Finals, Private Corporation Law reviewer 1. Give the two most common kinds of dividends a. Cash Dividend b.

. Stock dividend 2. Please state if true or false a. When cash dividends are declared, the assets of the corporation diminish by exactly the amount paid off and the property of the stockholder increases. TRUE b. A stock dividend converts surplus or profits of a corporation into the permanent account and is capitalized, placing it beyond the power of the board of directors to withdraw from corporate use and to distribute it to the stockholders. TRUE c. A stock dividend is taxable as income. FALSE

c.

A management contract can delegate entire supervision and control over the officers and business of a corporation to another. FALSE

5. Please give the legal effects of the following acts and how the defects may be cure if any; a. Ultra vires act VOIDABLE BY RATIFICATION b. Illegal acts VOID NO MORE REMEDY c. Acts done without complying with certain conditions and formalities VOIDABLE BY RATIFICATION

d. Acts involving inexistent contracts VOID NO MORE REMEDY 6. Give the rule in the following cases of ultra vires acts: a. Those which are executory on both sides cannot be enforced by either party, thereto b. Those fully performed on both sides neither party can maintain to set aside transaction or to recover what has been parted with. c. Those performed on one side and the other received benefits by reason of such performance. recovery is permitted in most courts on behalf of the former

d. Both cash dividend and stock dividend may be declared only by the Board of directors without involving the stockholders. FALSE 3. State the difference between a stock split and stock dividend. The essential distinction between a stock dividend and a stock split is that in the former, there is capitalization of earnings or profits, together with a distribution of the added shares which evidence the assets transferred to capital, while in the latter, there is a mere increase in the number of shares which evidence ownership without altering the amount of the capital, surplus, or segregated earnings.

7. State the general rule for liability for acts committed by corporate officers, directors/ trustees: a. Torts damages, corporation is liable for the acts of officers, directors/trustees done within the scope of their authority b. Crimes imprisonment ================================= 1. Define by-laws. - As the rules of action adopted by a corporation for its internal government and for the government of its stockholders or members and those having the direction, management and control of its affairs in their relation to the corporation and as among themselves, including rules for routine matters such as calling meetings and the like. 2. Please state if true or false:

4. Please state if true or false a. In a management contract, where a stockholder of both the managed and managing corporation own more than 1/3 of the total outstanding capital stock entitled to vote of the managing corporation, the management contract does not need the approval of the stockholders. FALSE b. No management contract shall be entered into for a period longer than five years. TRUE

a. Even holders of non-voting shares or non-voting members are entitled to vote on the adoption of by-laws. TRUE b. By-laws may be filed either prior to incorporation with the articles of incorporation or after receipt of official notice of the issuance of its certificate of incorporation by the SEC. FALSE c. Non-filing of the by-laws on time will result to automatic dissolution of the corporation and shall render the corporation liable to the revocation of its registration. FALSE d. The corporation, its directors or trustees and officers are bound by and must comply with their by-laws. TRUE e. Third persons who have no knowledge of the bylaws of a corporation are not bound by such bylaws. TRUE f. The place of meeting of the stockholders or members may be held anywhere in or outside of the Philippines. TRUE g. The meeting of the directors must always be held at the city or municipality where the principal office of the corporation is located. TRUE h. The by-laws can dispense with the minimum legal requirement that the director must be the registered owner of at least one (1) share of stock. TRUE i. Amendment or repeal of by-laws may be done by referendum. FALSE j. The stockholders may delegate the power to amend or repeal the by-laws to the board of directors/trustees by a mere majority vote of the outstanding capital stock or a majority of the members of a non-stock corporation. k. The power to revoke the power delegated to the board of directors/trustee may be effected only by 2/3 of the outstanding capital stock or 2/3 of the members in a non-stock corporation. l. A board resolution shall prevail over the by-laws in case of conflict. m. The SEC shall not accept the by-laws or amendments thereto of a special corporations governed by special laws, unless accompanied by a certificate of the appropriate government agency. 3. Give the two (2) kinds of meetings. a. Meeting of Stockholders/Members b. Meeting of directors/trustees 4. Please state if true or false: a. Directors or trustees can only exercise their powers as a board, not individually or separately.

b. The articles of incorporation of a corporation states that the principal office of the corporation is located at Makati, Metro Manila and the stockholders may hold their meeting in any city or municipality located in Metro Manila, such as Manila. c. The date of the stockholders/members meeting as fixed in the by-laws cannot as a general rule, be changed except for valid reasons. d. The president shall preside over all meetings of the stockholders/members as well as of the board of directors/members unless the by-laws provide otherwise. e. In case of pledged or mortgaged shares in stock corporation, it is the pledgor or mortgagor who has the right to attend and vote at meetings of stockholders, unless the pledgee or mortgagee is expressly given such right in writing which is recorded in the proper books of the corporation. f. Holders of stock without voting rights may vote In cases provided in Sec. 6 (par. 6, nos. 1-8). g. Preferred and redeemable shares may be deprived of their voting rights. 5. Please indicate by no or yes if the holders of the following shares have voting rights: a. Delinquent shares b. Treasury shares c. Shares not fully paid which are not delinquent 6. Please state if true or false: a. Stockholders or members may vote in person or by proxy in all meetings. b. No proxy shall be valid and effective for a period longer than 10 years. c. Voting by proxy is allowed in board meetings. d. While proxies must be In writing, oral proxies are allowed. e. In case of a proxy where the name is blank, it is the corporation that is constituted as the proxy. f. For corporate members, a board resolution authorizing the signatory to the proxy should be submitted. 7. Give the two (2) kinds of proxies. =================================== 1. Please state if true or false a. A voting trust agreement shall have a period not exceeding five years at any one time. TRUE b. In the case of a voting trust specifically required as condition in a loan agreement,

said voting trust may be for a period exceeding five years which shall automatically expire upon full payment of the loan. TRUE c. A voting trust agreement need not be in writing or notarized FALSE

3. As to subject matter, give the 2 kinds of share that may be subject of a subscription contract. a. original issue of stock b. increase of capital stock 4. Give the four kinds of subscription P.P.C.A a. Pre-incorporation subscription b. Post incorporation subscription c. Conditional subscription

d. A certified copy of the voting trust agreement shall be filed with the corporation and SEC to be effective and enforceable. TRUE e. A voting trust is a corporate device to secure management control with little or no investment. TRUE f. A voting trust agreement transfers only the voting or other rights pertaining to the share and also the properties or assets of the corporation. FALSE

d. Absolute subscription 5. Define stock option. A stock option is a privilege granted to a party to subscribe to a certain portion of the unissued capital stock of a corporation within a certain period and under the terms and conditions of the grand exercisable by the grantee at any time within the period granted.

g. The trustee holds the equitable or beneficial ownership while the stockholder holds title to the shares conveyed to the trustee under the voting trust agreement. FALSE h. The trustee issues to the stockholders in exchange for the shares conveyed under the voting trust agreement voting trust certificates. TRUE i. To assure continuity of policy and management is a valid and sustainable purpose of a voting trust agreement. TRUE To secure employment and salaries for the contracting parties is a valid and sustainable purpose of a voting trust agreement. FALSE The right of a trustee to act is limited to any particular meeting. FALSE

6. True or false a. A corporation does not need the approval of the SEC before it can grant or issue any stock option. FALSE b. Exercise of the stock option must be done within 3 years from approval thereof by the commission. TRUE c. Stock subscriptions are in the nature of trust fund in the sense that they are to be maintained unimpaired for the protection of corporate creditors. TRUE

j.

k.

2. Give the three ways by which a person may become a shareholder. S P T a. By subscription contract with an existing corporation for the acquisition of unissued shares b. By purchase from the corporation of treasury shares c. By transfer from a previous stockholder of the outstanding shares or existing subscription to shares.

d. The liability of a stockholder for unpaid subscription can be compensated or set-off with the value of his shares and stock dividends. FALSE e. A stock corporation may release an original subscriber from paying his shares without valuable consideration. FALSE f. A subscription for share of stock of a corporation still to be formed shall be irrevocable for 12 months from date of subscription. FALSE

7. Please state the rule, at what point in time will a subscriber become a stockholder even though he has not paid for his shares. A subscriber becomes a stockholder immediately upon acceptance of his subscription even before full payment and may not legally be released by the corporation from the obligation to pay for his shares.

4. As a general rule, under the Securities Regulation Code, all securities which are offered for sale shall be registered with the SEC. Please give the two (2) instances when such registration is not required. a. Any security issued or guaranteed by the government of the Philippines, or by any political subdivision or agency thereof, or by any person controlled or supervised by, and acting as an instrumentality of said government. b. Any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic relations. 5. Please identify if the following securities/transactions should be registered with the SEC by yes or no: a. Any security issued or guaranteed by the Government of the Philippines or any political subdivision thereof. NO b. Any security issued or guaranteed by the Government of any country with which the Philippines maintains diplomatic relations or by any state on the basis of reciprocity. NO c. At any judicial sale or sale by an executor, administrator, guardian or receiver or trustee in insolvency or bankruptcy proceedings. NO d. An isolated transaction by which any security is sold, offered for sale, subscription by the owner thereof or his representative. NO 6. Please state if true or false: a. The stock certificate is not stock in the corporation, but is merely evidence of the holders interest and ownership of the share represented thereby. TRUE b. The stock certificate is a negotiable instrument. FALSE c. The corporation needs the consent of the SEC for the issuance of stock certificates. FALSE d. Delivery, actual or constructive is essential to the issuance of a certificate of stock. TRUE e. Transfer of shares represented by the certificate is effected by its indorsement by the owner or his agent and delivery thereof, so indorsed to the transferee. TRUE f. The assignee in an assignment of shares can enjoy the status of a stockholder and the assignor can be deprived of his rights as a stockholder. FALSE g. In order to be valid against third persons and the corporation, the transfer of shares must be

=================================== 1. Please state if true or false: a. Stocks may be issued for a consideration less than the par or issued price thereof. FALSE b. Property received as consideration for stocks need not be necessary or convenient for the use of the corporation. FALSE c. Valuation of the consideration other than actual cash or consisting of intangible property after valuation there does not need the approval of the SEC. FALSE d. Shares of stock may be issued in exchange for promissory notes or future services. FALSE e. The consideration for treasury shares may be less than par value thereof as long as the price is reasonable. TRUE f. Stocks issued for a consideration less than their par or issued price are watered stocks. TRUE g. Real property may be accepted as payment on subscription to the capital stock only when the same can be used in the business of the corporation, as one engaged in real estate development, subdivision, agro-industrial business. TRUE h. The consideration of stocks by way of services should be for services actually performed, not future services, otherwise an agreement to issue stock before the same is rendered is void. TRUE i. The consideration of no par shares should not be less than the value of P5/share. TRUE 2. Give three (3) sources of corporate capital. a. Funds furnished by share holders b. Borrowings c. Profits and stock dividends 3. Give the four (4) modes by which shares may be issued. a. by subscription before and after incorporation b. by sale of treasury stock after incorporation for money, property or service c. by subscription to new issues of stock d. by making a stock dividend

entered and noted upon the books of the corporation. TRUE h. A bona fide transfer of shares of a corporation not registered in the corporate books is invalid as against a subsequent lawful attachment or execution of said shares regardless of whether or not the attaching creditor had actual notice of said transfer. TRUE i. Shares of stock against which the corporation holds any unpaid claim arising from any unpaid subscription shall not be transferable in the books of the corporation. TRUE j. The stock certificate may be issued to a subscriber even if the subscription has not yet been fully paid. FALSE k. The stockholder by reason of his stock is a creditor of the corporation. FALSE 7. Give the three (3) modes of stock transfer. a. Indorsement and delivery of stock certificate b. Transfer made in separate instrument c. Judicial or extra-judicial settlement of the estate 8. Give the legal effect of an unregistered transfer of shares: a. As between the transferor and the transferee valid and binding b. As to the corporation invalid and ineffective c. Right of the transferor to vote - valid d. Right of the transferor to dividends valid e. As against corporate creditors - invalid 9. Give two (2) rights of the dissenting minority. a. Minority stockholders objecting to certain corporate action may demand appraisal and payment of their stock and thus terminate their relation with the corporation b. May bring actions at law in their names to preserve and protect their interests or in the name of the corporation to redress wrongs committed solely against the corporation. 10. Give the three (3) actions by stockholder or members. a. Derivative actions b. Individual actions c. Representative actions 11. Give the distinctions between the above actions by stockholders as to a) who will bring the action b) in whose name and in whose behalf c) nature of cause of action

Who will bring the action

In be

Derivative

Stockholders/members

In

Individual

Share holder

In

Representative

Stockholder

In ot sit

12. Please state if true or false: a. The SEC has jurisdiction to decide cases involving intra-corporate disputes. FALSE b. The prohibition to issue watered stocks refers only to the original issue of stocks, but not to a subsequent transfer of stocks by the corporation, for then it would no longer be an issue, but a sale thereof. TRUE c. Treasury shares may be sold for less than their par value or issued value for they have already been issued and paid for, provided the price is reasonable. TRUE d. The liability of a director or officer of a corporation consenting to the issuance of a watered stock is joint. FALSE e. A stock delinquent for unpaid subscription may be voted upon or be entitled to vote at any stockholders meeting as well as have the rights to dividends. FALSE f. Notice to the stockholder is a condition precedent to recovery by the corporation for unpaid subscriptions. TRUE g. The highest bidder is the person offering at the sale to pay the full amount of balance of the subscription together with accrued interest, if any, cost of advertisement and expenses of the sale for the highest number of shares or fraction of a share. FALSE h. Title to all the share purchased by the corporation of delinquent stocks shall be considered as treasury shares and may be disposed of by the board of directors for a reasonable price. TRUE 13. Give the two (2) actions that may be brought by the state against a corporation. a. Quo warranto b. Injunction

14. Give the three (3) remedies of a corporation to enforce payment of stock subscription. a. Extra judicial sale at public auction b. Judicial auction c. Collection form cash dividends and withholding of stock dividends 15. Give the two (2) cases when call for payment of unpaid subscriptions is not necessary. a. Insolvency supervenes upon a corporation; the payment of stock subscription may be enforced. b. Subscriber becomes insolvent

Be voted Be represented at any stockholders meeting Stockholder loses rights pertaining to a stock holder the moment the unpaid subscription becomes delinquent. b. What right can he not be deprived of? He cannot be deprived of his rights to dividends. 3. What are the 4 kinds of books corporations are required to keep? a. Minutes of all meetings of directors or trustees b. Record of all business transactions c. Stock and transfer book d. Minutes of all meetings of stockholders or members. 4. Give the 4 parties who can inspect the corporate books? a. Any director, trustee, or stockholder or member b. Voting trust certificate holder c. Stockholder of a sequestered company d. Beneficial owner of shares 5. Identify the parties of the following a. Merger i. Absorbed corporation ii. Acquired corporation b. Consolidation i. Constituent ii. Consolidated 6. A, Inc. and B, Inc, are existing corporations. A, Inc. transfers all of its assets to B, Inc. B, Inc. absorbs and acquires all the property, rights and liabilities of A, Inc. which is dissolved. B, Inc. continues its corporate existence. a. What is the corporate combination called? MERGER b. What is A. Inc called? ABSORBED CORPORATION c. What is B, Inc. called? ABSORBING CORPORATION

1. Please state if true or false a. A sale of delinquent stocks may be questioned on the ground of irregularity or defect in the notice of sale or the sale itself upon payment or tender by the party to the holder of the stock such sum as required under section 69. TRUE b. Delinquent stock is included in determining the presence of quorum. FALSE c. Delinquent members of a non-stock corporation may be allowed to vote if allowed by the by-laws. TRUE d. Holders of subscribed shares not fully paid for which are not delinquent shall similarly be deprived of the right to vote. FALSE e. Full payment of subscription is not required to make one a stockholder. TRUE f. In case of a lost stock certificate, a new one may be issued before expiration of the one year period after publication of the loss upon filing of a bond for by the registered owner thereof. TRUE g. Publication of the loss maybe dispensed with when no certificate has been issued, because the corporation lost it itself. TRUE h. Trade secrets may also be subject to inspection. FALSE 2. a. What are the four rights which the holders of delinquent stock will be deprived of? Deprived the stockholder the right to be voted

d. Identify the surviving corporation B, Inc. e. The stockholders of A, Inc. become the stockholders of what corporation?

 B, Inc. 7. A, Inc. and B, Inc. are existing corporations. They unite to form C, Inc. to which they will transfer all their assets. A, Inc. and B, Inc. are dissolved by the consolidation. The title to their property passes to C, Inc. and all their rights and liabilities are assumed by C, Inc. a. What are A, Inc. and B, Inc. called? Constituent corporation b. What is C, Inc. called? Consolidated corporation c. Who become stockholders of C, Inc. Stockholders of A, Inc and B, Inc. become stockholders of C, Inc.

b. When the fair valuation offered by the corporation is lower than the fair value of the appraiser. by the corporation c. Where an action is filed by the dissenting stockholder to recover fair value, and the refusal of the stockholder is found by the court to be justified. by the corporation 11. State the distinction between a non-stock and stock corporation on the following: Non-stock stock profit Distribution of dividends Non-profit No distribution Profit Distribution of dividends allowed 15

8. State if true or false a. There is still winding up of affairs in merger and consolidation. FALSE b. There is automatic assumption of liabilities of the absorbed or constituents corporations in merger and consolidation. TRUE c. The consent of creditors of a corporation is not necessary in merger, consolidation, it being authorized by law. TRUE d. The absorbed or constituent corporations are ipso facto dissolved. TRUE 9. Give the 3 instances when the appraisal right may be exercised. a. In case any, amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or clash of shares, or of authorizing preferences is any respect superior to those of outstanding shares of any clash, or of extending or shortening the term of corporate existence. b. In case of sale, lease, exchange, transfer, mortgage pledge or other disposition of all or substantially all of the corporate property and assets are provided in this code. c. In case of merger or consolidation. 10. Who shall bear the cost of appraisal of the shares: a. When the fair valuation ascertained by the appraiser is approximately the same as the price which the corporation may be offered. by the dissenting stockholder

Number of member of the BOD/BOT Term of the BOD/BOT Qualifications of director/trustee Election of officers if done directly by shareholders/members Place of meeting of the BOD/BOT

More than 15 3 years Member

1 year Director 1 share BOD

member

At any place even outside the principal office of the corporation Only one vote Can vote

p. 685

Manner of voting

1 share 1 vote Cannot vote

Right to vote of holders of delinquent stock

======================================== 1. Give the 3 features which the articles of incorporation of a close corporation shall provide for. a. All of the corporations issued stock of all classes exclusive of treasury shares shall be held of record by not more than a specified number of persons, not exceeding twenty.

b. All of the issued stock of all classes shall be subject to one or more specified instruction or transfer c. The corporation shall not be enlisted in any stock exchange of any class. 2. True or false a. The articles of incorporation of a close corporation may provide for the classification of shares or restrictions on the transfer of shares. TRUE b. The articles of incorporation of a close corporation may not provide for the classification of directors into one or more classes, each of which may be voted upon solely by a particular class of stock. FALSE c. A greater quorum or voting requirement may not be provided for in meetings of stockholders or directors in close corporations. FALSE d. The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders rather than by a board of directors. TRUE e. The objective of imposing restrictions on the transfer of shares in a close corporation is to prevent change of control of the corporation which might otherwise result from the transfer of voting shares. TRUE 3. Name the 2 kinds of valid agreements by stockholders allowed for close corporations. a. Stockholders agreement in general b. Voting or pooling agreement in particular 4. True or false a. In close corporations, any action by the board of directors without a meeting shall be deemed valid under certain conditions under Sec. 101 of the Corporation Code. TRUE b. The pre-emptive right of stockholders in a close corporation extends only to new issues of shares out of an increase of the capital stock and not to all stocks to be issued. FALSE c. Where the directors or stockholders in a close corporation are so divided in the management of the corporations business and affairs, so that there is a paralyzation

of corporate operations, this is called a deadlock. TRUE d. In case of deadlock, it is the RTC that has jurisdiction to conduct the arbitration. FALSE 5. Give the 2 kinds of special corporations a. Educational corporation b. Religious corporation 6. Give the 2 kinds of religious corporations a. Corporation sole b. Religious societies 7. True or false a. A corporation sole may mortgage and sell real property without need of obtaining a court order. b. A corporation sole may be dissolved upon submission of a declaration of dissolution to the SEC which needs no SE approval. c. A corporation sole consists of two or more incorporators. d. The approval of the SEC of the articles of incorporation is necessary before it can be considered a corporation sole. e. The title to the properties of a corporation sole shall be in the name of the archbishop, etc. in trust for the use, purpose and benefit of the religious denomination. 8. Give the 2 kinds of dissolution under the Corporation Code a. Voluntary dissolution b. Involuntary dissolution 9. Give the 3 kinds of voluntary dissolution a. By the vote of the board of directors and the stockholders where no creditors are affected. b. By judgment of the SEC after hearing of petition for voluntary dissolution where creditors are affected c. By amending the articles of incorporation to shorten the corporate terms. 10. Give 3 kinds of involuntary dissolution a. By the expiration of the term provided for in the articles of incorporation b. By legislative enactment c. by failure to formerly organize and commence the transaction of its business

within two years from date of incorporation. 11. Give the legal effect of non-use of the corporate charter and non-continuous inoperation of a corporation on a) whether it is deemed dissolved under sec. 22, or b) is there automatic dissolution, or c) when will it be lawfully considered d) what is the effectivity of such dissolution. a. Shall be deemed dissolved b. There is no automatic dissolution c. The corporation shall be lawfully be dissolved upon issuance of the SEC certificate of dissolution after notice and hearing d. Retroact 12. True or false a. The dissolution of a corporation results in the vesting of legal title to the corporate property in the stockholders who become co-owners thereof. TRUE b. Upon dissolution, the corporation ceases as a body corporate to continue the business for which it was established. TRUE c. The dissolved corporation continues as a body corporate for 5 years for purposes of winding up or liquidation. FALSE 13. Give the 3 purposes of winding up of the affairs of a dissolved corporation a. For the purpose of prosecuting and defending suits by or against it b. Enabling it to settle and close its affairs c. To dispose of and convey its properties and to distribute to assets; but not for the purpose of continuing the business for which it was established. 14. Give the 3 methods by which a dissolved corporation may wind up its affairs. a. Liquidation by the corporation itself b. Liquidation by a duly appointed receiver c. Liquidation by a trustee to when the corporation had conveyed the corporate assets.