Forms of

Business Organization
(Corporation: S-Corporation & One-Person Corporation)

GROUP 3
AMATONG, ALYSSA ANDREA
DIZON, KARL ANGELO
MONTECILLO, ARVIN ANTONIO
TANGLAO, LORENZO JOAQUIN
What is a Corporation?
How does it work?
 What is a corporation?
A corporation is a legal entity that is separate and distinct from its
owners.
They can enter contracts, loan and borrow money, sue and be sued,
hire employees, own assets, and pay taxes.
Corporation as a "legal person."
Ex. San Miguel Corporation, P&G Philippines

Corporation How does it work?

(Regular or C-Corporation) the profit organization is owned by
shareholders who invested money by buying the company's stocks.
The Board of directors is liable for the company's initiatives, decisions,
and finances
Shareholders are not that engaged in the management of a
corporation's day-to-day operations despite having equity ownership
in the capital stock.
How does one start a
Corporation?
 PROMOTION
1. Must have not more than 15 incorporators
2. Look for possible subscribers/hire a promoter
3. Conceptualize Articles of Incorporation

How to
INCORPORATION
start a 1. Complete the Articles of Incorporation

Corporation 2. Establish the Corporate Bylaws

3. Identify people involved; create a sequence of power starting from
the stockholders, the corporation's owners that have voting rights to
appoint a Board of directors to represent their interests
4. Register with the Securities and Exchange Commission (SEC)
5. Secure Permits from the local government; City hall, BIR, SSS,
PhilHealth, Pag-ibig, etc.
How to Formal Organization and
Commencement of the Business
start a They have to start the operations within 2 years from the date of

Corporation incorporation (granting of the license by the SEC) otherwise their

license will be revoked
 a. The name of the corporation;
b. The specific purpose or purposes for which the corporation is being
formed.

Contents of c. The place where the principal office of the corporation is to be

located, which must be within the Philippines;
d. The term for which the corporation is to exist, if the corporation has

Articles of not elected perpetual existence;

e. The names, nationalities, and residence addresses of the

Incorporation
incorporators;
f. The number of directors, which shall not be more than fifteen (15), or
the number of trustees which may be more than fifteen (15);
g. The names, nationalities, and residence addresses of persons who
shall act as directors or trustees until the first regular directors or
trustees are duly elected and qualified in accordance with this Code;
 h. (stock corporation) the amount of its authorized capital stock,

Contents of
number of shares into which it is divided, the par value of each,
names, nationalities, and residence addresses of the original
subscribers, amount subscribed and paid by each on the

Articles of subscription, and a statement that some or all of the shares are
without par value, if applicable;
i. (non-stock corporation) the amount of its capital, the names,

Incorporation nationalities, and residence addresses of the contributors, and

amount contributed by each; and
j. Such other matters consistent with law and which the
incorporators may deem necessary and convenient.
 a. The time, place and manner of calling and conducting regular or special
meetings of the directors or trustees;
b. The time and manner of calling and conducting regular or special
meetings and mode of notifying the stockholders or members thereof;
c. The required quorum in meetings of stockholders or members and the
manner of voting therein;
d. The modes by which a stockholder, member, director, or trustee may

Contents of attend meetings and cast their votes;

e. The form for proxies of stockholders and members and the manner of
voting them;

By-Laws f. The directors’ or trustees’ qualifications, duties and responsibilities, the

guidelines for setting the compensation of directors or trustees and
officers, and the maximum number of other board representations that an
independent director or trustee may have which shall, in no case, be more
than the number prescribed by the Commission;
g. The time for holding the annual election of directors of trustees and the
mode or manner of giving notice thereof;
h. The manner of election or appointment and the term of office of all
officers other than directors or trustees;
 i. The manner of election or appointment and the term of office of all

Contents of
officers other than directors or trustees;
j. The penalties for violation of the bylaws;
k. In the case of stock corporations, the manner of issuing stock

By-Laws certificates; and

l. Such other matters may be necessary for the proper or convenient
transaction of its corporate affairs for the promotion of good governance
and anti-graft and corruption measures.
Forming a Corporation
( Registering a Corporation
in the Philippines )
 Reserve and Register your
Business Name in SEC
(Securities and Exchange
How to Commission )
start a Prepare, sign, and notarize the following:

Articles of Incorporation;

Corporation By-Laws
Treasurer’s Affidavit; and
Joint affidavit of two incorporators (if the same corporate
name/name is not acceptable)

(Not required if the Articles of Incorporation have a provision on this

commitment).
 Acquire a Barangay Clearance
of your chosen region in charge of administration for the local
government.
Acquire a Business Permit from the Mayor’s Office

How to acquire a Business Permit in the municipality where your business is

located.
Register with the BIR ( Bureau of Internal Revenue )

start a As part of your tax obligations in the Philippines, you’ll need to

register your new company with the Bureau of Internal Revenue (BIR).

Corporation
Register as an Employer
you need to register as an employer with the following government
agencies:
1. Social Security System (SSS) -
2. Philippine Health Insurance Corporation (PhilHealth)
3. Home Development Mutual Fund (HDMF or Pag-IBIG Fund)
Common Elements of a
Corporation
 Elements of a Corporation
corporators whose names are the ones in the AOI; are signatories. They are also the original
INCORPORATORS people who formed and composed the corporation

CORPORATORS those who compose a corporation; whether as a stockholder or as members

Corporators in a stock corporation. They have equity ownership over capital stock in the
SHAREHOLDERS corporation and may be a natural or juridical person

PROMOTERS “Potential shareholders”: they show intent to buy shares or pay at a downpayment

Financial experts who look at your finances and assess the risks of lending among other
UNDERWRITERS
analyses of other financial transactions.

ARTICLES OF
Set of legal documents filed with a government to legally document a corporation’s creation.
INCORPORATION
A more specific outline of the company's internal structure and day-to-day operations;
CORPORATE
included in the bylaws are the duties of BODs, election, officers in charge, how meetings are
BY-LAWS supervised, and so on.
 Elements of a Corporation
BOARD OF Set of governing people who are responsible for the management of a corporation's
DIRECTORS operations.

CAPITAL These are the capital used to acquire other assets. e.g.
(Authorized share capital, legal capital, ordinary share capital, preference share capital, paid-
ACQUISITION in capital )

DIVIDENDS This is the term used to describe the payment of the corporation to its investors/shareholders.
Classes of Corporation
 As to how it is organized and its functions
• Public – corporations created for the government or a portion of the
State and for the purpose of serving the general good and welfare.
Examples are provinces, cities, and municipalities.
• Private – corporations created under the Corporation Code

Classes of As to legal status:

• De jure – corporation organized in accordance with the requirements of

Corporation the law.

• De facto – a corporation where there exists a flaw in the incorporation

As to the existence of shares of stocks

• Stock – a corporation in which capital stock is divided into shares and is
authorized to distribute to holders thereof of such shares, dividends, on
the basis of shares held.
• Non-stock – a nonstock corporation is one where no part of its income is
distributable as dividends to its members, trustees, or officers
 As to laws of incorporation
• Domestic - a corporation formed, organized, or existing under Philippine
laws.
• Foreign – a foreign corporation is one formed, organized, or existing
under laws other than those of the Philippines

As to the relationship between management and control

Classes of • Parent corporation – “a corporation controlling the financial interest in

one more corporation.”
• Subsidiary corporation –“ the corporation controlled by the parent

Corporation corporation; it is so related to another corporation that the majority of its

directors can be elected either directly or indirectly by such other
corporation.”
• Affiliate – “one related to another by owning or being owned by common
management. It may be the controlled or controlling corporation under
the common control.”
• Holding corporation – “one which controls another as a subsidiary by the
power to elect management. It is one that holds stocks in another
company for purposes of control rather than for mere investment.
Costs in
Organization costs are cost incurred in forming a corporation. It includes :
• legal fees in connection with the incorporation such as drafting of
articles of incorporation and by-laws and registration;

corporations • incorporation fees;

• share issuance costs, such as printing of stock certificates, cost of stock
and transfer book, seal of corporation, underwriting and promotional fees,
accounting and legal fees related to share issuance.
Why Incorporate?
 1. Protect Your Personal Assets
Corporation is reponsible for it's
own debts.
Personal assets of the owners shall
Why not be used to pay for corporation's
Incorporate? debts.
 2. Have Easier Access to Capital

Capital can be sourced from

issuance of shares of stock.
Why Investors put their money more on
Incorporate? corporations rather than an
incorporated businesses.
 3. Enhance Your Business' Credibility

Corporations are perceived as more

Why stable
Thus, enticing more investors.
Incorporate?
 4. Perpetual Existence

The corporation lives on regardless

Why of what happens to it's individual
staff.
Incorporate? It helps avoid legal entanglements
 5. Gain Anonymity

Private information on owners,

Why directors, and other personnel are
Incorporate? not disclosed to the public.
 6. Other Considerations

Is more secure in terms of additional

benefits.
Why Usually includes health benefits,
Incorporate? incentives, pension, and retirement
plans among others.
What is an
One-Person
Corporation?
What is a The OPC business structure allows a single
entrepreneur or individual to form a

One-Person corporation without needing shareholders or

a board of directors. This makes the owners
Corporation? the sole shareholder, acting director, and
president.
 A One Person Corporation (”OPC”) may be formed in the Philippines
whereby the OPC is composed of a single stockholder who can only
be a natural person, trust or estate. Its term of existence is perpetual

Forming a
but in case of a trust or estate, the term shall be co-terminous with the
existence of the trust or estate. The suffix “OPC” must be indicated in
the corporate name.

One-Person Generally, the OPC registration process follows a 5-step process:

1. Submit your proposed company name

Corporation? 2. Submit the documentary requirements for pre-processing

3. Pay the filing fees
4. Submit hard copies of signed and notarized documentary
requirements together with the proof of payment of filing fees
5. Claim Certificate of Registration from SEC
 The Securities and Exchange Commission (SEC) recently
Example
Example of
of a
a approved the registration of the first one person
corporation (OPC) organized under Republic Act No.

One-Person
One-Person 11232, or the Revised Corporation Code of the Philippines.
Smart Transportation and Solutions OPC received its

Corporation?
Corporation?
certificate of incorporation on May 7, 2019 becoming the
country’s first corporation with a single stockholder
 Advantages
An OPC requires just one shareholder.
The sole shareholder can be foreign, and doesn’t need to be a
Advantages and Philippine resident.

Disadvantages Disadvantages
The Philippines keeps a public record of shareholders and directors.
The conversion of an OPC to an ordinary joint stock corporation is a
lengthy process, which takes about 2 months.
 What is an
S-Corporation?
 What is a S - Corporation?

S-Corporation An S corporation is a business structure and tax election

available to private corporations, like LLCs or partnerships.
In an S corp, profits pass through to the shareholders, who
then pay taxes on those profits when filing their personal
income taxes.
 Profit (a year's profit)
1,000,000 x 25% = 250,000 [corporate tax alone]

S-Corporation PLUS: Income Tax

350,000 -> 350,000 - 250,000 = 100,000
Example: (income above 250,000 but not more than 400,000 is
subjected to 20% income tax of the excess from 250,000)

20% x 100,000 = 20,000

PLUS: Tax on Dividends

 Corporate Tax and Income Tax
250,000 (corporate tax) + 20, 000 (personal income tax)
= 270,000

PLUS: Tax on Dividends

400,000 (from shares you own)
S-Corporation (income above 250,000 but not more than 400,000 is

Example: subjected to 20% income tax of the excess from 250,000)

400,000 - 250,000 = 150,000

20% x 150,000 = 30,000

270,000 + 30,000 = 300,000 (tax paid in regular corporation)

S-corps do not pay corporate income tax.

What is the difference
between an S-
Corporation and One-
Person Corporation?
 An s-corporation is “not a business entity but a tax
What is the classification” that corporations may be subject to
should they apply for this tax election
difference an S-corporation’s main objective is to avoid being

between an S- taxed more by means of setting a “reasonable salary”

for its employees
Corporation and “Both LLCs and corporations can be taxed as an S-
corp. An S-corp doesn’t pay corporate income tax
One-Person such as a traditional C-corp. does. Instead, company

Corporation? profits pass through to owners’ personal tax returns.”

Recap
A corporation
-is a legal entity that is separate and distinct from its owners
-has different classifications and specifications depending on the nature of its target functions or business enterprises;
its nature of management may vary from the hierarchy of authority, its taxation methods, and ways of accounting for
transactions.

To register a corporation in the Philippines, one must:

-complete the AOI and establish the bylaws
-register with the Securities and Exchange Commission (SEC)
-secure Permits from the local government; City hall, BIR, SSS, PhilHealth, Pag-IBIG, etc.

Before you can register a corporation, you must:

-Must have not more than 15 incorporators
-Look for possible subscribers/hire a promoter
-Conceptualize Articles of Incorporation
A One-Person Corporation (OPC) is a corporation that allows a single entrepreneur or individual to form a corporation
without needing shareholders or a board of directors. This makes the owners the sole shareholder, acting director, and
president.

An S-corporation or S-corp is is “not a business entity but a tax classification” that corporations may be subject to
should they apply for this tax election
only "reasonable salary is taxed" in overall income
-“Both LLCs and corporations can be taxed as an S-corp. An S-corp doesn’t pay corporate income tax such as a
traditional C-corp. does. Instead, company profits pass through to owners’ personal tax returns.”
Questions?
References
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P, A. F. F. P. is a member of, questions, L. L. N. legal advice is given in this forum F. other, & link, use the
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