Under Philippine law, the concept of corporations is fundamentally governed by the Revised Corporation Code (Republic Act No. 11232) and other relevant tax and mercantile legislation. Stock corporations, a critical type of business entity, are specifically designed to enable capital-raising through the issuance of shares to investors. Here is an exhaustive breakdown of the legal intricacies and regulatory guidelines surrounding stock corporations in the Philippines:

1. Definition of a Stock Corporation

A stock corporation, as per Section 3 of the Revised Corporation Code, is defined as a corporation with a capital stock divided into shares and authorized to distribute profits to its shareholders based on their shareholdings. This differentiates it from non-stock corporations, which do not issue shares and primarily focus on non-profit purposes.

2. Capital Structure and Shareholding

A stock corporation is structured around its capital stock, which is divided into shares and represented by share certificates. Key considerations include:

Authorized Capital Stock: The maximum amount of capital that a corporation is legally permitted to raise by issuing shares. Stock corporations must declare this in their Articles of Incorporation.
Subscribed Capital Stock: The portion of the authorized capital stock that shareholders commit to subscribe. It is part of the corporation’s equity but is not fully paid until required.
Paid-Up Capital: The actual funds received by the corporation from shareholders. Under the Revised Corporation Code, the initial paid-up capital must be at least 25% of the subscribed capital stock or 25% of the authorized capital stock, whichever is lower.

3. Formation and Registration Requirements

The process to incorporate a stock corporation in the Philippines is stringent, with requirements outlined in the Revised Corporation Code:

Articles of Incorporation: This foundational document must include the corporation’s name, purpose, term, principal office, authorized capital stock, names of incorporators, and details on the shares to be issued.
Bylaws: Stock corporations must adopt bylaws within one month after receiving their Certificate of Incorporation. Bylaws are essential for establishing the internal governance structure, including board meetings, shareholder rights, and director responsibilities.

4. Classification of Shares

Philippine law allows corporations to issue different types of shares, which serve various investor rights and corporate finance functions. These include:

Common Shares: These shares carry voting rights, enabling shareholders to participate in corporate decision-making, and typically grant entitlement to dividends, subject to board approval.
Preferred Shares: Holders of preferred shares often do not have voting rights but may receive dividends at a fixed rate and priority over common shareholders in the distribution of assets in liquidation.
Treasury Shares: Previously issued shares that the corporation buys back from existing shareholders and holds without retiring them. Treasury shares do not have voting rights and do not earn dividends.
Redeemable Shares: These shares can be repurchased or redeemed by the corporation at a specified date or upon demand of the corporation, subject to provisions in the Articles of Incorporation.

5. Governing Bodies and Corporate Governance

The primary governing bodies of a stock corporation are the Board of Directors and the General Shareholders’ Meeting:

Board of Directors: The board has oversight and policy-making authority, setting strategic direction, approving budgets, and deciding on major corporate actions. Directors must act in the best interest of the corporation, bound by fiduciary duties of loyalty and diligence.
Shareholders’ Meetings: Key decisions, including amendments to the Articles of Incorporation, election of directors, and major asset disposals, require shareholder approval. Voting is typically based on the number of shares held, with certain resolutions necessitating a majority or supermajority vote.

6. Dividend Distribution

Stock corporations may distribute profits in the form of dividends, which are classified as:

Cash Dividends: Distributed in cash to shareholders, subject to sufficient retained earnings and board approval.
Stock Dividends: Additional shares issued to shareholders from retained earnings, which does not involve cash payout but dilutes share value.
Property Dividends: Distribution of assets other than cash or stock, often requiring consent from shareholders, especially if the property differs significantly in value from cash equivalents.

7. Corporate Taxation

Stock corporations in the Philippines are subject to corporate income tax and other related taxes, including:

Corporate Income Tax: Currently set at a standard rate of 25% for most domestic corporations, though smaller enterprises with net taxable income below PHP 5 million and total assets below PHP 100 million are taxed at a lower rate of 20%.
Minimum Corporate Income Tax (MCIT): Imposed on corporations with insufficient gross income for two consecutive years, calculated at 2% of gross income.
Dividend Tax: Dividends paid to domestic shareholders are exempt from tax. However, dividends distributed to foreign shareholders may be subject to withholding tax unless reduced or exempted under an applicable tax treaty.
Final Withholding Tax: A final tax of 10% is imposed on cash and property dividends issued to individual Filipino residents.

8. Reporting and Compliance Obligations

Stock corporations must adhere to ongoing regulatory requirements to maintain their legal standing:

Annual Financial Statements (AFS): Submitted to the Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC), detailing financial performance and compliance with tax obligations.
General Information Sheet (GIS): Filed with the SEC annually, the GIS contains information on the corporation's structure, shareholder list, and relevant changes in capital.
Tax Compliance: Corporations must file various tax returns (e.g., Quarterly and Annual Income Tax Returns, VAT or Percentage Tax Returns, and Withholding Tax Returns) and comply with the required payment schedules set by the BIR.

9. Dissolution and Liquidation

A stock corporation may be dissolved voluntarily by a vote of the board and shareholders or involuntarily through administrative or judicial action if it fails to comply with regulatory requirements or becomes insolvent. Upon dissolution:

Liquidation Process: The corporation’s assets are distributed to creditors, and any remaining assets are distributed to shareholders based on the priority of shareholding and claims.
Final Tax Obligations: The corporation must settle final taxes, submit tax clearance certificates, and file final corporate reports with the SEC and BIR.

Conclusion

Stock corporations in the Philippines serve as a robust business vehicle for raising capital and facilitating profit-sharing among shareholders. The Revised Corporation Code provides a detailed framework governing their formation, operations, and dissolution. This legal structure, combined with shareholder rights and corporate governance regulations, underpins the corporate landscape and ensures that stock corporations remain viable, compliant, and attractive for investment in the Philippines.