CHAPTER 5_Corporate Stocks and Bonds.pdf

Corporate Stocks and Bonds

1. Corporate Stocks
and Bonds
CHAPTER 5

2. ▪Explain the features of stocks and bonds
▪To identify the concepts related to stocks and to bonds; and
▪To point out the advantages and disadvantages of floating of stocks against the floating of
bonds
Learning Objectives:
Key Words and Concepts
1.Capital Stocks 6. Bondholders
2.Bonds 7. Stockholder
3.Corporate Code 8. Dividends
4. Juridical Person 9. Interest
5. Natural Person 10. Business Entity Concept

3. ▪The primary source of funds for
Corporate entities is CAPITAL STOCK.

4. CORPORATION
▪As per the corporate code, it is defined
as “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.”

5. Characteristics of
Corporation
1.Separate Legal Entity
2.Limited Liability
3.Perpetual Existence
4.Ownership and Transferability of
Shares
5.Centralized Management
6.Double Taxation (in some cases)
7.Ability to Raise Capital

6. Advantages and Disadvantages of the Corporation
ADVANTAGES DISADVANTAGES
▪Capacity to act as a legal entity
▪Unlimited life
▪Limited liability of stockholders for
corporate debts
▪Wider source of capital
▪Centralized management under the board
of directors
▪Activities limited by the articles of
incorporation.
▪Limited Credit
▪Possibility of abuse of powers
▪Subject to more governmental
requirements.

7. Types of
CORPORATION

8. Types of Corporation
1. Public Corporation
-Are those formed by the legislative for political or governmental purposes, such as
chartered cities and towns. They are also known as a municipal corporations.
Ex. City of Paranaque is a public corporation
2. Private Corporation
-Are those formed some private purpose, benefit, aim or end. The property of this
kind of corporation and the profits arising from the employment of their property
and the exercise of their franchises belong to individuals.
Ex. BIOLAB Corporation is a private corporation

9. Types of Corporation
3. Domestic Corporation
-Are those incorporated under the Philippine laws.
4. Foreign Corporation
-Are formed, organized or existing under any laws other than those of the
Philippines and whose laws allow Filipino citizen and corporations to do
business in its own country or state. It shall have the right to transact business
in the Philippines after it shall obtained a license to transact business in the
country in accordance with the Corporation Code and a certificate of authority
from the appropriate government agency.

10. Types of Corporation
5. Closely held Corporation
-Is one whose articles of incorporations provide that:
1.All of the corporation’s issued stock of all classes, exclusive of treasury shares,
shall be held of record by not more thana specified number of persons, not
exceeding twenty (20):
2.All of the issued stock of all classes shall be subject to one or more specified
restrictions on transfer, and;
3.The corporation shall not list any stock exchange or make any public offering of
any of its stock of any class. Notwithstanding the foregoing, a corporation shall be
deemed not a close corporation when at least 2/3s of its voting rights is owned or
controlled by another corporation which is not a close corporation.

11. Types of Corporation
6. Stock Corporation
-Are private corporations which have capital stock dividend into shares and are authorized to
distribute to the holders of such shares dividends or allotments of the surplus profits on the
basis of shares held.
Ex. San Miguel Corporation is an example of stock corporation
7. Non Stock Corporation
- is one where no part of its income is distributable as dividends to its member, trustees, or
officers. Any profit which a non-stock corporation may obtain as in incident to its operations
shall whenever necessary or proper, be used for the furtherance of the purpose or purposes for
which the corporation was organized.
Ex. Religious, social, charitable, or civic institutions or organizations.

12. Types of Corporation
6. Stock Corporation
-Are private corporations which have capital stock dividend into shares and are authorized to
distribute to the holders of such shares dividends or allotments of the surplus profits on the
basis of shares held.
Ex. San Miguel Corporation is an example of stock corporation
7. Non Stock Corporation
- is one where no part of its income is distributable as dividends to its member, trustees, or
officers. Any profit which a non-stock corporation may obtain as in incident to its operations
shall whenever necessary or proper, be used for the furtherance of the purpose or purposes for
which the corporation was organized.
Ex. Religious, social, charitable, or civic institutions or organizations.

13. COMPONENTS
OF A
CORPORATION

14. Components of a Corporation
1.Corporators – are those who compose the corporation,
whether stockholders or members.
2. Incorporators – are those members or stockholders, or
both mentioned in the articles of incorporation as originally
forming and composing the corporation.
3. Stockholders – owners of shares in a stock corporation.
They may be natural persons or juridical persons.
4. Members – corporators of a non stock corporation

15. Classes of
Shares in
General

16. Classes of Shares in General
1. Voting and Non-voting Shares
- The general rule is that every member of a non-stock corporation, and every legal owner of
shares in a stock corporation, has a right to be present and vote at all corporate meetings.
2. Par Value and Non Par Value Shares
- A share of stock is given a definite or fixed value in the articles of incorporation is known as
par value share. On the other hand, a share of stock that has no fixed value is called a non-par
value share.
3. Common stock and preferred stock
- Represents the basic issue of shares and has all the basic rights of a share of stock. While,
preferred stock is a type which entitles the owners to some specific preferences over the
common stock. The usual preferences refer to the payment of dividends and the distribution of
assets upon dissolution of the corporation.

17. Classes of Shares in General
4. Class “A” and Class “B”
- Class “A” represents Filipino ownership whereas “B” stands for foreign
ownership.
5. Founder’s Shares
- classified as such in the articles of corporation may be given certain rights
and privileges not enjoyed by the owners of other stocks, provided that
where the exclusive right to vote be voted for in the election of directors is
granted, it must be for a limited period not to exceed five (5) years subject
to the approval of the Securities and Exchange Commission. The five (5) year
period shall commence from the date of the aforesaid approval by the SEC.

18. TERMINOLOGIES PECULIAR TO A CORPORATION

19. PROPRIETARY RIGHTS OF STOCKHOLDERS

20. CORPORATE BOOKS AND RECORDS
1.Book that record all business transactions of the corporation
which shall include contracts, memoranda, accounting books
of accounts.
2.Minute book for meetings of stockholders or members.
3.Minute book for meetings of the board of directors or
trustees.
4.Stock and transfer books.

21. DIVIDENDS

22. BONDS

23. BONDS

24. BONDS &
STOCKS
COMPARED

25. THE
CAPITAL
MARKET

26. IN SUMMARY
•Dividends are distributions of a company’s profits to
shareholders, providing income and signaling financial
health.
•Bonds are fixed-income securities that represent loans to
issuers, providing predictable returns and a stable income
stream.
•Capital markets facilitate the buying and selling of long-
term securities, playing a vital role in funding economic
growth and providing investment opportunities.

27. CREDIT
RATING
AGENCY

28. E – N –D