LAW ON CORPORATIONS

QUESTION
An ultra vires act is an act which is:
A. Considered illegal
B. Contrary to morals, public policy, good customs
C. Not within the express, implied or incidental powers of
the corporation
D. All of the above
QUESTION
Mr. X invested his property in exchange for shares in ABC
Corporation. Later on, the same property mortgaged as security
for the loan of ABC Corporation from M Bank. For failure to pay,
the mortgage was foreclosed and proceeds was less than the
amount of the outstanding balance of the loan which M Bank
sought from Mr. X contending that the property was invested by
him. Mr. X cannot be made liable under which principle:
A. Corporate Entity Theory
B. Piercing the Veil of Corporate Entity
C. Limited Liability Principle
D. All of the above.
QUESTION
Rustan Corp., through Tantoco, its general manager and
president, entered into a contract of sale with Lluch Corp., which
was later on stopped by Rustan Corp. Lluch then sued for breach
of contract against Rustan Corp and Tantoco. In this case,
A. Both Rustan Corp and Tantoco can be held liable.
B. Only Rustan Corp can be made liable
C. Only Tantoco can be made liable
D. None of the above.
QUESTION
The president and manager of a corporation, who entered into
and signed a contract in his official capacity, cannot be made
liable thereunder in his individual capacity in the absence of
stipulation to that effect due to the personality of a corporation
being separate and distinct from the person composing it. (Rustan
Pulp and Paper Mills, Inc. vs. IAC)
QUESTION
Isabelo Calingasan, the employer of Alfredo Carillo, was held
subsidiarily liable when Carillo, driving the jeepney of Calingasan,
ran over a child. Later on, Calingasan transferred said jeep to Fely
Transport Corporation, where the incorporators are Calingasan,
his wife, his son, Dr. Calingasan and his two daughters and the
only asset thereof was the same jeepney. In this case,
A. Fely Transport Corporation has sole liability since the jeepney
was already transferred to it.
B. Isabelo Calingasan can no longer be held liable since he no
longer owns the jeepney.
C. Both Fely Transport Corporation and Isabelo
Calingasan can be held liable since the transfer was
only made to escape liability.
D. All incorporators of Fely Transport Corporation can be made
liable.
QUESTION
It is evident that Calingasan’s main purpose in forming the
corporation was to evade his subsidiary civil liability resulting from
the conviction of his driver. This conclusion is borned out by the
fact that the incorporators of the Fely Transportation are Isabelo
Calingasan, his wife, his son, Dr. Calingasan, and his two
daughters. We believe that this one case where the defendant
corporation should not be heard to say that it has a
personality separate and distinct from its members when
to allow it to do so would be to sanction the use of the
fiction of corporate entity as a shield to further an end of
subversive of justice. Furthermore, the failure of the defendant
corporation to prove that it has other property other than the jeep
strengthens the conviction that its formation was for the purpose
above indicated.
QUESTION
Mr. X was invited by his friends to invest in XYZ Corp., a newly organized
firm where he was appointed president. He entered into a contract of
sale with ABC Corp. to purchase equipment, in accordance with the
primary purpose of the corporation. Later on, however, it was discovered
that the Articles of Incorporation had not been filed by his friends. He
hurriedly attended to the matter and when the SEC issued the Certificate
of Registration, the corporation became bankrupt and Mr. X is now being
sued by ABC Corp. in his personal capacity. In this case,
A. Mr. X cannot be made liable since XYZ Corp. is considered a de facto
corporation which has a separate personality.
B. Mr. X cannot be made liable since the de facto status of the
corporation has not been attacked by the State.
C. Mr. X can be made liable upto his personal assets since he is the
president of XYZ Corporation which is a corporation by estoppel.
D.Mr. X can be made liable only upto his investment since he
had no knowledge that the corporation was not validly
incorporated.
QUESTION
X Co. has P10M Authorized Capital Stock divided into: (1) 5M
shares at P1.00 par value; and (2) 1M no par value shares with
issued value at P5.00. A acquired 1M of the par value shares for
P0.80. In this case,
A. There is no issuance of watered stocks
B. A and the directors of X Co. are solidarily liable for the
P0.20 per share difference.
C. Only A is liable for the P0.20 per share difference.
D. Only the directors of X Co. is liable for the P0.20 per share
difference.
QUESTION
In the preceding question, if A also acquired 100,000 no par
value shares at P4.00,
A. There is no issuance of watered stocks
B. A and the directors of X Co. are solidarily liable for the P1.00
per share difference.
C. Only A is liable for the P1.00 per share difference.
D. Only the directors of X Co. is liable for the P1.00 per
share difference.
QUESTION
In relation to the two preceding questions, if X, who is a director
signified his intention during the meeting by orally objecting to
the proposal to approve the issuances,
A. Is not liable for the issuance of watered stocks since he
objected
B. Is still liable for the issuance of the watered stocks
because the objection is not in writing
C. Is not liable since he did not vote for the issuance
D. Is still liable for the issuance since he was present in the
meeting.
QUESTION
As a general rule, preferred shares do not give the holder the
right to vote. However, they shall have the right to vote on the
following, except:
A. Amendment of the Articles of Incorporation
B. Adoption and amendment of the by-laws
C. Sale of all or substantially all of the inventories
D. Increase or decrease of capital stock
QUESTION
Which of the following is false with regards preferred shares?
A. Preferred share is a stock that gives the holder preference
over the holder of common stocks with respect to the
payment of dividends and/or with respect to distribution of
capital upon liquidation.
B. A preferred share can be issued without a par value
provided it is not issued for less than P5.
C. The preference must be stated in the Articles of Incorporation
and the Certificate of Stock.
D. None of the above
QUESTION
Which of the following is a false statement?
A. A bank cannot have insurance activities as its secondary
purpose.
B. Educational corporations cannot include any other purpose
which would change or contradict its nature.
C. Stock brokers can have no other line of business not peculiar
to them.
D. A group of CPAs can form a corporation for the
purpose of practicing their profession.
QUESTION
First statement: Corporations whose capital is less than $2.5M
engaged in retail trade must be wholly Filipino-owned.
Second statement: Corporations with foreign equity can engage
in restaurant business if it is incidental or in connection with their
hotel or inn-keeping business.
A. Both statements are true
B. Both statements are false
C. Only the first statement is true
D. Only the second statement is true
QUESTION
Incorporators must not be less than 5 but not more than 15 and
(choose the exception):
A. Must be natural persons
B. Must be of legal age
C. Owns at least 1 share
D. Majority must be citizens of the Philippines
QUESTION
The following are qualifications of a Director under the
Corporation Code, except:
A. They must own at least 1% share.
B. Majority must be residents of the Philippines.
C. They do not possess any of the disqualifications under the
Corporation Code.
D. None of the above
QUESTION
John Gokongwei, Jr. is a major stockholder of a corporation in
direct competition with SMC. He later on invested in SMC and
sought to be a member of the Board but the by-laws contained a
disqualification for stockholders of competing corporations. In
this case,
A. The disqualification is invalid since it is not provided for under
the Corporation Code.
B. The disqualification is valid since a corporation is authorized
to prescribe qualifications/ disqualifications in the Articles of
Incorporation
C. The disqualification is valid since a corporation is
authorized to prescribe qualifications/
disqualifications in the by-laws
D. None of the above is a correct statement
BOARD OF DIRECTORS; ELECTION
A, is a stockholder of Silvestre Corporation, who holds 10,000
shares thereof. A stockholders meeting was called to elect
members of a 5-man Board. How many votes can A cast in favor
of B, a candidate to be a Director, if they employ cumulative
voting?
A. 10,000 votes C. 50,000 votes
B. 25,000 votes D. 100,000 votes
QUESTION
Jaime Dinglasan was elected Director of Valle Verde Country
Club, Inc. From 1997-2001, there was lack of the requisite
quorum to elect new directors and they continued in a hold-over
capacity. On September 1, 1998, Dinglasan resigned. Who should
replace the vacancy?
A. Stockholders in the same meeting
B. Stockholders in a meeting called for the purpose
C. Board of Directors if they constitute a quorum
D. Board of Directors regardless if they constitute a quorum or
not
QUESTION
A, B, C, D and E are directors of REALTY CORP., Z wanted to sell
his property with a fair market value of P100M for P90M. Z
offered the property first to A, who acquired it for P90M and
eventually sold the same for P100M. In this case,
A. A can keep the profits provided the sale is ratified by
the stockholders.
B. A can keep the profits because it was offered to him and not
to REALTY CORP.
C. The sale is not subject to ratification and A may be required
to remit the profits to REALTY CORP.
D. None of the above
QUESTION
Mr. X is a director of XYZ Corporation where he had a contract of
sale with. In this case, Mr. X is known as a/an:
A. Disloyal director
B. Interlocking director
C. Self-dealing director
D. Dual director
QUESTION
Mr. X is a Director of both XYZ Corporation and ABC Corporation.
XYZ and ABC entered into a contract of sale. Mr. X is known as
a/an:
A. Disloyal director
B. Interlocking director
C. Self-dealing director
D. Dual director
QUESTION
Mr. X is a director in both XYZ and ABC Corporations which
entered into a contract of sale. The contract between XYZ and
ABC, is considered valid absent fraud and provided it is
reasonable under the circumstances. But it is considered voidable
if the shareholdings of Mr. X in the two corporations is:

ABC XYZ
A. 25% 25%
B. 5% 5%
C. 25% 5%
D. 3% 20%
QUESTION
Any two or more corporate officer position may be held
concurrently by the same person, except in the following cases
(choose which is not an exception):
A. President and Secretary
B. Treasurer and Secretary
C. President and Treasurer
D. None of the above
QUESTION
A, B, C, D, E, F, G are the directors of a 7-man Board of Directors
of XYZ Corporation. A meeting was called to elect corporate
officers where only A, B, C and D are present. How many votes
are required to elect a corporate officer in this case?
A. 7 C. 4
B. 5 D. 3
QUESTION
Leon Gaw delivered to Ricardo Llamado, treasurer of Pan Asia
Finance Corporation, P180,000 as a loan with 6% interest. In
return, Ricardo Llamado issued a post-dated check in behalf of
the corporation which was later on found to be drawn against
insufficient funds. In this case,
A. Ricardo Llamado cannot be held personally liable since he
merely signed the check in his capacity as Treasurer.
B. Ricardo Llamado can be held personally liable since he
is made, by specific provision of law, personally liable
for his corporate action.
C. Ricardo Llamado cannot be held personally liable since it is
not shown that he had no personal knowledge of the fact of
insufficiency of funds.
D. Ricardo Llamado can be held personally liable if the assets of
the Corporation are insufficient to cover the amount of the
loan
QUESTION
Petitioner's argument that he should not be held personally liable
for the amount of the check because it was a check of the Pan
Asia Finance Corporation and he signed the same in his capacity
as Treasurer of the corporation, is also untenable. The third
paragraph of Section 1 of BP Blg. 22 states:

“Where the check is drawn by a corporation, company or

entity, the person or persons who actually signed the
check in behalf of such drawer shall be liable under this
Act”
QUESTION
Employees of Crispa, Inc. were retrenched on the ground of
serious business losses through a Board Resolution signed by
Elena Uichico, Samuel Floro, Victoria Basilio and Valeriano Floro
(Corporate Officers). It was later on determined that there was
no basis to claim serious business losses and that the
retrenchment was done in bad faith. In this case,
A. Corporate Officers cannot be held liable since their acts are in
their official capacity.
B. Corporate Officers cannot be held liable since Crispa, Inc. has
a personality separate and distinct from its corporate officers.
C. Corporate Officers can be held liable since the law makes
them personally liable.
D. Corporate officers can be held liable since the act is
considered patently unlawful or in bad faith
QUESTION
Under the corporation code, a corporation has power and
capacity to (choose the exception):
A. To sue and be sued in its corporate name
B. To adopt and use a corporate seal
C. To make reasonable donations for public welfare
including giving aid to political parties
D. To acquire real and personal properties in its own name
QUESTION
Mr. A subscribed to 10,000 shares of P1 par value for P10 per
share. He was able to pay 50% of the subscription price. In this
case, which of the following is not a right granted to Mr. A:
A. He can receive dividends attributable to the whole 10,000
shares
B. He has the right to vote equivalent to the 10,000 shares
C. He can demand the issuance of certificate of stock for
the 5,000 shares already paid
D. None of the above.
QUESTION
The following rights of a stockholder who is delinquent in his
subscription loses the following rights or the rights are
suspended, except:
A. Right to vote
B. Right to receive cash dividends
C. Right to receive stock dividends
D. None of the above
QUESTION
Power Homes Unlimited Corp. (PHUC) requires an investor to pay
$234 to become a Business Center Owner (BCO), which entitles
him to recruit two person who should pay $234 each and out of
which he shall receive a commission of $92. In case the two
referrals/enrollees would recruit a minimum of four (4) persons
each recruiting two (2) persons who become his/her own down
lines, the BCO will receive a total amount of US$147.20, and so
on. In this case,
A. The BCO is considered an investment contract
required to be registered with the SEC.
B. The BCO is not considered an investment contract since it
only entitles the owner to commission income.
C. The BCO is not considered an investment contract since the
income derived therefrom involves a participation on the part
of the owner.
D. None of the above is correct statement
QUESTION
The following are securities exempt from the coverage of the
Securities Regulations Code, except:
A. Securities issued by the Philippine Government or
Government of any country
B. Certificates issued by a trustee or a receiver in bankruptcy
C. Securities or derivatives, the sale or transfer of which is under
the supervision or regulation of the Insurance Commission,
the Housing and Land Use Regulatory Board, or the Bureau of
Internal Revenue.
D. Securities issued by a bank, including its own shares
of stock
QUESTION
U Corporation, a corporation listed in the PSE, has two principal
stockholder-corporations, X Corporation which owns 60% and
ABC Corporation which owns 17%.

In turn, the principal stockholders of X Corporation are: XA

(21%); XB (30%) and ABC Corporation (9%).

XA and XB agreed to sell their shares to ABC Corporation. ABC

Corporation is required to make a tender offer to the
shareholders of:
I. X Corporation
II. U Corporation
A. I and II C. I only
B. Neither I nor II D. II only
Since ABC Corporation will own 60% of X Corporation (21% +
30% + 9%);

X Corporation likewise owns 60% of U Corporation, resulting in

36% (60% * 60%) indirect ownership;

Accordingly, they will own a total of 53% of U Corporation (36%

indirect ownership + 17% direct ownership).

As such, ABC Corporation is required to make a tender offer to

the stockholders of U Corporation
QUESTION 32
Gas Gas Corporation, a publicly listed company, discovered a rich
deposit of natural gas. This information was not made public in
order to acquire the lands in the surrounding area at cheap
prices. Prior to the disclosure of the information to the SEC, the
directors and officers of the company bought shares of the
Corporation. The prices of such shares went up once the
discovery was made public and the directors and officers then
sold their shares at a profit.
A. The directors and officers are guilty of insider trading.
B. The directors and officers are not considered insiders
C. The information obtained by the directors and officers is not
considered material nor are they non-public.
D. All of the above
QUESTION
X is the secretary of the President of ABC Corporation which
plans to acquire XYZ Corporation where the projected cash
inflows would increase by P10,000,000 annually due to the
increase in its market share. By virtue of his work, X learned
about the merger but resigned prior to the actual merger. He
then acquired 10,000 shares at the time the shares of stock were
valued at P10 per share. After the merger, the shares of ABC
Corporation increased to P80 per share and X sold the 10,000
shares. In this case,
A. X is guilty of insider trading
B. X is not guilty of insider trading because he is in no position
to acquire material non-public information
C. X is not guilty of insider trading because he is not an insider
since he is already resigned from ABC Corporation
D. X is not guilty of insider trading because he did not acquire the
shares of XYZ Corporation
END