CORPORATION LAW

I. IDENTIFICATION: BASIC CONCEPTS/PRINCIPLES

Theory that corporation is an artificial being without any existence until

1.
given life by the estate.
Theory that a corporation is a social and legal entity independent of state
2.
recognition.
3. Theory that a corporation is an aggrupation of persons doing business.
4. The right to exist as a corporation.
5. The right to enjoy the benefits provided by the state to juridical persons.
The subscribed capital stock of a corporation may not be used for
6.
dividend distribution.
Theory that a corporation can exercise any power as long as it is not
7.
prohibited by law.
Theory that a corporation cannot exercise any power except those
8.
expressly or impliedly given to it.
Its existence cannot be inquired except by the Solicitor General in quo
9.
warranto proceeding.
Liability of persons assuming that as corporation knowing it to be without
10.
authority.
11. A private corporation performing public functions.
The interest the owner has in the management of the corporation and in
12.
the sharing of profit.
13. Amount fixed by the corporation charter to be subscribed an paid.
14. It represents real equity in the corporation.
15. It represents credit due from the corporation.
16. Shares given to founders of a corporation.
Not allowed to Banks, trust companies, public utility company, insurance
17.
companies or buildings and loans associations.
A collegial body that conducts all business and controls all property of a
18.
corporation.
A company with assets in excess of P200M and having 200 or more
19.
stockholders.
A principal defense of minority stockholders against the abuses of the
20.
majority.

II. TRUE OR FALSE

T 21. A corporation can be held liable for torts committed by its officers for corporate purposes.
F 22. The so called “one man corporation do not enjoy the attributes of corporations.
F 23. Both incorporators and corporators must have contractual capacity in all cases.
A majority of the members of the Board of Directors as fixed in the Articles of Incorporation shall
T 24. constitute a quorum, and every decision of at least a majority of the directors present at the meeting
shall be valid as a corporate act.
Persons convicted by final judgment of an offense punishable by imprisonment for more than 6 years
T 25. or a violation of the Corporation Code committed within 5 years prior to the date of their election of
appointment are not qualified as directors or officers of any corporation.
There is interlocking directorates when one, some or all of the directors in a corporation are also the
T 26.
directors in another corporation.
Under the new Corporation Code, if the corporation stops transacting business and becomes
F 27. continuously inoperative for a period of 5 years its corporate powers cease and the corporation shall
be deemed dissolved.
F 28. Treasury shares are entitled to participate in the distribution of dividends.
Amendments to the Articles of Incorporation can take effect even without the approval of the
T 29.
Securities and Exchange Commission.
Treasury shares sold for less than their par or issued value are considered watered and such are
F 30.
prohibited by law.
To encourage the creation of corporation even with small capitalization, the Securities and Exchange
F 31. Commission allows the following minimum capital requirements; Authorized-P40,000, Subscribed-
P10,000 and Paid in-P2,500.
F 32. Majority of the incorporators must be citizens of the Philippines.
A de facto corporation has the same power, rights and liabilities as that of a de jure corporation
T 33.
except that it is subject to direct attack by the State.
F 34. Stockholders are liable with their separate property for the payment of the debts of the corporation.
T 35. An ultra vires act is not necessarily illegal but an illegal act is always ultra vires.
Directors, Trustees and Officer are jointly liable for damages that may result to the corporation from
F 36.
their illegal acts.
T 37. A corporation by estoppel can be sued as a corporation but their liability is as general partners.
F 38. Contracts between corporations with interlocking directors are voidable.
F 39. Dividend declaration is compulsory if retained earnings exceed 100% of the subscribed capital stock.
T 40. Pre incorporation subscriptions are irrevocable for a period not exceeding 6 months.
III. MULTIPLE CHOICE:
41. To enter into management contracts, as a rule
a. Majority of the quorum of the board and majority of the outstanding capital stock of the
members of both the managing and managed corporations.
b. Majority of the quorum of the board and 2/3 of the outstanding capital stock of the managed
corporation.
c. Majority vote of the board and majority of the outstanding capital stock or of the members.
d. 2/3 of the outstanding capital stock or of the members.

42. The Manila Cigar Company was organized with a capital stock of P50,000 divided into 500 shares of
P100 per share, X subscribed for 20 shares and paid P500 upon his subscription leaving unpaid
account thereof the sum of P1,500. Five years later, the company was declared insolvent and A was
duly appointed as assignee who, upon assuming his position, found that X has an unpaid subscription
in the amount of P1,500. Prior to the company’s declaration of insolvency, its board of directors, by
resolution, released W (another subscriber) from the payment of his W remaining unpaid subscription.
The assignee brought action to recover from X the amount representing his unpaid subscription and
against W the recall of the case order.
Which of the following statement is correct?
a. Insolvency of the corporation makes all unpaid subscription immediately demandable.
b. The release of W of his unpaid subscription is void under the Trust Fund Doctrine.
c. X is considered released by invoking that W, another subscriber has been released by the board.
d. The payment of unpaid subscription is immediately demandable whether or not a “call order”
has been made by the board of directors.

43. “A” was one of the directors of “X” Corporation. “B” obtained a judgment against “A” and had all of
“A’s” shares of stock in “X” Corporation was held and both “A” and “B” appeared in said meeting,
each claiming the right to participate in the deliberation of the board, “A” contended that he had
the right to continue as director until the stockholders could elect his successor. “B” on the other
hand, contended that having purchased all of “A’s” share he had the right to take the latter’s place
in the board. Under the rule of directorship, which of the following is false?
a. Both A and B are disqualified to sit as directors in the Board of Directors.
b. A cannot qualify as he disposed all his shares. The requirement is that a director must
continuously have at least one share in the corporation.
c. B can qualify because a corporation as well as the heirs of stockholders of same corporation has
got a right of succession.
d. B cannot also qualify if he claims succession to A. He must have to be elected by the
stockholders. The position is personal and does not allow substitution.

44. Which of the following statements is false?

a. Stock dividend cannot be issued to a person who is not a stockholder in payment of the services
rendered.
b. A stipulation that no stockholder shall transfer any share to any other person without notifying the
corporate secretary in writing is void.
c. An ultra vires act of a corporation can be ratified with the consent of the majority of all
stockholders when the rights of the state or of the creditors are not involved.
d. A stipulation that the corporation shall have the right to acquire for itself, under the same
condition, the shares intended to be transferred is valid under the “doctrine of first refusal”.

45. A class of stock, which, after the stipulated dividend has been paid on the common stock as well as
on the preferred stock any surplus is to be paid upon all without distinction is
a. Preferred stock as to asset d. Convertible Stock
b. Cumulative preferred stock e. None of the above
c. Participating preferred stock

46. Stocks lawfully issued by the corporation for money, property, or services and subsequently properly
reacquired by it are
a. Watered stock c. Bonus stock
b. Over issued stock d. Treasury Stock

47. Statement 1: Foreign corporations transacting business in the Philippines without license may not
sue but may be sued in our courts.
Statement 2: Holders of subscribed shares not fully paid which are not delinquent shall have all
the rights of a stockholder.
a. Both are true c. True, False
b. Both are false d. False, True

48. Statement 1: Each of the incorporators of Stock Corporation must own or be a subscriber to at
least one (1) share of the capital stock of the corporation.
Statement 2: All persons who assume to act as a corporation knowing it to be without authority to
do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a
result thereof.
c. Both are true c. True, False
d. Both are false d. False, True
49. Statement 1: The corporate powers of a corporation shall be exercised by the stockholders.
Statement 2: The entire consideration received by the corporation for its no-par value shares shall
be treated as capital and shall not be available for distribution as dividends.
a. Both are true c. True, False
b. Both are false d. False, True

50. Treasury shares

a. Shall have no voting right as long as they remain in the treasury.
b. Are not entitled to participate in the distribution of dividends.
c. Are not part of the outstanding capital stock.
d. May again be disposed of for a reasonable price, even at less than par, by the Board of
Directors.
e. All of the above

51. Which of the following is a disadvantage of forming a corporation?

a. The existence of the entity is not affected by the personal vicissitudes or of the individual
stockholders.
b. Free and ready transferability of ownership of shares.
c. Subservience of minority stockholders to the wishes of the majority subject only to equitable
restraints.
d. The shareholders are not liable for the debts of the business.

52. A distribution by a corporation to its existing shareholders of shares of stock held by it in another
corporation is considered as
a. Stock dividend c. Sale of treasury shares
b. Property dividend d. Sale of capital assets

53. Which statement is correct?

a. The Board of Directors may hold its meeting outside the municipality or city where its principal
place of business is located and the directors may attend by proxy, while the stockholders’
meeting must be held in the city or municipality where the principal place of business of the
corporation is located and the stockholders may attend personally or by proxy.
b. The Board of Directors may hold its meeting outside the municipality or city where its principal
place of business is located and the directors must attend personally and not by proxy, while the
stockholders meeting must be held in the city or municipality where the principal place of
business of the corporation is located and the stockholders may attend personally or by proxy.
c. The Board of Directors must hold its meeting only within the municipality or city where its principal
place of business is located and the directors must attend personally and not by proxy, while the
stockholders’ meeting may be held within or even outside the city or municipality where the
principal place of business of the corporation is located and the stockholders may attend
personally or by proxy.
d. The Board of Directors may hold its meeting outside the municipality or city where its principal
place of business is located and the directors may attend by proxy, while the stockholders’
meeting must be held in the city or municipality where the principal place of business of the
corporation is located and the stockholders must be in attendance personally.

54. In which of the following corporate acts/powers, as exercised by the Board of Directors, is the
consent of ratification or approval by the outstanding capital stockholders (OCS) of the corporation
necessary?
a. The power to invest corporate funds in another corporation where the primary purpose of the
two (both) corporations are similar or related to each other.
b. The power to declare cash dividends only.
c. The power to change the par value of shares of the corporation.
d. The power to reacquire the corporation’s own shares.

55. In the matter of managing the business of the corporation, the exercise of corporate power and
handling of corporate properties, this is supreme (as a rule):
a. 2/3 approval of the stockholders of the corporation.
b. majority vote of the outstanding capital stockholders of the corporation
c. majority vote of the Board of Directors
d. the president of the corporation

56. The board of directors of a corporation consists of nine (9) members, where two (2) have died during
their term of office and one (1) is abroad, the quorum would be
a. Five (5) members c. Four (4) members
b. Six (6) members d. Seven (7) members

57. To adopt by-laws

a. Majority of the outstanding capital stock or of the members
b. Majority vote of the board and of the outstanding capital stock or of the members
c. 2/3 of the outstanding capital stock or of the members
d. Majority vote of the board and 2/3 of the outstanding capital stock or of the members.

58. To amend or repeal the by-laws or adopt new by-laws

a. Majority vote of the outstanding capital stock or of the members
 b. Majority vote of the board and majority of the outstanding capital stock or of the members
c. 2/3 of the outstanding capital stock or of the members
d. Majority vote of the board and 2/3 of the outstanding capital stock or of the members.

59. To delegate to the board of directors or trustees the power to amend or repeal the by-laws or adopt
new by-laws
a. Majority of the outstanding capital stock or of the members
b. Majority vote of the board and of the outstanding capital stock or of the members.
c. 2/3 of the outstanding capital stock or of the members.
d. Majority vote of the quorum of the board and 2/3 of the outstanding capital stock or of the
members.

60. The following are the requisites, except one, for valid declaration and/or issuance of stock dividend.
a. Existence of original and unissued shares.
b. Dividend declarations is made by the Board of Directors and approved by 2/3 of the outstanding
capital stock.
c. It is issued to increase the authorized capital.
d. Existence of unrestricted retained earnings.

61. To remove directors or trustees

a. Majority of the quorum of the board and 2/3 of the outstanding capital stock
b. 2/3 of the outstanding capital stock or of the members entitled to vote
c. Majority of the outstanding capital stock or of the members entitled to vote
d. Majority vote of the board of directors or trustees and 2/3 of the outstanding capital stock.

62. The following, except one, are qualifications of corporate directors

a. Must own at least one share of stock
b. Ownership of shares must be recorded in the books of corporation
c. Majority are citizens of the Philippines
d. Must continuously own at least one share during their term as directors.

63. In no case shall the total yearly compensation of directors exceeds

a. 5% of the net income before income tax during the preceding year
b. 10% of the net before income tax during the preceding year
c. 10% of the net income after income during the preceding year
d. 10% of the net income before income tax during the current year

64. 1st statement: Membership in a non-stock corporation and all rights arising therefrom cannot be
transferred even if provided in the articles of incorporation or by laws because membership and the
rights arising therefrom are personal and non-transferable.
2nd statement: Treasury stocks sold for less than their par or issued value are considered “watered
stock” and as such are prohibited by law.
Which is correct?
a. True, False c. False, True
b. False, False d. True, True

65. 1st statement: No par value share may not be issued without being fully paid.
2nd statement: Management of a corporation may be delegated to an executive committee
composed of not less than 3 members of the Board to be appointed by the Board provided the
creation of such executive committee is provided for in the by-laws.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No.1 is false; No. 1 is true

66. One of the following is a ground for the suspension or revocation of the certificate of incorporation
by the Securities and Exchange Commission
a. If the corporation has commenced its business transactions and afterwards ceased operation
continuously for a period of at least five (5) years.
b. If the corporation fails to commence and start to operate and the failure is due to cause beyond
the control of the Corporation.
c. If the corporation does not formally commence its business transactions or the construction of its
work within two years from date of incorporation.
d. If the corporation has commenced its business transactions and subsequently become
continuously inoperative for a period of two (2) years.

67. A stock corporation shall have the power to purchase or acquire its own shares whether or not there
is an unrestricted retained earnings.
a. To eliminate fractional shares arising out of stock dividends.
b. To collect or compromise indebtedness to the corporation arising out of unpaid subscription in a
delinquency sale and to purchase delinquent share sold during said sale.
c. To pay dissenting or withdrawing stockholders entitled to pay for their shares.
d. To purchase redeemable shares
e. All of the above.

68. That portion of its profits, which the corporation by its directors, set apart ratable division among
stockholders, is called
 a. Bond d. Capital
b. Surplus e. None of the above
c. Dividend

69. Statement No. 1: Directors can attend and vote by proxy at board meetings.
Statement No. 2: The Articles of Incorporation may expressly provide that redeemable shares by a
corporation may be purchased upon the expiration of a fixed period, regardless of the existence of
unrestricted retained earnings in the books of the corporation.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

70. Statement No. 1: Holders of subscribed shares not fully paid which are not delinquent shall have
all the right of a stockholder.
Statement No. 2: All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or
arising as a result thereof.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

71. Statement No. 1: The president of a corporation may or may not be a director.
Statement No. 2: A majority of the members of the board of directors as fixed in the Articles of
Incorporation shall constitute a quorum, and every decision of at least a majority of the directors
present at the meeting shall be valid as a corporate act.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

72. Which of the following corporate acts need not be taken up in a meeting of the stockholders? Mere
written assent of the member or stockholders, even without meeting is enough to bind the
corporation.
a. Adoption and repeal of the by-laws
b. Amendment of the Articles of Incorporation
c. Increase or decrease of the capital stock
d. Incurring, creating or increasing bonded indebtedness
e. None of the above

73 May organize as a close corporation

a. Mining companies c. Both a and b
b. Oil companies d. None of a and b

74. In which of the following can a dissenting stockholder exercise the right of appraisal?
a. Amendment of the articles to increase authorized capital stock.
b. Amendment of the articles to change corporate name.
c. Amendment of the articles to transfer location of the principal office
d. In case of merger.

75. Three of the following statements are not true; which is the exception?
a. Redemption of redeemable stock is required even if the corporation at that time has no
unrestricted earnings.
b. The requirement that at least 25% of authorized capital must be subscribed applies only to non-
stock corporations.
c. Directors are entitled to compensation as a matter of rights.
d. Derivative suits can be filed only by dissenting stockholders.

76. Foreign corporation

a. Are organized under the laws of countries other than the Philippines.
b. Are not permitted to transact business in the Philippines until after they have obtained a license
for the purpose from SEC.
c. If found to be engaged in business without any license, they are not permitted to sue in any
court or administrative agency of the Philippines but may be sued.
d. Are bound by all laws, rules and regulations applicable to domestic corporation of the same
class but governed by the laws of the country of incorporation as to creation, formation,
organization, dissolution or such as fix the relations, liabilities, or duties of stockholders, members
or officer of corporation to each other or to the corporation.
e. All of the above.

77. Can issue no-par value shares

a. Banks c. Both a and b
b. Trust companies d. d. None of a and b

78. The holders of non-voting shares shall be entitled to vote on the following matters, except:
a. Adoption and amendments of by-laws
b. Election and removal of directors
c. Merger or consolidation
d. Investment of corporate funds in another corporation or another business
e. Dissolution of the corporation.
79. A, B, C, D and E organized a corporation. An article of incorporation was prepared, signed and
acknowledged before a notary public and filed with the SEC. The corresponding certificate of
incorporation was issued. It turned out; however, that A, B and C are not residing in the Philippines.
What is the status of the corporation?
a. De jure corporation d. Corporation by prescription
b. De facto corporation e. None of the above
c. Corporation by estoppel

80. Which of the following conditions will allow corporate formation and allow securities and exchange
registration?
Authorized capital Subscribed capital Paid-in capital
a. P200,00 P50,000 P9,500
b. 50,000 12,000 5,000
c. 100,000 419,000 12,000
d. 60,000 15,000 6,000

81. The SEC may reject the article of incorporation or disapproved any amendments thereto if
a. It is not substantially in accordance with the form prescribed by law
b. The purpose or purposes of the corporation patently unconstitutional, illegal or immoral.
c. The treasurer’s affidavit concerning in the amount of capital stock subscribed and/or paid is
false.
d. The required percentage of ownership of the capital stock to be owned by the citizen of the
Philippines has not been complied with.
e. All of the above

82. A corporation is being organized with an authorized capital stock of P50,000. How much thereof
should be subscribed and how much be actually paid, as a minimum requirement?
Amount Subscribed Amount Paid
a. P12,500 P3,125
b. 10,000 2,500
c. 12,500 5,000
d. 25,000 6,250
e. 30,000 10,000

83. Incorporators
a. Any number of natural persons not less than 5 but not more than 15
b. Majority are residents of the Philippines
c. Must own or be a subscriber to at least 1 share of the capital stock of the stock corporation to be
formed.
d. Need not be citizen of the Philippines
e. All of the above.

84. Any stockholder of a corporation shall have the right to dissent and demand payment of the fair
value of his share/s in three of the following corporate acts. Which is the exception?
a. In case of any amendment to the articles of incorporation which has the effect of changing or
restricting the rights of any stockholder or class of shares
b. In case of merger or consolidation
c. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate assets and property of the corporation.
d. In case of incurring, creating, or increasing bonded indebtedness.

85. Directors or trustees who willfully and knowingly vote for or assent to patently unlawfully act of the
corporation or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty shall be liable.
a. As a trustee for the corporation
b. Criminally for violation of the corporation code
c. Jointly and severally liable for the damages suffered by the corporation
d. None of the above.

86. Regular meetings of stockhoders or members shall be held annually on a date fixed in the by-laws, or
if not fixed, on any date, as determined by the board of directors or trustees, in
a. January c. July
b. April d. December

87. Which of the following is (are) valid consideration for the purchase of stocks of a corporation?
I. Real estate
II. A negotiable promissory note in money
III. Monetary consideration for services to be performed
a. I only c. Both I and III
b. II only d. Both II and III

88. 1st Statement A certificate of stock is considered a quasi-negotiable instrument.

2nd Statement Once a stockholder endorses the stock certificate and delivers it to the endorsee, a
new stockholder must be recognized automatically by the corporation.
 a. Both are false
b. Answer A is false, while B is true
c. Both are true
d. Answer A is true, while B is false

89. Which of the following statement is correct regarding corporate officers of a stock corporation?
a. An officer may not simultaneously serve as a director.
b. Corporate secretary may or may not be a stockholder of the same corporation.
c. Stockholders always have the right to elect a corporation officer.
d. An officer of a corporation is required to own at least one share of the corporation’s stock.

90. Suppose “X” corporation has an authorized capital stock of P100,000 divided into 1,000 shares of
stock with par value of P100 each.
Subscribers:
A- 100 shares and paid P8,000
B- 160 shares and paid P100
C- 250 shares and paid P4,000
D- 50 shares and paid P5,000
E- 200 shares and paid P600
Which of the following subscriptions will qualify the pre-subscription requirement of incorporation.
a. Combination of A and E c. Combination of A and B
b. Combination of C and D d. All of the above

91. The required minimum authorized capital stock for stock corporation is:
a. Not less than P5,000
b. 25% must be subscribed and 25% must be paid
c. At least 25% must be subscribed and at least 25% must be paid and in no case shall it be less
than P5,000.
d. At least P25,000.

92. Which of the following must be contained in a Corporation’s Articles of Incorporation?

a. Names of stockholders
b. Name of the temporary treasurer
c. Provisions for issuance of par and no par value shares
d. Quorum voting requirement

93. XY is a recreational club which was organized to operate a golf course for its members with an
original authorized capital stock of P100M. The articles of incorporation nor by laws did not provide
for distribution of dividends although there is a provision that after its dissolution, the assets shall be
given to a charitable corporation. Which of the following statement is true?
a. This is a non-stock corporation because the articles of incorporation did not provide for the
distribution of dividends.
b. The stockholders or members must amend the articles of incorporation and state clearly whether
the corporation is a stock or non-stock corporation.
c. This is a non-stock corporation because the assets after dissolution are to be given to a
charitable institution.
d. This is a stock corporation because when a corporation is organized as a stock corporation and
the Articles and by-laws are silent, it is presumed that it can declare dividend. Since it has the
power to declare dividend, then it is clear that it is a stock corporation.

94. X company is a stock corporation composed of the Reyes family engaged in the real estate business.
Because of the regional crisis, the stockholders decided to convert their stock corporation into a
charitable non-stock and non-profit association by amending the articles of incorporation. Could this
be legally done? Would your answer be the same if at the inception, X company is a non-stock
corporation to a stock corporation? Why?
Answers:
A) Yes, by amending the Articles of Incorporation. Be it noted that the stock corporation is not
distributing assets to the stockholders.
B) No, because in a non-stock corporation the members are not entitled to share in the profit.
a. Letter A is false; letter B is true c. Letter A is true; letter B is false
b. Both are false d. Both are true

95. In 1999, Corporation “A” passed a board resolution removing “X” from his position as manager of said
corporation. The by-laws of “A” corporation provides that the officers are the president, general-
manager, treasurer and secretary. Upon complaint filed with the SEC, it held that the general
manager could be removed by mere resolution of the board of directors.
On motion for reconsideration, “X” alleged that he could only be removed by the affirmative vote of
the stockholders representing 2/3 of the outstanding capital stock. Is “X’s” contention legally tenable.
a. No, the vote required is majority of the board and 2/3 OCS consenting.
b. Yes, the voting requirement is only 2/3 of the outstanding capital stock.
c. No, the required vote is MBD consented by MOCS.
d. No, the voting requirement is only majority of the Board of Directors.

96. Suppose that “X” Corporation has already issued the originally authorized shares of the corporation
so that its Board of Directors and stockholders wish to increase “X’s” authorized capital stock. After
 complying with the requirements of the law on increase of capital stock, “X” issued an additional
1000 shares of the same value. “S” presently holds 200 shares out of the original 1000 shares. Which of
the following statements is true?
a. “S” must be offered equivalent 200 shares under his preemptive right if stated in the Articles of
Incorporation.
b. Such preemptive right shall only be given if it is stated in the by-laws of the corporation.
c. The increase in share must be offered first to the stockholders of record under the “doctrine of
first refusal”. If they refuse, it will be offered to the general public.
d. If ever there is a preemptive right, the same must be exercised within a reasonable time as fixed
by the Board of Directors if the Articles and the by-laws are silent.

97. For past three years of its commercial operation, “X”, an oil company, has been earning
tremendously in excess of 100% of the corporation’s paid in capital. All of the stockholders have
been claiming that they share in the profits of the corporation by way of dividends but the Board of
Directors failed to lift its finger.
First question : Can the stockholders compel the Board of Directors to declare dividend?
Second question: If there is a plan for a definite corporate expansion or to meet probable
contingencies, the Board cannot be compelled to declare dividend even if the profit exceeded
100% of the paid-in capital?
a. In both questions the answer is Yes;
b. In both question the answer is No;
c. First is No; Second is Yes;
d. Fist is Yes; Second is No;

98. Plaintiffs filed a collection action against “X” Corp. Upon execution of the court’s decision, “X” Corp.
was found to be without assets. Thereafter, plaintiffs filed an action against its present and past
stockholders including “Y” Corp. which owned substantially all of the stocks of “X” Corp. The two
corporations have the same board of directors and “Y” Corp. financed the operations of “X” Corp.
May “Y” Corp. be held liable for the debts of “X” Corp?
a. Yes, under the principle of “Corporate Opportunity” of Interlocking Director.
b. Yes, under the principle of “Trust Fund Doctrine”.
c. No, under the doctrine of “Separate Entity”.
d. No, under the principle of “Piercing the veil of corporate entity”.

99. Is a by-law provision of X Corporation “rendering ineligible if elected, subject of removal of director in
a corporation whose business is in competition with or is antagonistic to said corporation” valid and
legal?
a. Yes, under the principle of Corporate Opportunity
b. No, under the principle of Separate Entity
c. Yes, provided it is approved by 2/3 of the outstanding capital stock.
d. Yes, under the principle of Vested Interest

100. Persons who have agreed to take and pay for original, unissued shares of a corporation formed or to
be formed.
a. Promoters c. Incorporators
b. Subscribers d. Corporators

101. A religious corporation which consists of one member only

a. Lay Corporation c. Corporation Sole
b. Corporation Aggregate d. Eleemosynary corporation

102. Cash dividend as distinguished from stock dividend

a. Does not involve any disbursement
b. it is still part of the corporate asset
c. it increases legal capital
d. It is declared only by the board of directors

103. Non-voting shares may vote on

a. Investment of fund in another business or corporation
b. Incurring, creating or increasing bonded indebtedness
c. Dissolution of the corporation
d. All of the above

104. The owners of shares in Stock Corporation are called

a. Incorporators c. Stockholders
b. Promoters d. None of the above

105. Shares of stock may be issued for

a. Actual cash
b. Tangible or intangible properties
c. Labor performed for or indebtedness by the corporation
d. Previously incurred indebtedness by the corporation
e. All of the above

106. Shares of stock may be issued in exchange for any of the following, except:
 a. Amount transferred from unrestricted retained earnings to stated capital
b. Outstanding shares exchange for stocks in events of reclassification or conversion
c. Actual cash
d. Promissory notes of future services
e. None of the above

107. By-laws
a. Relatively permanent and continuing rules of action adopted by the corporation for its own
government and that of the individuals composing it and those having the direction,
management and control of its affair.
b. May be adopted and filed prior to incorporation, provided that the said by-laws shall be
approved and signed by all the incorporators and submitted to the SEC together with the article
of incorporation.
c. If adopted after incorporation, the by-laws shall be approved by the affirmative vote of majority
of the outstanding capital stock or majority of the members within one (1) month after
incorporation.
d. Regulate the various internal matters such as the calling and conduct of meetings of
stockholders and directors.
e. All of the above

108. Ultra vires act

a. Acts which are beyond the powers expressly or impliedly conferred upon the corporation.
b. Unenforceable
c. May be ratified by the stockholders.
d. May not be attacked by competitors in business.

109. Which of the following is not an express power of a corporation?

a. To adopt by-laws and amend or repeal the same.
b. To enter into merger and consolidation with other corporation.
c. To make reasonable donations including those for the public welfare of for hospital, charitable,
cultural, scientific, civic and similar purposes.
d. To establish pension retirement and other plans for the benefit of its directors, trustees, officers
and employees.
e. None of the above.

110. The action filed by the stockholders on behalf of himself and other stockholders for the benefit of the
corporation to redress a wrong which is primarily to the corporation and for which it has a course of
action such as when directors wastes or dissipates the funds of the corporation or fraudulently
disposes of its properties or performs ultra vires acts resulting in the impairment of the value of his
shares.
a. Collective right of action c. Corporate action
b. Derivative suit d. None of the above

111. Statement 1 : The Articles of Incorporation or the by-laws may limit or even completely deny
the right to vote of any class member in a corporation.
Statement 2 : Subscribers for stock shall be liable to the corporation for interest from the date
of subscription, but only if so required in the by-laws.
a. Both are true
b. Both are false
c. True, False
d. False, True

112. The difference between a proxy and a voting trust agreement is

a. Proxy is required to be notarized.
b. Voting trust agreement is not required to be notarized.
c. Presence of the stockholder in the meeting where the proxy is given automatically cancels the
proxy.
d. Voting trust must only be written.

113. Two or more kinds of dividends paid by the corporation is called

a. Cash stock c. Property cash
b. Composite d. Scrip

114. A form of combination where all the constituent corporations are dissolved and out of them a new
one is formed
a. Consolidation c. Joint venture
b. Merger d. All of them

115. The following are some of the requisites of a de facto corporation. Choose the exception
a. Valid law under which it is incorporated
b. Attempt to incorporate
c. Assumption of corporate power
d. Can only be questioned by the SEC.
116. Corporations governed by special laws aside from the requirements specified under the corporation
law, in order that their articles of incorporation may be approved or accepted, must present before
the SEC:
a. A favorable recommendation from the Ministry of Finance
b. A copy of a previous income tax return and a statement of assets, liabilities and net worth.
c. A favorable recommendation of the appropriate government agency to the effect that such
article or amendment is in accordance with law.
d. An undertaking to change the name of the corporation if found that there is already registered
with SEC a name similar to the name of his corporation.

117. Which of the following is not required to be included in the Articles of Incorporation?
a. Duties of the president
b. Name of the corporation
c. Period of existence
d. Location of the principal office

118. A contract for the acquisition of unissued stock in an existing corporation or corporation still to be
formed is called
a. Sales d. Donation
b. Assignment e. None of the above
c. Subscription

119. A written promise to pay the money loaned to the corporation but ordinarily it has no specific fund or
property as security for the payment is called
a. Mortgage bond d. Debenture bond
b. Collateral trust bond e. None of the above
c. Equipment bond

120. Approval by a majority vote of the board of directors and 2/3 of the outstanding capital stock shall
be necessary to enable the corporation to
a. amend its article of incorporation
b. extend or shorten its corporate term
c. increase or decrease its capital stock or incur, create or increase its bonded indebtedness.
d. sell, lease, exchange, mortgage, pledge or otherwise dispose of all substantially all of its
properties and assets.
e. all of the above.