is an artificial being with a personality separate from that of its individual owners (i.e., the corporation has separate legal existence from its owners). 2. Created by operation of law – A corporation is generally created by operation of law. The mere agreement of the parties cannot give rise to a corporation. 3. Right of succession – A corporation continues to exist notwithstanding the withdrawal, death, insolvency or incapacity of the individual owners. Changes in the ownership structure do not dissolve a corporation this means that the corporation can have a continuous life. 4. Powers, attributes, properties expressly 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. 5. Ownership divided into shares – Proprietorship in a corporation is divided into units known as shares of stocks. Ownership is shown in shares of share capital, which are transferable units. 6. Board of Directors (BOD) – Management of the business is vested in a board of directors elected by the stockholders. The BOD is the governing body or decision- making body of the corporation. 7. The stockholders have limited liability. 8. It is relatively easy for a corporation to obtain capital through the issuance of stock. 9. The corporation is subject to numerous government regulations. 10. The corporation must pay an income tax on its earnings, and the stockholders are required to pay taxes on the dividends they receive: the result is double taxation. Marivic Valenzuela-Manalo 1
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Distinction between Partnerships and Corporations Partnership Corporation 1. Formed by at least two persons. Initially formed by at least five persons. 2. Starts with agreement among partners; may be formed orally. Starts with the issuance of a certificate of incorporation issued by SEC 3. Unlimited liability Limited liability 4. Limited life Unlimited life 5. Transfer of equity of a partner needs the consent of all the partners. Stocks can be transferred from one stockholder to another without getting the consent of the other stockholders.
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