BUSINESS LAW & TAXATION ​ ​ ​ ​ ​ ​ ​

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each item by
writing a VERTICAL LINE corresponding to the letter of your choice on the answer sheet provided. STRICTLY NO
ERASURES ALLOWED. Use Pencil No. 2 only.

1. Choose the situation which illustrates best the minimum requirement of the law to corporate formation:
​Authorized Capital ​ ​Subscribed Capital ​ ​ aid-in Capital
P

A. P150,000 ​ ​ ​ P 37,500 ​ ​ ​ P15,000

B. P600,000 ​ ​ ​ P150,000 ​ ​ ​ P37,500 ​ ​ ​
C. P 50,000 ​ ​ ​ P 12,500 ​ ​ ​ P 3,125
D. P 60,000 ​ ​ ​ P 30,000 ​ ​ ​ P 5,000 ​

2. Cash dividend as distinguished from stock dividend ​

A. It increases legal capital
B. Does not involve any disbursement
C. It is declared on by the Board of Directors
D. It is still part of the corporate asset

3. Which of the following is not correct? In a limited partnership composed of A, B and C, the contribution may be as
follows:
A. A-services (limited partner); B-cash (general partner); C-services (general partner)
B. A-cash (limited partner); B-property (general partner); C-services (general partner)
C. A-property (limited partner), B-services (general partner); C-cash (general partner)
D. A-cash (limited partner); B-cash (general partner); C-services (general partner

4. Lets and Gets are partners. On March 1, 2010 when the total obligation of the partnership was P450,000, Go was
admitted as a new partner. At the time of Go’s admission, the partnership was indebted to A for P50,000 and B
for P400,000. After March 1, 2010, the partnership borrowed from X P200,000 and P40,000 from Y. On
December 1, 2010, the partnership became insolvent leaving an obligation totaling P690,000 and partnership
assets amounting in P300,000. The creditors are going after the separate properties of the partners to satisfy
their remaining claims. How are the creditors' claims satisfied?
ANSWER 1: A and B can go after the separate properties of Lets, Gets and Go.
ANSWER 2: X and Y can go after the separate properties of Lets and Gets.
Which of the following is correct?

​A. Both answers are wrong.

​B. Both answers are correct.
​C. Answer #1 is wrong, but answer #2 is correct.
D. Answer #1 is correct, but answer #2 is wrong.

5. To call a meeting for the purpose of removing a director of a corporation the required votes of the stockholders
is:

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 A. majority of the stockholders present
B. ¾ of the outstanding capital stock
C. 2/3 of the outstanding capital stock
D. majority of the outstanding capital stock

6. All except one are instances when the right to vote by proxy are explicitly provided for:
A. election of the board of directors or trustees
B. voting in case of joint ownership of stock
C. pledged or mortgaged share
D. voting in a board meeting

7. A kind of signature which operates as notice that the agent has but limited authority to sign, and the principal is
bound only in case the agent in so signing acted within the actual limits of his authority.

A. Procuration ​ ​ ​C. Negotiation

B. Assignment ​ ​ ​D. Forged
8. The following except one are valid considerations in a subscription agreement relative to the stocks of a
corporation:
A. Intangible property
B. Previous corporate obligations
C. Outstanding shares in exchange for stocks in the event of reclassification or conversion.
D. Promissory notes

9. Which of the following instruments is negotiable?

A. “Pay to Bearer C P10,000.00”
B. “Pay to C P10,000.00 or his order out of the rentals of my house in Manila”.
C. “Pay to C P10,000.00 and reimburse yourself out of the rental of my house in Manila”.
D. “Pay to the order of C P10,000.00”. Sgd. A addressed to B.

10. 1st STATEMENT: A director is removed from office by a vote of the stockholders holding or representing at least
2/3 of outstanding capital stock. The vacancy occasioned by such removal can be filled by the vote of a
majority of the remaining directors if still constituting a quorum.

2nd STATEMENT: The vacancy in the board occasioned by the resignation of a director can be filled by the vote
of a majority of the remaining directors if still constituting a quorum.
A. Both statements are true.
B. 1st statement is false, 2nd statement is true.
C. Both statements are false.
D. 1st statement is true, 2nd state is false

11. A is the managing partner in A & B Company. X is indebted to A for P20,000 and to the partnership for
P60,000.When both debts mature, X pays A P20,000 and the latter issues his personal credit. The payment for
P20,000 shall be applied:
A. One-fourth in favor of A and three-fourth in favor of partnership
B. To the whole debt owing to A
C. One-half in favor of A and one-half in favor of the partnership
D. To the debt owing to the partnership

12. Under this test, a corporation is a national of the country pursuant to whose laws it is incorporated:
A. Nationality test ​ ​ ​ ​C. Control test
B. Capitalization test ​ ​ ​ ​D. Incorporation test
13. Which of the following is a defense available even as against a holder in due course?

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 A. Minority ​ ​ ​
B. Illegality of contract where form or consideration is illegal.
C. Mistake
D. Want of delivery of complete instrument

14. The Articles of Incorporation is required to state the names, nationalities and residences of persons who shall
act as directors or trustees until the first regular directors or trustees are duly elected and qualified. This
requirement is intended to provide a basis by which the Securities and Exchange Commission could determine
whether the Articles of Incorporation has complied with the requirement that:
A. At least a majority of the directors or trustees are residents of the Philippines.
B. All of the directors or trustees are residents of the Philippines.
C. Two thirds of the directors or trustees are residents of the Philippines.
D. All are college graduates

15. “I promise to pay to bearer, Maria Leonora Teresa, the sum of P20,000.00”(Signed) Tirso Cruz III. The promissory
note is:
A. Negotiable promissory note payable on demand.
B. Negotiable promissory note payable to order.
C. Negotiable promissory note payable to bearer.
D. Non-negotiable.

16. The following person cannot be an incorporator of a corporation:

A. A resident alien
B. A married woman without the consent of the husband even if the payment of her shares is her paraphernal
property.
C. A subscriber on the shares of the corporation who pays less than 25% of his subscription.
D. A corporation organized under the laws of the Philippines.

17. Which of the following can be a close corporation?

A. Insurance companies ​ ​ ​C. Banks

B. Mining corporations ​ ​ ​ ​D. Building and loan associations

18. No par value stock cannot be issued for a consideration less than
A. Php 10.00 ​ ​ ​ ​ ​C. Php 1.00
B. Php 5.00 ​ ​ ​ ​ ​D. Php 0.50
19. Paolo contributed P50,000; Ronald contributed P75,000; and Paul contributed P25,000. Jay is the industrial
partner. There is no stipulation regarding profits and losses. The partnership suffered a P300,000 loss. The loss
shall be shared by the partners as follows:

A. P100,000; P100,000; P100,000; and P0 ​ ​C. P100,000; P150,000; P50,000; and P0

B. P75,000; P75,000; P75,000; and P75,000 ​ ​D. P100,000; P100,000; P100,000; and P100,000

20. Which of the following is not a qualification of incorporators?

A. They must be natural persons
B. They must have the capacity to enter into valid contracts
C. They must fully pay at least one share of the capital stock.
D. Majority of them must be residents of the Philippines

21. “I promise to pay Tom Cruise or bearer the sum of P50,000, 25 days before the death of Nicole Kidman”. The
note is:

A. Payable on demand ​ ​ ​C. Negotiable

B. Non- negotiable ​ ​ ​D. payable upon a contingency

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 22. Which of the following is not an incident in the life of a promissory note?
A. Negotiation ​ ​ ​ ​C. Discharge
B. Presentment for payment ​ ​D. Protest

23. Case No. 1 – Pedro, the manager of XYZ Corporation, was promised of an increase in salary. To facilitate the
payment of the promised increase, he prepared a board resolution and had it signed individually by a majority
of the members of the Board of Directors. The treasurer of the corporation refused to pay the increase in
salary stating that the resolution is not valid. Is the contention of the treasurer correct?
Case No. 2 – Jose agreed to sell for a 10% commission the land of Maria worth P500,000. Accordingly, Jose
looked for a buyer and found Pedro whom he introduced to Maria. Maria however told Jose and Pedro that she
is no longer selling her land. Subsequently, Maria sold the land to Pedro for P500,000, without the knowledge
of Jose. Jose upon learning of the sale, asked Maria for his commission. Is Jose entitled to the commission?

A. Yes, no ​ ​ ​B. Yes, yes ​ ​ ​C. No, yes ​ ​D. No, no

24. All are books to be kept or maintained by the corporation except one:
A. Books of all business transactions
B. Books of minutes of the corporate officers’ meeting
C. Books of minutes of the meetings of the board of directors
D. Stock and transfer book for stock corporations

25. Which of the following corporate acts requires the approval of the majority of the outstanding capital stock or of
the members of the private corporation?
A. To amend the articles of incorporation
B. To invest corporate funds in another corporation or business
C. To dissolve the corporation
D. To amend or repeal by-laws

26. The holders of non-voting shares shall be entitled to vote on the following matters, except:
A. amendment of the Article's of Incorporation ​C. increase or decrease of capital stock

B. corporate dissolution ​ ​ ​ ​D. to elect directors

27. A kind of share having no right to vote and is not considered part of the outstanding capital stock:
A. Promoter’s Shares ​ ​ ​C. Founders' Shares
B. Treasury Shares ​ ​ ​ D. Redeemable Shares

28. When the capital of the partnership is P3,000 or more it must be in public instrument and must be recorded with
the securities and Exchange Commission. A, B, and C agreed to form a partnership and each contributed
P10,000 as capital. There was no compliance with the provisions of the law:
A. The partnership was not established
B. The partnership did not have juridical personality
C. The partnership was established and any partner may compel the execution of a public instrument
D. The partnership is void

29. Buboy issued a pay to cash check to Bebang. Bebang merely delivered the instrument to Barney. What took
place?

A. Negotiation ​ ​ B. Issue ​ ​C. Assignment ​ ​D. Transfer

st
30. 1 Statement – A close corporation may not have more than 15 corporators
nd
2 Statement – No delinquent stock shall be voted for or be entitled to vote through representation at any
stockholders’ meeting.

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 st nd
A. 1 statement is wrong, 2 statement is correct
st nd
B. 1 statement is correct, 2 statement is wrong.
C. Both statements are correct
D. Both statements are wrong.

st
31. 1 Case – Minda bound herself to pay Linda her indebtedness. This is evidenced by a promissory note stating
therein the words “I promise to pay Linda or order the amount of Php100,000”. Sgd. Minda. The instrument is
non-negotiable.
nd
2 Statement – Mila gave Miles a check wherein the only item not filled up is the space for the amount. Mila
instructed the payee to place the amount Php1,000 in the check. However, Miles placed therein Php100,000.
Miles negotiated the check to Marie who is a holder in due course. Marie can hold Mila liable for P100,000.
st nd
A. 1 statement is wrong, 2 statement is correct
st nd
B. 1 statement is correct, 2 statement is wrong.
C. Both statements are correct
D. Both statements are wrong.

32. In sale of a land with a non-apparent servitude, a hidden defect, the buyer can rescind the sale within period of
time?
A. 6 months from the date of delivery
B. 40 days from the date of delivery
C. 3 days from the discovery of the hidden defect
D. 1 year from the execution of the contract of sale

33. The stockholders or members mentioned in the Articles of Incorporation originally forming and composing the
corporation and who are signatories thereof are called:

​A. incorporators ​ ​C. subscribers

​B. promoters ​ ​ ​ ​D. founders

34. Absent any contrary provisions in the agreement, under which of the following circumstances will a limited
partnership be dissolved?
A. A limited partner dies and his estate is insolvent
B. A personal creditor of a general partner obtains a judgment against the general partner’s interest in the
limited partnership.
C. A general partner retires and all remaining general partners do not consent to continue
D. A limited partner assigns his partnership interest to an outsider and the purchaser becomes a substituted
limited partner.

35. The following except one are non-negotiable instruments:

A. Certificate of stock ​ ​ ​ ​C. Certificate of Deposit
B. Postal money orders ​ ​ ​ ​D. Letter of credit

36. Holder H altered the amount of a negotiable note from P10,000 to P100,000 then negotiated the note to I. As a
result:

A. ​If I is a holder in due course, he can require the maker to pay P100,000
B. ​If I is not a holder in due course, he can require the maker to pay the sum of P100,000
C. ​I cannot require the maker to pay because of the forgery whether or not he is a holder in due
course

D. ​I is entitled to P10,000 if he is a holder in due course

37. Not a valid qualification of directors in a stock corporation as stated in the by-laws:
A. A director must be holder of at least P10,000 paid up shares as security for his action
B. A stipulation that at least 2/3 of the directors must be residents of the Philippines

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 C. A stipulation that all the shares he owns at the time he was elected as director may be disposed off by him
without forfeiting his directorship
D. That 5 shares of the capital stock must be registered in the name of such director

38. Three of the following corporations are not authorized to issue no-par-value shares of stock. Which one is the
exception?

​A. Loan associations ​ ​ ​ ​C. Trust Companies

​B. Banks ​ ​ ​ ​ ​D. Industrial companies

39. The following except one, are the requisites 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

40. In a corporation, two or more positions may be held concurrently by the same person, except that no one person
shall act as:

A. President and chairman of the board ​ ​C. Treasurer and director

B. Secretary and treasurer ​ ​ ​D. President and secretary
41. Which of the following is not correct?
A. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated
B. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal
partnership
C. A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking
or the exercise of a profession or vocation.
D. Articles of universal partnership; entered into without specifications of its nature, only constitutes a
universal partnership of all present property.

42. If shares of stock are sold to a buyer, the delivery as a mode of transferring ownership may be effected by:
A. Traditional longa-manu ​ ​C. Traditio brevi-manu
B. Quasi-traditio ​ ​ ​D. Symbolical delivery

43. The number of the Board of Trustees in a non stock corporation.

A. Shall not be less than five but not more than eleven
B. May be more than fifteen upon its organization
C. May be less than five upon its organization
D. Shall not be less than five but not more than fifteen

44. All are advantages of forming a corporation except one:

A. The free and ready transferability of ownership.
B. The shareholders are not liable for the debts of the business.
C. Continuity of existence because of the power of succession.
D. Corporate form involves double taxation on corporate income.

45. Maturity of an undated negotiable instrument issued payable 30 days after sight is computed from:
A. date of issue
B. date of last indorsement
C. date of first presentation for acceptance
D. date of first indorsement

46. An instrument is payable at a determinable future time, which is expressed to be payable, except:
A. At a fixed period after date or sight

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 B. Upon a contingency and the contingency actually happens
C. On or before a fixed or determinable future time specified therein
D. On or at a fixed period after the occurrence of a specified event, which is certain to happen, though the
time of happening be uncertain

st
47. 1 Statement – The acceptor of a bill may refuse to pay the holder on the ground that the signature of the
drawer is forged.
nd
2 Statement – An instrument if not negotiable if it is payable to the order of a fictitious person.
st nd
A. 1 statement is wrong, 2 statement is correct
st nd
B. 1 statement is correct, 2 statement is wrong.
C. Both statements are correct
D. Both statements are wrong.

48. Which of the following is not negotiable?

A. “Pay to A or order P10,000 notice of dishonor waived”
B. “Pay to A or order P10,000 on December 25, 2011”
C. “Pay to A or order P10,000 and deliver two horses to the holder”
D. “Pay to A or order P10,000”

49. Maggie makes a promissory note for P40,000 payable to the order of Homer. Homer negotiates the note to
Margie who indorses it to Henry. Henry indorsed the instrument to Melissa who with the consent of Henry
raises the amount to P100,000 and thereafter indorses it to Hilary, Hilary to Menandro, and Menandro to
Helen, who is a holder in due course. In this case
A. Helen can recover P40,000 as against Maggie.
B. Helen can recover P100,000 from Maggie.
C. Menandro and Melissa are liable to Helen for P40,000
D. Maggie and Homer are not liable to Helen.

50. Mike makes a note payable to the order of Nimfa who indorses it to Allan. Lorena obtains possession of the note
fraudulently, forges Allan's signature and indorses it to Cory who in turn indorses it to Jenny. In this case,
Jenny can enforce the instrument against

A. Cory ​ ​ ​ ​ ​C. Nancy

B. Allan ​ ​ ​ ​ ​D. Nimfa

51. The Commissioner of Internal Revenue (CIR):

a. Is appointed by the Secretary of Finance. c. Reports directly to the President of the Philippines.
b. Is appointed by the President of the Philippines. d. Is assisted by six (6) Deputy Commissioners.

52. Which among the following is not a characteristic of tax laws?

a. They are part of political law c. They are not part of criminal law
b. They are civil in character d. They are special law

53. A taxpayer gives the following reasons in refusing to pay a tax. Which of his reasons is not acceptable for legally refusing to pay
the tax?
a. That he has been deprived of due process of law. c. That the prescriptive period for the tax has elapsed.
b. That there is lack of territorial jurisdiction. d. That he derive no benefit from the tax.

54. It literally means the place of taxation:

a. Object of taxation b. Purposes of taxation
c. Situs of taxation d. Subject of taxation

55. First statement: The general rule is that the situs of intangible personal property such as shares of stock is at the domicile of the
owner.
Second statement: Gain from sale of shares of stock in a domestic corporation of a nonresident foreigner is, therefore, not taxable
in the Philippines.
a. Both statements are correct c. Only the first statement is correct

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 b. Both statements are incorrect
d. Only the second statement is correct

56. This is a system where there are more indirect taxes rather than direct taxes:
a. Progressive system b. Regressive system
c. Global system d. Schedular system

57. One of the following statements is not an accepted rule in the interpretation of tax laws:
a. Tax laws are to be interpreted strictly against the taxpayer and liberally in favor of the government.
b. There is no need to apply the rules on statutory construction of tax laws if the law is clear.
c. Tax exemption laws are to be construed strictly against the taxpayer and liberally in favor of the state.
d. As to the property of the state, exemption is the rule and taxation is the exception.

58. Which one of the following is not an essential of an acceptable accounting method?
a. There should be distinction between revenue and capital expenditures.
b. Expenses to restore property or prolong its useful life should be added to the property account or charged against accumulated
depreciation.
c. In all cases in which production, purchase or sale of merchandise is an income producing factor, inventories at the beginning
and at the end of the accounting period should be considered.
d. The accounting method should adhere strictly to Philippine Accounting Standards (PAS).

59. If an individual performs services for a creditor who in consideration thereof cancels the debt, the cancellation of indebtedness
may amount to a:
a. Gift b. Capital contribution
c. Donation inter vivos d. Payment of income

60. Which of the following will change the status of the taxpayer?
a. Marriage of a dependent within the taxable year c. Dependent gaining employment during the year
b. Dependent becoming 21 years old during the year d. Marriage of taxpayer himself during the year

SET A

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