PART I

1. A, B, C, D and E organized/formed X CO., INC. and was issued a certificate of registration by the appropriate
government agency. It turned out, however, that C,D, and E are not residents of the Philippines. What type/kind of
corporation is X CP., INC.?

a. De Facto
b. De Jure
c. Corporation by Estoppel
d. It does not exist as a Corporation at all.

2. A director who was compensated and paid 15% of the net income before tax of the corporation for the preceding year
for the services rendered by him as corporate secretary by a mere Board resolution is

a. Valid since he is acting in a capacity other than as such director

b. Invalid since only 10% of the net income before tax is allowed by law
c. Invalid because it requires stockholders’ approval or a by-law provision authorizing it
d. Valid because all corporate powers, all businesses are conducted and all properties are controlled by the Board of
Directors

3. The declaration of stock dividends will generally have

a. the effect of decreasing the total assets of the corporation

b. the effect of an increase in the proportionate interest of the stockholders
c. no effect in the proportionate interest of the stockholders
d. the effect of increasing the authorized capital stock notwithstanding the fact that the corporation has a free portion
of its capital stock to cover the declaration/distribution

4. A contract between a corporation and its president is

a. valid id not tainted with fraud and the contract is fair and reasonable
b. valid if previously approved by the Board of Directors
c. voidable is the president holds a substantial interest in the corporation
d. voidable at the option of the corporation

5. It is common practice in X CO., INC. for the general manager to enter into contracts for an in behalf of the
corporation without prior approval of the Board of Directors. Said contracts are

a. invalid since the power and authority is lodged to that of the Board of Directors
b. valid because approval of the Board is not required for its validity
c. invalid because the general manager is not authorized by law to enter into contracts for and in behalf of the
corporation
d. valid because similar acts were approved and allowed by the Board as a matter of practice, custom and policy and
thus binding on the corporation even without formal Board resolution

6. Non-voting shares are not included in determining the voting requirements imposed by the code in cases of

a. removal of a member of the Board of Directors

b. providing for additional diqualifications of directors in the by-laws
c. shortening of the corporate terms
d. changing the principal office of the corporation

7. X CO., INC. declared cash dividends of P1.00 per share on January 18, 2011 to be paid to the stockholders of record
on January 31, 2011. Said declaration was duly announced to the stockholders. On January 20, 2011, “A”, one of the
stockholders holding 100,000 shares valued at P100,000 sold his shares for the same amount to “B”, who is not a
stockholder of the same corporation, and on January 25, 2011 the transfer in favor of “B” was duly recorded in the
 books of the corporation. Absent any agreement to the contrary, as between “A” and “B” who has better right to the
dividends?
a. “A” because the transfer of his share was in violation of a by-law provision granting existing stockholders the
preferential right to buy the shares of a selling stockholders
b. “A” because he was the owner of the shares at the time of the declaration of the dividend
c. “B” because he was the recorded owner of the share even before payment of the dividend
d. “B” because he was the owner of the share at the time/date of payment

8. A stock corporation shall have the power to reacquire its own shares irrespective of the existence of unrestricted
retained earnings

a. to eliminate fractional shares arising out of stock dividends.

b. to pay dissenting stockholders in the exercise of their appraisal rights
c. to pay a stockholder in a close corporation who compels the latter that he be paid the value of his shares
d. to collect/compromise an indebtedness to the corporation arising out of unpaid subscription in a delinquency sale

9. Only the stockholders/members can fill up a vacancy created in the office of a director if the said vacancy occurs

a. by virtue of the resignation of a hold-over director

b. by virtue of the death of a director
c. if the director ceases to be a stockholder
d. if the director is subsequently disqualified by a by-law provision

10. The Articles of Incorporation of X CO., INC. provides for a nine (9) man member Board of Directors. Two of them
died. On January 15, 2011, the corporate secretary of the company resigned such that at a Director’s meeting was held
and conducted to elect an0ther corporate secretary. Five (5) if the directors attended the meeting and four (4) of them
elected “A” to replace the resigned corporate secretary. Is the election valid?

a. Yes, because there are only seven (7) living members of the Board and the vote of four (4) constitutes a majority
b. No, because the vote required is majority of the Board as fixed in the Articles of Incorporation
c. No, because the quorum requirement was not complied with
d. Yes, because the vote required is only a majority of those present at which there is a quorum

11. X CO., INC. paid A CO., INC. 10% of the property dividend declared by the Board of Directors of the former
pursuant and in consideration of messengerial services actually rendered by the later. Is the payment valid?

a. Yes because it is a valid contractual arrangement between the parties

b. No because stockholders’ approval is required for its validity
c. No because it would result to a dilution of dividend rights of the stockholder
d. Yes because labor or services actually rendered may be paid by way of property

12. All persons who assume to act as a corporation knowing it without authority to do so shall be liable

a. only to the extent of their subscription to the capital stock of the corporation
b. only to the extent of the corporate assets
c. as limited partners for all debts, liabilities and damages arising therefrom
d. as general partners for all debts, liabilities and damages arising therefrom

13. A, B, C, D and E are the 5-man member of the Board of Directors of X CO., INC. On January 15, 2011, the remaining
members of the Board of Directors consisting of A, B and C conducted a meeting to fill up two (2) vacancies in the
Board cause by the removal of D by the stockholders and by the death of E. D was unanimously replaced by F, and E
by G. The election of F and G is

a. valid for both

b. not valid for both
c. not valid for G but valid for F
 d. valid for G but not valid for F

14. X CO., INC. filed/submitted an amendment of its Articles of Incorporation with the SEC. If the latter does not act on
it within 6 months without fault attributable to the corporation, the amendment takes effect on the date of its filing
except

a. when the amendment consists of a decrease in the capital stock

b. when the amendment consists of a decrease in the number of directors
c. when the amendment consists of including reasonable restrictions on transfer of shares
d. when the amendment consists of a change in the principal office of the corporation

15. The Board of Directors cannot, without stockholders’ approval, pass a valid corporate act

a. to sell/dispose of its only property in the usual course of its business

b. to invest its corporate funds necessary to carry out the secondary purpose indicated in the articles of incorporation
c. to declare property dividends
d. to reacquire its own shares

16. A contract between corporations with interlocking directors will be subject to the provisions of section 32 of the Code
(voidable) when

a. the interlocking director owns 20% of the outstanding capital stock in one corporation while 18% in the other
b. the interlocking director owns 22% in one corporation while 25% in the other
c. the interlocking director owns 20% in one corporation while 22% in the other
d. the interlocking director owns 22% in both corporation

17. A director who ceases to be a stockholder shall

a. automatically cease to be a director

b. continue to serve in a hold-over capacity until his successor has been duly elected and qualified
c. continue to serve as such until the expiration of his term.
d. continue to serve as such until the expiration of his term if authorized by the Board of Directors

18. X CO., INC. is engaged in the realty business with no other purpose indicated in the article of incorporation. It entered
into a catering service with Y CO., INC. for the retirement of the latter’s president for a consideration of Php150,000.
X CO. fully complied with its obligation but Y CO., later refused to pay the agreed amount claiming that X CO., is
not empowered/authorized to engage in the food catering business. In an action brought before the Court, may Y CO.,
INC. be compelled to pay?

a. No, because the actuation of X CO., INC. is beyond its corporate powers and authority. (Doctrine of Limited
Capacity)
b. Yes, because the party who has received the benefits of the contract is estopped to set up that contract is beyond
the corporate powers of X CO., to defeat an action on the same.
c. Yes, because the contract is valid per se
d. No, because the court cannot interfere with the business judgment of the Board of Directors

19. A provision in the by-laws of a regulatory/ordinary stock corporation may validly provide

a. for a greater quorum and voting requirement in stockholders’ meeting

b. for a denial of cumulative voting of the stockholders
c. for a greater quorum and voting requirements in directors’ meeting
d. for the holding of stockholders’meeting anywhere in the Philippines

20. “A”, the President of X CO., INC. which is engaged in the realty business, bought (in his personal and individual
capacity) from his friend a parcel of land for Php5M and later sold it at Php5.5M thereby making a profit of Php.5M.
May his act be validly ratified by the stockholders at the objection of any one single stockholder?
 a. Yes, because he acted as a natural person separate and distinct of the corporation which he is the President
b. No, because he acquired a personal interest in conflict with his duty as a director
c. No, because he serves in a fiduciary position and should not advance his selfish motives to the damage and
prejudice of the corporation
d. Yes, because he merely acquired a business opportunity rightfully belonging to the corporation

PART II

1. What is the test in determining whether a corporation has the implied power to do a certain act? log.rel. b/w act done
direct and immediate furtherance corp biz, fairly incident to its express powers, reasonably necessary to their exercise

2. What is the limitation imposed by law on the right of a corporation to decrease its capital stock? Trust fund doc

3. What is the Business Judgment Rule? Define

4. Explain the statement that if not denied by a provision in the articles of incorporation, the pre-emptive right of a
stockholder in a close corporation is absolute. (i.e. the exceptions when a stockholder in an ordinary/regular
corporation may not be able to exercise it even if not denied by a provision in the articles of incorporation under
section 39 will not apply to the former) apo notes

5. Explain the statement that the failure of a corporation to adopt/file its by-laws within the time frame provided for by
law does not result to the automatic dissolution of the corporation.

6. Enumerate four (4) instances when the purchaser of all or substantially all of the corporate assets/properties may be
held liable for the debts and liabilities of the selling corporation. Apo notes

7. Enumerate the defenses available to the directors for their failure or refusal to declare dividends.

PART III

X CO., INC. which is engaged in land transportation business has an authorized capital stock of Php100M divided into
100M shares with a par value of Php1.00 per share. 50M has been subscribed and 25M was duly paid up. The Board of
Directors consist of 10 members as fixed in the Articles of Incorporation. The by-laws are silent as to whether or not the
company may create an Executive Committee. One of its stockholders, “A”, recently graduated Magna Cum Laude in
Business Administration from Yale University and the Board firmly believes that he (A) will be able to help bring the
company to its highest level of competence. The company approaches you if

1. The Board of Directors may create an executive committee. If yes, why and if not, why not, and what should be done
in order that one may be created? No.sec.35

2. If such an executive committee may be created, may it be composed of 5 members consisting of 4 directors and “A”
who is not a director? Why or why not? No.director only

3. May the company validly engage in water transportation without amending the articles of incorporation to include
such an activity in the purpose clause? Explain. No.entirely diff line of biz

4. May the company put up a 12 story building, occupy 3 stories for its offices and rent out the rest to the public? Why
or Why not? Yes. Power to invest other than its primary purpose

5. If the company made Php30M surplus profits (unrestricted retained earnings) may the Board be compelled to declare
dividends even if there are no preferred shareholders? If Yes, to what extent or how much may they be compelled to
declared? If no, why not? No.discretionary of the board. Unless. Apo notes

6. If X CO., INC. earlier entered into a contract with Z CO., which represented itself as a corporation for the lease/rental
of 5 of the buses of the former who was aware that Z CO., INC. is not in fact registered as a corporation, and X CO.,
 INC., fully complied with its obligation, on a suit brought to by it (X CO., INC.) directly against the person/s who
assumed to act as such corporation, may the latter interpose that X CO., INC. has no cause of action against them
because he dealt with Z CO., INC. as a corporation and thus admitted its legal existence as a corporate body? May
claim. Transaction with fraud. Doc. Of estoppel

7. Assuming that Z CO., INC., (as stated in no. 6) is a de facto corporation, may the stockholder who made
representation of the existence of the corporation be sued in their personal/individual capacities? No. Defacto
corp..corporate entity applies

8. If a stockholder is denied to exercise his pre-emptive right by the board of directors and the former intends to sue the
latter, what type of suit may he institute/bring? Personal suit

9. In relation to item 8, may service of summons be validly served upon a director who is neither the president,
managing director, in house counsel, corporate secretary or treasurer. Explain.provided in the by-laws.

10. If the president X CO., issues a corporate check to pay corporate liabilities and the check bounced for insufficiency of
funds, may he successfully advance the Corporate Entity Theory to evade liability in an action filed against his
person? Why or why not? B.p.22. No.