The Four Types of Corporations

A corporation can be formed or incorporated by, at least five, or at most 15 natural persons. According to Philippine law, the majority of the incorporators must be residents of the Philippines. However, once the corporation is established, there is no limit to the number of natural or juridical persons who can invest in the corporation.

The corporate form of business allows various combinations of funds to be raised from financiers and investors. Thus, bigger businesses favor the corporate form of business, This is due to its limited liability and flexibility in financing terms obtained.

There are four types of corporations, which are as follows: 

1. Stock Corporation.

The Stock Corporation issues capital stocks divided into shares (or proportions of the total capital). Based on the submission of Articles of Incorporation to the Securities and Exchange Commission, the corporation is authorized to raise capital that has a corresponding number of shares.

At least 25% of the authorized capital, as stated in the Articles of Incorporation, must be subscribed to by stockholders at the time of incorporation. Moreover, at least 25% of the subscribed capital must be paid up by the subscribers at the time of incorporation. The rest of the 75% will comprise the unpaid capital subscriptions, which then represent the receivables of the corporation from the subscribers.

2. Non-Stock Non-Profit Corporation.

The Non-Stock Corporation is organized to carry out a purpose or purposes other than generating profits for investors. The Non-Stock Corporation usually has a social mission. Hence, all the surpluses (or profit equivalents) generated by the corporation are not distributed to the funders in the form of dividends. Rather, they are plowed back into the corporation or the foundation to contribute further to the attainment of its mission. The Non-Stock Corporation is governed by its Board of Trustees who are chosen and replaced according to the provisions of the Articles of Incorporation and the accompanying By-Laws.

3. Close Corporation.

The Close Corporation has Articles of Incorporation that limit the ownership of issued stocks to at most 20 persons. There are strict restrictions on the transfer of stocks. The stocks cannot be listed in any stock exchange nor can any public offering of shares be made.

4. Corporation Sole.

A Corporation Sole is a special form of corporation allowed by law, usually associated with the clergy. The Corporation Sole is a trusteeship that is set up for the purpose of administering and managing the affairs, property, and temporalities of a church or group of clergy. 

The corporation must enter its name with the DTI and register with the SEC, SSS, BIR and all the other relevant government entities. In contrast to the sole proprietorship, where taxes are based on the total income of the owner in a gradually increasing proportion of the income, the corporation pays a stipulated percentage of its income tax (35% of income before taxes in the Philippines). Of course, other types of taxes are paid by business enterprises such as the value added tax, the real estate tax, etc.