MULTIPLE CHOICE

1. A stockholder whose shares are declared delinquent will have

a. No voting and dividend rights
b. No voting rights at any meeting
c. Voting and dividend rights
d. Voting rights but no dividend rights

2. Which of the following meetings is not valid?

a. Members’ meeting held in Tagaytay City where the principal office is located in Makati but the by-laws provide
that meetings of the members may be held anywhere in the Philippines
b. Stockholders’ meeting held in Tagaytay City where the principal office is located in Makati but the by-laws
provide that stockholders’ meetings may be held anywhere in the Philippines
c. Trustees’ meeting held in Baguio City where the principal office is located in Makati
d. Directors’ meeting held in Macau where the principal office is located in Makati.

3. A fraudulent transaction in the trading of securities that involves no change in the beneficial ownership of
the shares is called
a. Matched order
b. Squeezing the float
c. Painting the tape
d. Wash sale

4. The fair market value of the shares of a stockholder exercising his appraisal right should be determined on
the date
a. Of the meeting where he interposed his objection
b. Of receipt of his written demand that he paid the value of his shares
c. Prior to the meeting where the matter was taken up
d. Of the payment of his shares

5. A close corporation may validly provide in its AOI or by-laws that

a. Cumulative voting shall be denied to the stockholders
b. Proxy voting shall be denied to the stockholders
c. Quorum and voting requirements in stockholders’ meeting imposed by the code shall be more than that required
by law
d. Meetings of stockholders may be held anywhere in the Philippines
TRUE OR FALSE. If your answer is FALSE state your reason/s. If TRUE no need to explain

1. In cases of merger, the employees of the absorbed/dissolved corporation are automatically absorbed by the
absorbing/surviving corporation
TRUE

2. A corporation sole may validly sell/transfer its old van for purposes of acquiring a new one without court
intervention
TRUE

3. A stockholder issued no par value shares below their determined issued value as indicated in AOI is solidarily
liable with the responsible directors/officers for the water in the stocks
False, no par value shares once issued are deemed fully paid and non-assessable.

4. Pending the issuance of the replacement certificate, the owner of a lost certificate of stock may validly transfer
his shares by a mere notarized deed
False, if a certificate of stock has been issued a mere notarized deed will not suffice. It must be coupled with
endorsement and delivery of stock certificate.

5. A transferee of a certificate of stock in a non-stock corporation, if they are transferable by virtue of a by-law
provision, has the same right, power and authority to compel the corporation to register the said transfer in the
corporate books in his name, in order that he may be considered as a shareholder, in the same manner that the
transferee of a certificate of stock in a stock corporation may do so.
TRUE

6. Absent any rules and regulations of SEC regarding short sale, any person engaging thereto may be subjected to
the penal sanctions of section 73 of SRC
TRUE

7. Absent any by-law provision authorizing t holding of a meetings of members in a non-stock corporation,
members’ meetings may nonetheless be validly held anywhere in the Philippines
False, in the absence of any by-law provision, members’ meeting of a non-stock corporation should be held in the
city or municipality where the principal office of the corporation is located.

8. The appointment of a distributor/representative in the Philippines made by a foreign corporation necessarily

results to doing/transacting business in the country
False, the foreign corporation is not doing business in the Philippines if the representative is an independent entity
acting in his own name for in its account not for account of foreign corporation.

9. The winning bidder in a delinquency sale is the highest bidder

False, the winning bidder is the lowest bidder from the wordings of statute. The bidder who tenders to pay the full
amount of delinquency plus cost and expenses for the least number of shares.

10. The beneficial owner of a voting trust agreement may validly transfer his shares by a mere notarized deed.
False, to effectively transfer the shares covered by voting trust agreement, the certificate of voting trust agreement
must be presented.
OBJECTIVES
1.
a. Four instances when a stockholder may be able to exercise his appraisal right (4pts)

1.) In case of any amendment to the articles of incorporation has the effect of changing or restricting the rights of
any stockholder or class of shares or of authorizing preferences in any respect superiors to those of
outstanding shares of any class, or of extending or shortening the term of corporate existence.
2.) In case of sale, lease, mortgage, pledge or disposition of all or substantially all of the corporate property and
assets as provided in the code.
3.) In case of merger or consolidation
4.) In case of investment of funds in any other corporation or business or for any purpose other than the primary
purpose for which the corporation was organized/

b. The twin requirement in order that the Special Commercial Court may be justified in appointing a
management committee, board or body in a corporation (4pts)

1.) Dissipation, loss, wastage or destruction of assets or other properties and;

2.) Paralyzation of its business operations which maybe prejudicial to the interest of the minority stockholders,
parties litigant or the general public.

2. All of the following statements are correct. Why it is said that:

a. If not denied by a provision in AOI, the pre-emptive right of a stockholder in a close corporation is
absolute (3pts)

The pre-emptive right of a stockholder in a close corporation is broadened to include all stock to be issued
including reissuance of treasury shares, whether for money, property or personal services or in payment of
corporate debts, unless the articles of incorporation provides otherwise.

b. The ruling of the High Court in EB Villarosa v. Benito that service of summons upon a corporation must
be made to a person named in the statute, i.e., president, general manager, treasurer, corporate secretary
or in-house counsel, does not apply if the action brought against the corporation is an intra-corporate
controversy. (3pts)

In case of intra-corporate controversy, Rule 2 Section 5 of the Interim Rules of Procedure on Intra-Corporate
controversy, service of summons shall be deemed adequate if made upon any of the statutory or corporate officers
as fixed in the by laws or their respective secretary.

c. Wash sale and matched order are not illegal per se (3pts)

They must be used to create a false or misleading appearance of active trading in the security concerned.

d. The three (3) year period of liquidation will not apply if a trustee/assignee/ receiver is appointed to
undertake the same (3pts)

The three year period of liquidation will not apply if a trustee is appointed to undertake the same because from
and after any such conveyance by the corporation of its property in trust for benefit of stockholder, members,
creditors and others in interest which the corporation had in property terminates, the legal interests vest in trustee
and beneficial interest in stockholders, members, creditors or other persons in interest.
e. Certificate of stock are merely quasi-negotiable but non-negotiable (3pts)

Certificate of stock is quasi negotiable because it maybe transferred by endorsement coupled with delivery
thereof. It is nonetheless non-negotiable in the sense that the transferee takes it without prejudice to all the rights
and defenses which the true and lawful owner may have except insofar as the principles governing estoppel may
apply.

3. What are the three (3) qualifying conditions required to be indicated in AOI in order that the corporation
may be considered as a close one (6pts)

1.) All the corporation’s issued stock of all classes exclusive of treasury shares, shall be held of record by not more
than specified number of persons not exceeding (20)
2.) All the issued stock of all classes shall be subject to one or more specified restriction on transfer permitted by this
title.
3.) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.
CASE ANALYSIS
1. X Co., Inc., engaged in the manufacturing concern. It leased a parcel of land where it erected its plant
warehouse and offices. It has an authorized capital stock of Php100M divided into 100M shares with a par
value of Php1.00 per share. Php50M has been subscribed. One of the stockholders thereof is “A” who
subscribed to Php5M and has paid Php2.5M out of his subscription.

a.) May “A” be issued a stock certificate covering 2.5M shares? Why or why not? (3pts)

No section 64 of the corporation code provides that no certificate of stock shall be issued to a subscriber until the
full amount of his subscription together with interest and expenses ( in case of delinquent shares) if any has been
paid.

Assume that the corporation has been incurring loses to the tune of php5M and to raise much needed funds to pay
its liabilities, the BOD decided to make a call for the unpaid portion of the subscriptions of its stockholders
including “A” who did not pay the same on the date specified in the call. The Corporation this decided to sell his
shares at public auction but no bidders appeared.

b.) May the corporation bid? Why or why not? (3pts)

No. The corporation may bid subject to the provisions of the corporation code. Section 41 provides that the
corporation shall have the power to acquire its own shares provided that it has unrestricted retained earnings. In
this case, the corporation has no unrestricted retained earnings because it is incurring loses.

Assume that the corporation and “Y” entered into a contract of sale in January 2016 for the latter to acquire 10M
of the remaining unissued stocks of the corporation with a stipulation that “Y” shall pay a down payment of
Php5M, the balance to be paid on or before the end of June 2016, and that until and unless he shall have paid the
balance of his acquisition cost he shall have paid the balance of his acquisition cost he shall not be considered as a
stockholder. A meeting of the acquisition of the stockholders is called to be held in June 7, 2016 to elect a new set of
directors, at a point in time when he has not yet paid his full acquisition cost.

c.) Is “Y” qualified to vote and be voted for as a director? Why or why not? (3pts)

Yes. The moment his subscription becomes effective, he becomes a stockholder for all intents and purposes and
the only requirement to be qualified as a director is that he must have at least one share in his own name.

d.) Assume that on June 10, 2016, the entire compound of the corporation was ravaged by fire, turning everything
into ashes. May “Y” be compelled to pay the balance of his acquisition cost? Why or why not? (5pts)

Yes. The corporation code provides that any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed a subscription, nowithstanding the fact that the
parties refer to is as a purchase or some other contract. Thus, a person whether deemed a purchaser or subscriber
of the unissued stocks of an existing corporation or a corporation still to be formed becomes entitled to all the
rights and of stockholder and subjected to all liabilities that attach thereunder upon execution and effectivity of
the contract, and the corporation can compel the payment of the balance of the unpaid portion of the subscription.
e.) Assume further that the by-laws of the corporation provided for the election of an Assistant Finance Manager
to be elected by the board. Pursuant thereto, the board elected “Z” as such. He is not a stockholder of the
corporation. Later, however, he was removed/ousted as such Assistant Finance Manager. He files a case before
the Special Commercial Court questioning the validity of his removal therefrom. The corporation moves for
the dismissal of the case in that it is the NLRC that is possessed with jurisdiction and case in that it is the
NLRC that there is no-intra corporate relationship between the parties. Rule and explain (5pts)

The Special Commercial Court has exclusive and original jurisdiction to hear and decide cases involving
controversies in the election or appointment of directors, trustees, officers or managers of such corporation as
provided under Section 5 (c) of PD902-A in this case, the officer asserts his right as such officer and questions his
removal or outster. A corporate officer’s dismissal is always a corporate act and/ or an intracorporate controversy.
( Lozon vs. NLRC and PAL)

f.) Disregarding letter D., and assume that 3 of the 5-man member board reconstituted the AOI falsely adding
new purposes not originally included thereat such as lumber concession, cattle ranch, mining and agriculture,
thereby misapplying and misusing corporate funds and assets. May a stockholder file a dissolution proceedings
against the corporation? Why or why not? (3pts)

No. Dissolution of the corporation is warranted only when the acts of the directors constitute or threaten a
substantial injury to the public or such as to amount to a violation of the fundamental conditions of its charter, or
its conduct is characterized by obduracy or pertinacity in contempt of law.

g.) If a case is instituted and you were the Judge, will you grant the prayer for dissolution? Why or why not?
(3pts)
No.

h.) Will your answer be the same if the corporation is a close one? Why or why not? (3pts)

No my answer will not be the same if the corporation is a close one. Even mere dishonesty, any act that maybe
detrimental to any of the stockholder or corporation itself is a ground for dissolution in a close corporation.
i.) Assume that the corporation is engaged in the discovery of natural gas and its shares are being traded in
stock exchange. It was able to discover natural gas of commercial quantity. The Board, instead of disclosing the
matter immediately to the SEC and the Philippine Stock Exchange, called their respective brokers for the
acquisition of shares of the corporation before proceeding to a printer for the publication of the discovery. The
printer, however, before doing his job, also called his broker to acquire shares of the corporation. What violation
of the provisions of SRC is committed by a.) Directors? (3pts) b.) Did the printer committed the same violation?
Why or why not? (3pts)

a.) Director committed an insider trading. An act of an insider to buy or sell security of the issuer while in possession
of material information with respect thereto that is not generally available to the public is illegal. In this case, the
director acquired or purchased the shares of the corporation while in possession of material non public
information.

b.) Yes the printer committed the same violation. His relationship to the issuer gives him material access to material
information about the issuer or the security that is not generally available to the public. In this case, he had access
to material information.

2.Give your comment of the decision of the High Court in Clemente v. CA regarding a juridical entity, long
dissolved (40 years) that did not undertake liquidation and winding to the effect that:

“The termination of the life of a juridical entity does not by itself cause the extinction or
diminution of rights and liabilities of such entity (citing Gonzales v. Sugar Regulatory
Administration) nor those of its owners and directors. If the three year period extended life
has expired without a trustee or receiver having been expressly designated by the
corporation within that period. The BOD or trustee itself, following the rationale of SC’s
decision in Gelano v. CA may be permitted to so continue as “trustee” by legal implication
to complete the liquidation. Still in the absence of a BOD or trustees, those having any
pecuniary interest in the assets, including not only the stockholders but likewise the
creditors of the corporation, acting for and in its behalf, might make proper representations
with the (proper forum), which has primary and sufficiently board jurisdiction in matters
of this nature, for working out a final settlement of the corporate concern.” (5pts)