Quiz 4: Working Capital and Corporation

Ordinary Share Capital

basic share capital of the corporation which have the right to vote and right to participate in profit.

Preference Share Capital

has preference or priority over the ordinary shares in terms of preference as to asset (in the event of liquidation) and preference as to dividends (fixed dividend rate)

Cumulative Preference Share

preference share is entitled to receive dividend in arrears – dividends which were not declared for distribution during prior years

Participating Preference Share

preference share is entitled to dividends in excess of the fixed dividend rate.

Earning Per Share

the residual right of a common shareholder over the earnings of a corporation

Par Value

the fixed value per share stated in the stock certificate

Authorized Shares

maximum number of shares a corporation may issue.

Issued Shares

fully paid shares as evidenced by the issuance of a stock certificate.

Subscribed Shares

shares purchased by an investor subject to an installment payment contract.

Partially paid shares

Treasury Shares

issued but reacquired by the corporation, no longer outstanding.

Outstanding Shares

issued and still held by the shareholders.
Fully Paid Shares

Date of Declaration

is the date when the Board of Directors announce the giving of cash dividends thus Cash Dividend Payable is recognized, and charged to Retained Earnings account.

Date of Record

determines those shareholders holding on to their shares up to this date shall be entitled to receive cash dividends. Subscribed shares (partially paid) and outstanding shares (fully paid) are entitled to dividends, but not treasury shares.

Date of Payment or distribution

cash dividends are received by the shareholders on this date while share certificates for share dividends are received on this date.

Corporation

“an artificial being created by operations of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.”

Bonded Indebtedness

Issuance of bond instruments as a source of financing. Holder of the bond instrument will become debtors, and not owners of the corporation.

Pre-emptive Right

the right of the existing shareholder to acquire the new shares offering by corporation which is proportionate to its existing shares.

The corporation has the right not to extend the (the answer) right to the shares currently held by the shareholders provided that this right is written in its articles of incorporation.

Treasury Shares

These are shares previously issued and bought back by the corporation for a variety of reasons like to prevent a hostile takeover, to settle delinquent shares, etc

Dividend Declaration

This is the distribution of the corporation’s accumulated profits to its shareholders

Management Contract

An agreement whereby the corporation may have another corporation to manage its affair. This shall require the vote of board of directors and/or shareholders.

Limited Liability

Shareholders are liable only up to the extent of their capital contribution. Corporation’s unsettled liabilities shall not extend up to the personal properties of shareholders

Ease of transferring ownership rights

A shareholder can transfer (sell) shares and does not need the approval of the other shareholders

Double Taxation

A corporation pays taxes on its annual earnings, just like individuals. Income of a corporation as well as dividends distributed from these earnings incur tax liabilities.

Professional Management

Management is vested on the Board of Directors.

Agency Problem exists: Common shareholders are the owners, but they do not manage the corporation.

It is also possible for any corporation to hire a company leadership while reaping the benefits of the profits

Trust Fund Doctrine

Corporate assets are held as a trust fund for the benefit of shareholders and creditors and that the corporate officers have a fiduciary duty to deal with them properly

Stock Corporation

one whose capital is divided into shares of stock and profits earned are authorized to be distributed to its owners in the form of dividend.

Non-stock Corporation

one whose profit is not available for distribution as dividend

Public Corporation

one that is formed to carry out functions and purposes of the government.

Private Corporation

one that is formed for commercial and private purpose

Ecclesiastical Corporation

one that is formed for a spiritual purpose or for a particular religion

Lay Corporation

one that is formed other than for religious purposes

Eleemosynary Lay Corporation

formed for charitable purposes.

Civil Lay Corporation

s formed for the benefit of pecuniary group, e.g. its members.

Close Corporation

one whose shares of stocks are not offered for public ownership but for limited private individuals who are generally members of the family.

Open Corporation

one whose shares of stock are offered to public and listed in the Philippine Stock Exchange.

Domestic Corporation

one that is formed and incorporated under Philippine laws

Foreign Corporation

one that is formed and incorporated under foreign laws.

Holding Corporation

one whose activities are limited only to investing and managing the operations of other corporations

Subsidiary Corporation

one that is partly owned by another corporation called parent corporation or holding corporation.

De jure corporation

one that exists in fact and law.

De facto Corporation

one that exist in fact and not in law

One-person corporation

Under the new Corporation Code of the Philippines, a corporation can be formed by only one incorporator or owner

Corporators

people who compose the corporation and are further classified as incorporators, shareholders, or members.

Shareholders

corporators of stock corporation

Members

corporators of non-stock corporation

Incorporators

founders of the corporation

Subscribers

those who agreed to acquire and pay shares of stock of the corporation.

Promoters

those who bring about or cause to bring about the formation and organization of a corporation.

Underwriters

investment bankers who help the corporation in issuing shares of stock.

Articles of Incorporation

Main document supporting the existence of a corporation, which must be filed with the SEC, duly signed and acknowledged by all incorporators.

By-laws

Document that summarizes how the corporation’s internal affairs are carried out and managed. This should be adopted by the corporation within one month after the receipt of the official notice of issuance of its Certificate of Incorporation from the SEC

Certificate of Incorporation

Legal document issued by the SEC signifying the approval to establish and operate a corporation. The issuance date of the (the answer) is considered the corporation’s date of “birth.”

A newly formed corporation must be able to start operations within five (5) years from the date of establishment