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Sample examination: Law on Corporations Instructions: This is a modified true or false examination.

Please write down “true” if you agree with the statement and “false” if you disagree. For every “false” answer, modify the statement to make it “true”. Good luck! 1. A corporation is a natural person. False. A corporation is a juridical/legal being. 2. A corporation is formed by mere agreement of the incorporators. False. A corporation is formed by the fulfillment of the registration requirements of SEC. 3. The Philippine Constitution and the Corporation Code are the primary laws that govern corporations, while the Department of Trade and Industry is the primary government agency that regulates them. False. The Philippine Constitution and the Corporation Code are the primary laws that govern corporations, while the SEC is the primary government agency that regulates them. 4. Natural persons, partnerships, joint ventures and other corporations may act as incorporators of a corporation. False. Only natural persons may act as incorporators of a corporation. 5. Corporations and partnerships are not allowed to own or invest in stocks in another corporation. False. Corporations are allowed to own or invest in stocks in another corporation. 6. Corporations may engage in any type of business, whether or not for a lawful purpose. False. Corporations may only engage in a business with a lawful purpose. 7. A corporation is not required to register in the BIR and local government. False. A corporation is required to register in the BIR and local government. 8. At least two (2) incorporators are required to form a corporation. False. At least 5 incorporators are required to form a corporation. 9. All incorporators of a domestic corporation are required to be Philippine citizens. False. 60% of the incorporators of a domestic corporation are required to be Philippine citizens. 10. All incorporators of a domestic corporation are required to be Philippine residents. False. Majority or 51% of the incorporators of a domestic corporation are required to be Philippine residents. 11. To qualify as a domestic corporation, Philippine equity should be at a minimum of 50%. False. To qualify as a domestic corporation, Philippine equity should be at a minimum of 60%. 12. To be licensed in the Philippines, a corporation needs only to raise five pesos (Php5.00) as capital. This is the minimum capitalization requirement. False. To be licensed in the Philippines, a corporation needs to raise P5,000 as capital. This is the minimum capitalization requirement.

13. Fifty percent (50%) of the authorized capital stocks of a corporation is required to be subscribed. False. 25% of the authorized capital stocks of a corporation is required to be subscribed.

14. The entire subscribed capital stocks must be fully paid. False. 25% of the subscribed capital stocks must be fully paid. 15. All transactions related to ownership and transfers of stocks are recorded in the Black Book and said book may be kept safe by any member of the board. False. All transactions related to ownership and transfers of stocks are recorded in the Stock and Transfer book and said book may only be kept safe by the secretary in the principal place of business or legal address. 16. Both domestic and foreign corporations may directly own and exploit natural resources in the Philippines. False. Only domestic corporations may directly own and exploit natural resources in the Philippines. 17. Corporations may have multiple legal addresses, but they are not required to disclose their location. False. Corporations may only have one legal address and they are required to disclose their location. 18. The Board of Corporate Officers and Directors is the governing body of a corporation. False. The Board of Directors is the governing body of a corporation. 19. The President heads the Board of Corporate Officers and Directors. False. The President heads the Board of Directors. or The President is the Chairman of the Board of Directors. 20. A corporation may have multiple governing bodies. False. The Board of Directors is the only governing body of a corporation. 21. A corporation requires at least two (2) directors. False. A corporation requires at least 5 directors. 22. Directors are not necessarily stockholders. False. Directors are required to own shares. 23. Only stockholders with the highest equity in the corporation are qualified as stockholders. False. Anyone who owns a stock in a corporation is qualified to be a stockholder. 24. Directors and the board rule the corporation and they are not subject to the rules laid down in the Articles of Incorporation and By Laws. False. Directors and the board rule the corporation and they are always subject to the Articles of Incorporation and By Laws. 25. A corporation only requires one corporate officer, the President. False. It requires a President, Secretary, & Treasurer. 26. The President executes an affidavit and certifies to the SEC that the corporation has opened an account that contains a certain amount of cash in a bank for the purpose of incorporation. False. The treasurer executes an affidavit and certifies to the SEC that the corporation has opened an account that contains a certain amount of cash in a bank for the purpose of incorporation 27. The President determines the policies and direction that the corporation must take. False. The Board of Directors determines the policies and direction that the corporation must take.

28. The President is empowered to ratify the actions of corporate officers. False. The Board of Directors is empowered to ratify the actions of corporate officers. 29. Increase in authorized capitalization, voluntary dissolution and shortening of corporate term may be implemented by the President alone. False. Increase in authorized capitalization, voluntary dissolution and shortening of corporate term may be implemented by the President and must be ratified by the shareholders. 30. The corporation is required to submit an audited ledger to the SEC annually. False. The corporation is required to submit audited financial statements to the SEC annually. 31. Only the top stockholders may inspect the Black Book at the home of the director holding it. False. The records of all business transactions shall be open to inspection by any director, trustee, stockholder, or member of the corporation. 32. Whenever there is an increase in the authorized capital stocks of the corporation, only the top stockholders may protect their investments by exercising the right of redemption of stocks. False. Whenever there is an increase in the authorized capital stocks of the corporation, all of the stockholders may protect their investments by exercising the right of redemption of stocks. 33. Stockholders are required to vote in person. False. Stockholders may exercise their right to proxy vote. 34. Directors may vote in person and by proxy in board meetings. False. Directors may only vote in person in board meetings. 35. All incomes of the corporation may be distributed as dividends. False. Only the unrestricted retained earnings of the corporation may be distributed as dividends. 36. The liability of stockholders for the payment of corporate debt includes the value of their shares as well as their entire personal asset at the time of joining the corporation. False. The liability of stockholders for the payment of corporate debt only includes the value of their shares. 37. Dividends are declared by stockholders. False. Dividends are declared by Board of Directors. 38. The Articles of Incorporation, resolutions of the board and the statements of the President can be considered as the “Constitution” or fundamental rules of the corporation. False. The Articles of Incorporation is considered as the “Constitution” or fundamental rules of the corporation. 39. Amendments to the Articles of Incorporation can take effect even without the approval of the SEC. False. Amendments to the Articles of Incorporation can take effect only with the prior approval if the SEC. 40. Corporations may hold any type of asset or enter into any business and conduct any corporate activity. False. Corporations may hold any type of asset and enter into a business which is based on the enumerated and specified purpose under the Articles of Incorporation.

41. Foreign corporations cannot conduct business in the Philippines. False. Foreign corporations can conduct business in the Philippines if they register in the SEC. 42. Death of the incorporators can cause the dissolution of a corporation. False. The life of the corporation is not dependent to the life of its stockholders and incorporators. 43. All capital contributions of stockholders are converted to land assets of the corporation. Such assets represent their equity. False. All capital contributions of stockholders are converted to stocks of the corporation. Such assets represent their equity. 44. All stockholders may avail of their pre-emptive right on a first-come-first-served basis. False. All stockholders may avail of their pre-emptive right in proportion to their shares. 45. Philippine corporations may have an indefinite corporate term. False. The term of a Philippine corporation shall not exceed 50 years. 46. to 50 – give at least 5 rights of stockholders.             Voting rights during election of corporate officers. Removal of directors through election. Right to dividends. Appraisal right of stocks. Right to issuance of stock certificate for fully paid shares. Proportionate participation in the distribution of assets in liquidation. Right to transfer of stocks in corporate books Pre-emptive right. Right to inspect books and records. Right to be furnished with the most recent financial statement/financial report. Right to recover stocks unlawfully sold for delinquent payment of subscription. Right to file individual suit, representative suit and derivative suits.