PARCOR MIDTERM REVIEWER Limited Partnership and Partnership

with Limited Liability - "limited”

Lecture 2: Partnership Formation
means that most of the partners have
Sole Proprietorship – it is the simplest limited liability (to the extent of their
form of business structure and are easy investment) as well as limited input
and cheap to start due to few regarding management decisions which
government rules. Proprietors enjoy full generally encourages investors for
control and profits from the business but short-term projects, or for investing in
incur unlimited legal liability personally. capital assets.

Sole Proprietorship Advantages Joint Venture - Acts like a general

partnership, but is clearly for a limited
 There are minimal costs and period of time or a single project. If the
requirements in the formation. partners in a joint venture repeat the
 Full management control. activity, they will be recognized as an
 The owner can withdraw the assets ongoing partnership and will have to file
and profits anytime. as such, and distribute accumulated
partnership assets upon dissolution of
Disadvatanges
the entity.
 Unlimited Liability
Partnership Advantages
 Limited capital, skills and experience
 The duration of the life of the  There are minimal costs and
business solely depends on its requirements in the formation.
owner.  There are more funds contributed
from the investments of the partners.
Partnership - two or more people share
 There are more knowledge,
ownership of a single business.Each
experience and skills, from two or
person contributes money, property,
more partners.
labor, or skill, andexpects to share in the
 There can be a division of labor
profits and losses of the business.
among the partners.
Types of Partnership
Disadvantages
General Partnership - partners divide
 The partners are liable for the
responsibility for management and
actions of each partner as a result of
liability, as well as the shares of profit or
mutual agency
loss according to their internal
 A general partner has unlimited
agreement. Equal shares are assumed
liability if the other partners are
unless there is a written agreement that
limited partners or are insolvent.
states differently.
 Disagreement between partners can  The government exercises strict
lead to the withdrawal of one or more control over corporations and
partners. imposes high taxes.
 The death, retirement, withdrawal, or  Shareholders have little or no
incapacity of the partner results in participation in the management of
the dissolution of the partnership. the corporation.
 Admission of a new partner depends  Distribution of net income depends
upon the approval of the other upon the declaration of dividends by
partners. the board of directors.

Corporation – it is an artificial being Corporation Attributes

created by operation of law, having the
right of succession and the powers, Created by Operation of Law – the
attributes, and properties expressly formal requirement of the State’s
authorized by law or incident to its consent through compliance with the
existence. requirements imposed by law.

Corporation Advantages Artificial Being – it has a juridical

personality, separate and distinct from
The corporation has the legal capacity the persons composing it. This also
to act as a legal entity. knows as Doctorine of Separate
Juridical Personality.
 The stockholders only have limited
liability, as their liability extends only Right of Succession – unlike in the
up to the amount of their capital partnership, the death, incapacity or civil
investment. interdiction of one or more of its
 A corporation has continuous shareholder does not result in its
existence as its life is indefinite. dissolution.
 There is more infusion of funds from
Powers, Attributes and Properties
the stockholders or investors.
Expressly Authorized by Law – it can
 Shares of stocks can be transferred
exercise only such powers and can hold
without the consent of other
only such properties as granted to it by
shareholders.
the enabling statues unlike natural
 Management of the corporation is
persons who can do anything as they
vested upon its board of directors.
please. This is also called Doctrine of
Disadvantages Limited Capacity.

 A corporation entails many Powers of Corporation

requirements and is more costly than
a partnership.
Express Powers – those expressly Foreign Corporation – those are
authorized by the Corporation Code and formed under any laws other than those
other laws, and its Articles of of Phillipine law.
Incorporation.
Close Corporation – those whose
Implied Powers – those that can be share of stock are held by a limited
inferred from or necessary for the number of persons like family or other
exercise of Express powers. closely-knit group.

Incidental Powers – those that are Open Corporation – those are formed
incidental to the existence of the to openly accept outsiders as
corporation. stockholders or investors and they are
also called Publicly-Listed
Ultra Vires Act – those are which Corporations.
cannot be executed or performed by a
corporation because they are not within Corporation by Estoppel – a group of
its express, inherent or implied powers. persons which holds itself out as a
corporation and enters into a contract
Piercing The Veil of Corporate Entity with third persons.
– the applicability of the corporate entity
theory is confined to legitimate De Jure Corporation – a corporation
transactions and its subjects to organized in accordance with the
equitable limitations to prevent its being requirements of law.
used as cloak or cover for illegality.
De Facto Corporation – a corporation
Classification of Corporations where there exists a flaw in its
incorporation.
Stock Corporations – corporations
which have capital stock divided into Private Corporations – those are
shares and are authorized to distribute formed for some private purpose,
to the holders such as shares dividends. benefit, aim or end.

Non-Stock Corporations – Public Corporations – those are

corporations which are not authorized to formed or organized for the government
distribute surplus profits. of portion of the State or any of its
politcal subdivisions.

Eccelesiastical Corporations – those

are composed exclusively of
Domestic Corporation – these are ecclesiastics organized for spiritual
those organized or created under by the purposes or for administering properties
virtue of the Philippine law. held for religious ones.
Lay Corporations – those are formed Body of Trustees – the governing body
organized for purpose other than of non-stock corporation.
religion. They may further be classified
as: Subscribers – those persons who have
agreed to take and pay for original
Eleemosynary – it is created for unissued shares of a corporation.
charitable and benevolent purposes
such as are those organized for the Underwriter - a person who guarantees
maintaining hospitals, houses for sick, on a firm commitment and/or declared
age, or poor. best effort basis the distribution and sale
of securities of any kind by another
Civil – it is organized not for the company.
purpose of public charity but for the
benefit, pecuniary or otherwise, of its Promoter – it is a person who brings
members. about or cause to bring about the
formation and organization of a
Aggregate Corporations – those are corporation.
composed of a number of individuals
vested with corporate powers. Certificate of Stock – it is a document
or instrument evidencing the interest of
Sole Corporation – those consists of a stockholder in the corporation.
one person or individual only.
Par Values Shares – those whose
Components of a Corporation values are fixed in the Articles and
shown on the certificate.
Corporators – those who compose a
corporation. No Par Values Shares – those whose
issued price are not stated in the
Incorporators – those are mentioned in certificate of stock but may be fixed in
the articles of incorporation as originally the AOI or by the BOD.
forming and composing the corporation
and who are signatories thereof. Watered Stocks – those shares are
issued at less than its par or stated
Stockholders – the owners of shares of valued.
stock in a stock corporation.
Voting Shares – those shares that have
Members – the corporators of a non- the right to vote unless they are issued
stock corporation. as preferred or redeemable.
Board of Directors – the governing Non-Voting Shares – those that has
body in stock corporation. not right to vote. Typical examples
would be preferred and redeemable
shares.
 Shares in Escrow – those are
deposited with a third party and kept
Common Stocks – it is the most there until the condition contained in the
commonly issued shares of stock. agreement is fulfilled.
Preferred Stocks – those that gives the Convertible Shares – those are which
holder preference with respect to the may be exchanged for other types of
payment of dividends and distribution of shares.
capital upon liquidation.

Cumulative Preferred Shares – those

shares that entitle the owner thereof to
payment not only of current dividends
but also back dividends not previously
paid whether or not, during the past
years, dividends were declared or paid.

Non-Cumulative Preferred Shares –

those shares which grant the holders to
the payment of current dividends but not
back dividends, when and if dividends
are paid, to the extent agreed upon
before any other stockholders are paid
the same.

Founder’s Shares – those shares

issued to the founders of the
corporation.

Redeemable Shares – those shares

that subject to redemption, as indicated
in the contract, usually attached to
preferred shares and other debt
securities like bonds.

Treasury Shares – those shares of

stock which have been issued and fully
paid for, but subsequently reacquired by
the issuing corporation.

Promotion Shares – those shares that

issued to promoters of the corporation.