In such a case, the corporation will cease to exist because the requirements in order to be registered as a

corporation are not present.

Under the Corporation Code, the number of directors to be elected in a stock corporation are 5 but not more
than 15. In connection with this, every director must own at least one (1) share of the capital stock of the corporation of
which he is a director, which share shall stand in his name on the books of the corporation. Any director who ceases to
be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease
to be a director.
If one director will acquire all the outstanding capital stock of a corporation, it means that he can only be the
one who is eligible to be a director. Hence, it does not meet the minimum of 5 directors.

It depends.
A corporate secretary can bar a stockholder from exercising the right to vote when his shares appear in the
books and records to have been pledged in favor of a third person and such pledgee is given the right to vote which
must be recorded in the books of the corporation.
However, if the right to vote is not given to a third person and not recorded in the books, the corporate secretary
may not bar a stockholder from exercising his right to vote because he is still the owner of the stock. The right to vote is
an inherent right in stock ownership.

Yes. Because the ARTICLES OF INCORPORATION is one that defines the charter of the corporation and the
contractual relationships between the state and the corporation, the stockholders and the state, and between the
corporation and the state.

Moreover, the following are the binding effects of by-laws:

1. As to members/ stockholders, officers, trustees/ directors and corporation – They are bound by and must comply
them. They are presumed to know the provisions of the by-laws.
2. As to third persons – 3rd persons are not bound unless they have knowledge of by-laws. (PMI College vs. NLRC,
G.R. No. 121466, August 15, 1997)

By-laws have no extra-corporate force and are not in the nature of legislative enactments so far as third persons are
concerned.

No. The existence of profits does not render the declaration of dividends mandatory.
Under the Corporation Code, the board may declare dividends out of unrestricted retained earnings or total
assets less liabilities and total capital, payable in cash, in property or in stock on the basis of outstanding stock held by
them. The basis is the total subscription.
Hence, declaration of dividends is discretionary. It becomes mandatory only when its surplus profits are in
excess of 100% of paid in capital stock. However, even if the profits are in excess, there can still be no declaration of
dividends in the following instances:
1. justified by definite corporate expansion projects or programs approved by the board
2. prohibited by a loan agreement with any financial institution or creditor from declaring dividends without its consent
is not yet obtained
3. shown that such retention is necessary under special circumstances obtaining in the corporation, as there is a
need for a special reserve for probable contingencies

No.
Treasury shares are shares that have been earlier issued as fully paid and have thereafter been acquired by the
corporation by purchase, donation, and redemption or through some lawful means.
They can be distributed only as property dividends. They cannot be declared as stock or cash dividends because
they are not considered part of earned or surplus profits. The distribution of cash or stock dividends out of treasury
shares would be converting the corporation into both a debtor and creditor for the same amount at the same time, or
requiring it to take money or stock from one of its pockets and putting it in another, which is absurd. Treasury shares
Page 1 of 21
may be declared as property dividend to be issued out of the retained earnings previously used to support their
acquisition provided that the amount of the said retained earnings has not been subsequently impaired by losses. (SEC
Opinion, July 17, 1984)

THE DOCTRINE OF EQUALITY OF SHARES holds that where the articles of incorporation do not provide for
any distinction of the shares of stock, all shares issued by the corporation are presumed to be equal and enjoy the same
rights and privileges and are also subject to the same liabilities.

- No. A corporation cannot dissolve itself at any time because despite the fact that it can have a voluntary
dissolution, there are still requirements for dissolution as mandated by the Corporation Code that should be
strictly complied with.

The dissolution shall only take effect upon issuance by the SEC of a Certificate of Dissolution when no creditors
are prejudiced, and if there are creditors who are prejudiced by the dissolution, only upon judgment directing
disposition of assets and payment of debts, and if required, appoint a receiver.

- The EFFECTS OF DISSOLUTION are the following:

1. legal title to corporate property is vested in shareholders
2. corporation ceases as a body politic to continue the business for which it was organized
3. it cannot be revived
4. dissolution does not, by itself imply the diminution or extinguishment of rights
5. upon expiration of the winding up period of 3 years, the corporation ceases, it can no longer sue or be
sued

- No. Under the Corporation Code, “every corporation upon dissolution shall be continued as a body corporate
for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property
and to distribute its assets, but not for the purpose of continuing the business for which it was established.

- Yes. Intervention of the state is required in voluntary dissolution because the dissolution shall only take effect
upon issuance by the SEC of a Certificate of Dissolution when no creditors are prejudiced, and if there are
creditors who are prejudiced by the dissolution, only upon judgment directing disposition of assets and payment
of debts, and if required, appoint a receiver. In case of amendment to shorten corporate term, dissolution shall
take effect upon expiration of the shortened term without further proceedings but with the prior submission of
the amendment to the SEC. In all instances, state intervention is required because of the very fact that the state
is the one who granted certificate of incorporation.

- Under the Corporation Code, a corporation may acquire its own shares provided the following conditions are
met, to wit:
(a) Capital is not impaired;
(b) There must be unrestricted retained earnings;
(c) For a legitimate and proper purpose;
(d) Corporation is in good faith and without prejudice to the stockholders’ rights;
(e) Condition of corporate affairs.
Absent the conditions, there is a violation of the Trust Fund Doctrine. In the problem, the payment of the
resigning president’s shares is not a legitimate purpose that is why it is in violation of the doctrine.
The only exceptions from the trust fund doctrine are the redemption of redeemable shares, Reduction of the
authorized capital stock, Dissolution and eventual liquidation, and, in the case of close corporation, when there
should be a deadlock and the SEC orders the payment of the appraised value of a stockholder’s share.
Page 2 of 21
 It is a valid contract.
Under the Corporation Code, contract between corporations with interlocking directors is valid as long as there
is no fraud and the contract is fair and reasonable. It is voidable at the option of the corporation only if a director's interest
in one corporation is substantial in his interest in the other corporation is nominal. Shareholdings in excess of 20% of
the outstanding capital stock shall be considered substantial.
In the case, Director A holds a substantial interest in both of the contracting corporations, being 25% in XYZ
Corp. and 30% in ABC Corp. Hence, the contract cannot be considered voidable at the option of 1 of the contracting
corporations.

A should exercise the voting rights pertaining to the shares of X because he was the one expressly appointed
by X as a proxy.
Unless the stockholder or member who executed a proxy gives his consent in writing, a designated proxy may
not further re-designate another under the same proxy. An alternate proxy can only act as proxy in case of non-
attendance of the other designated proxy.
Although A was given express authority to appoint a substitute, B can only act as proxy in case of non-
attendance of A, the designated proxy.

A de facto corporation is one that is so defectively created as not be a de jure corporation, but nevertheless is the result
of bona fide attempt to incorporate under existing statutory authority coupled with the exercise of the corporate powers
and is recognized by the courts as such upon grounds of public policy in all proceedings, except upon a direct attack by
the state questioning its corporate existence.
The members of a de facto corporation cannot be held liable as partners by third persons who deal with them in their
supposed corporate capacity, merely on account of a technical defect in the formation of the corporation. Stockholders
enjoy exemption from personal liability for corporate obligations.

A corporation by estoppel arises when the persons assume to act as a corporation knowing it to be without authority to
do so; in this case said persons shall be liable as general partners for debts, liabilities and damages and it cannot, as a
defense, neither can one dealing with it, resist performance. Hence, one who assumes an obligation to an ostensible
corporation as such cannot resist performance thereof on the ground that there was in fact no corporation.

Page 3 of 21
Both of the defenses are not tenable because A Corporation has already been accorded with Certificate of Incorporation
before it becomes bankrupt. As such, A Corporation is a de jure corporation. Mark can use the defense of DOCTRINE
OF SEPARATE JURIDICAL PERSONALITY which holds that a corporation is a juridical entity with legal personality
separate and distinct from those acting for and in its behalf and in general, from the people comprising it. Liabilities of
the corporation is separate and Mark cannot me made personally liable.

Yes.
There is a sale, lease, exchange, mortgage, pledge, and any other disposition (SLEMPO) of substantially all of corporate
asset if in the SLEMPO thereof, the corporation would be rendered:
1. Incapable of continuing the business; or
2. Incapable of accomplishing the purpose for which it was incorporated. (Sec 40, CC)
If the corporation would sell the machine, it would render the corporation incapable of continuing its business since the
machine is necessary to the business of printing books of the corporation. As such, it would also be incapable of
accomplishing its purpose which is to operate a business of printing books.

Material non-public information (1995 Bar)

1. Information about the issuer or the security has not been generally disclosed to the public and would likely affect the
market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to
absorb the information; or
2. Would be considered by a reasonable person important under the circumstances in determining his course of action
whether to buy, sell or hold a security. (SRC, Sec. 27.2)

Under the law, securities are shares, participation or interests in a corporation or in a commercial enterprise or profit-
making venture and evidenced by a certificate, contract, instruments, whether written or electronic in character.
(SPI CCP CCI WE)

Securities are evidence of an investment made with the expectation of profits solely form the efforts of others.

From the definition of securities, the certificate of membership can be considered as a security because it is an interest
in a corporation and evidenced by the certificate itself. The fact that no income shall accrue to the certificate holder does
not diminish it to be a security because the holder still has some benefits, and that is the right to use all club facilities
and the right to transfer.

As a general rule, securities must be registered with and approved by SEC to protect the public from fraud.

Page 4 of 21
No.
As a general rule, PAYMENT FOR SHARES MUST BE MADe on the date fixed in the subscription contract or if none,
upon call. THE REQUISITES OF A VALID CALL ARE AS FOLLOWS:
(a) made in the manner provided by law, it requires a resolution and notice
(b) it must be made by the board
(c) must operate uniformly among all shareholders

If no payment is made 30 days after due date or after the date stated in the call, the shares shall be considered to be
delinquent.

The call stated that payment of all unpaid subscriptions must be made on January 1, 2007. The shares shall only be
considered to be delinquent 30 days after Jan 7, which is on Feb 7. Under the law, the sale of delinquent stocks shall
not be less than 30 days nor more than 60 days from the date of delinquency. Thus, the earliest date that a delinquency
may be had is Mar 7. However, in the problem the sale was made on Feb 15 which is premature. The action of the
board is considered to be defective.

As such, S may recover his shares and be elected provided, he pays to the person holding the stock the sum paid, plus
legal interest from date of sale and the action is brought within six months from Feb 15, the date of sale.

No. The commission by the corporation of an ultra vires act cannot serve as basis for the filing of a derivative suit.
A derivative suit is one brought by one or more stockholder/s or member in the name of the corporation and in its behalf
to redress wrongs committed against it or to protect or vindicate corporate rights whenever the officials of the corporation
refuse to sue, are the ones to be sued or hold control of the corporation. In a derivative suit, the wrong is inflicted directly
on the corporation and indirectly upon the stockholders. It is an available remedy in cases where the officers are over
compensated or there is a refusal to take action without sufficient explanation.
When it is the corporation itself is the one who committed an ultra vires act, then derivative suit cannot be had since it
would be absurd.
Moreover, the ultra vires doctrine may only be invoked by:
(a) State if a corporation allows its existence to the state, its powers are limited by the grant of authority by the
state
(b) Stockholders as they have a right to expect and insist that the corporation adhere to the limits of its granted
powers
(c) Strangers, if they are party to the contract
(d) Competitors only if allowed by the statute; example is the Philippine Competition Act of 2016
(e) Creditors, if acts are in fraud of creditors.
Corporation is not one of the enumeration.

a. Proper. In computing any additional compensation, per diems are not included to determine whether the limit
has been reached (in no case shall total annual compensation exceed 10% of the net income before income
tax of the preceding year).
b. Not proper because the suit is not in the name of the corporation. A derivative suit should be in the name of the
corporation because it is the corporation who has the right to enforce, to collect from XYZ Corp, a corporate
debtor.
c. Proper because there is still a quorum. Unless otherwise provided for in the by-laws, a quorum shall consist of
the stockholders representing a majority of the outstanding capital stock entitled to vote. (CC, Sec. 52) Ben
holds only 40% of the OCS of the corporation. Despite his absence there will still be majority.

Page 5 of 21
 The corporation may enter into voting trust agreements.
A voting trust agreement (VTA) is an agreement whereby one or more stockholders transfer their shares of
stocks to a trustee, who thereby acquires for a period of time the voting rights (and/or any other specific rights) over
such shares; and in return, trust certificates are given to the stockholder/s, which are transferable like stock certificates,
subject, to the trust agreement.
The principal purpose of executing VTA is to acquire control of the corporation. One specific purpose of entering
into a voting trust agreement is to effect a plan for reorganization of a corporation in financial difficulty or in bankruptcy
proceedings.

 Yes. Regular meetings of directors are held monthly unless otherwise provided and their special meetings are
held at anytime upon call of the president. Board meetings can be held anywhere in or outside of the Philippines
unless the By-laws provide otherwise. Regular meetings of directors require one day notice unless otherwise
provided. It is the president who calls the meeting but it can be called also by a person designated in the By-
Laws - director or officer entrusted with managing.
 In directors meetings, there being a quorum, all acts are valid. But if not undertaken in a duly convened meeting,
they are generally invalid but may be ratified.

REQUISITES OF A VALID BOARD MEETING

 Meeting of the directors/trustees should be assembled as board. (Directors/trustees cannot attend or vote by
proxy as their personal judgment is required)
 Presence of a required quorum
 Decision is reached by a majority vote of the quorum or by an entire board as required by law
 Meet at the time, place and manner provided in the by-laws.

No. The number of directors cannot be reduced to five by just conducting a meeting.
The Articles of Incorporation must be amended because it contains the number of directors, which shall not be less than
five (5) nor more than fifteen (15).

Amendments may take place by a majority vote of the board, and 2/3 vote or written assent of stockholders or members.
The original and amended articles are then submitted to the SEC with underscoring, duly certified by corporate secretary
(except corporation sole) and majority of the directors that it has been duly approved by the required vote and in case
of corporations that are regulated by another government agency, a favorable recommendation must be submitted
likewise. The rule that allows written assent does not apply when the object of the amendment is to extend or shorten
the term or increase or decrease capital stock.

EXCEPTION:

Unless otherwise provided by the code or special law.

WHEN EFFECTIVE

(a) Upon approval by the SEC, or

(b) From date of filing with the SEC, if not acted upon within six months from date of filing for a cause not attributable to
the corporation.

Page 6 of 21
 No. A President cannot simply remove his vice president at will because for the removal of a corporate officer,
the vote of the Board of Directors is needed. The President should act with the other directors and as a board.
The Board of Directors has the power to elect officers. The power to elect carries with it the power to remove.
The members elect corporate officers by majority vote, unless otherwise provided by Articles of Incorporation or By-
Laws. As such, they can also remove officers by majority vote.
However, if the vice president is not one of the officers indicated to be elected by the board in the by-laws, his
removal is subject to the rules on regular employees. Hence, the provisions of the labor code applies on removal of
employees.

- No. An executive committee can only be created by virtue of a provision in the by-laws and that in the absence
of such by-law provision, the board of directors cannot simply create or appoint an executive committee to
perform some of its functions. (SEC Opinion, Sept. 27, 1993) In such a case where there was an unauthorized
creation of executive committee by the board, the principle of de facto officers may be applied insofar as third
persons are concerned. However, insofar as the corporation is concerned, the unauthorized act of appointment
of an executive committee may be subject to Sec. 144, which provides for penalties in violation of the Code.

- Yes. Non-members of the board may be appointed as members of the executive committee provided that there
are at least 3 members of the board who are members of the committee. (SEC Opinion, Sept. 16, 1986) A
person not a director can be a member of the executive committee but only in a recommendatory or advisory
capacity.
LIMITATIONS OF EXECOM
(a) Approval of option requiring stockholder or member approval
(b) Filling up of vacancies in the board
(c) Amendment or repeal of by-laws
(d) Amendment or repeal of any board resolution which by its terms is not so repealable or amendable
(e) Cash dividend declaration (also stock dividends)

 No. The board may declare dividends only out of unrestricted retained earnings or the total assets less liabilities
and total capital, payable in cash, in property or in stock on the basis of outstanding stock held by them. The basis
is the total subscription. Here, since there is no profit, there can be no dividend.
 No. The board may not declare stock dividends because stock dividends are issued by resolution of the board of
directors and approval of the resolution by the stockholders representing 2/3 of the outstanding capital stock at
meeting duly called for the purpose. For the declaration of stock dividends, a corporation must have also a sufficient
number of authorized unissued shares for distribution to stockholders; otherwise, it must increase its capital stock
to the extent of the corporate earnings to be declared and distributed as stock dividends.

Dividends refer to the part or portion of the profits of a corporation, set aside, declared and ordered by the board to be
paid ratably to the stockholders.

Stock dividends are issued by resolution of the board of directors and approval of the resolution by the stockholders
representing 2/3 of the outstanding capital stock at meeting duly called for the purpose. For the declaration of stock
dividends, a corporation must have also a sufficient number of authorized unissued shares for distribution to
stockholders; otherwise, it must increase its capital stock to the extent of the corporate earnings to be declared and
distributed as stock dividends.

Page 7 of 21
Dividend declaration is discretionary. The board may declare dividends out of unrestricted retained earnings or total
assets less liabilities and total capital, payable in cash, in property or in stock on the basis of outstanding stock held by
them. The basis is the total subscription.

Provided, however, if a stock dividend is declared, that any dividend due on delinquent stock shall be withheld until the
unpaid subscription is paid.

Dividend declaration becomes mandatory when its surplus profits are in excess of 100% of paid in capital stock.

However, it may be withheld when:

a. justified by definite corporate expansion projects or programs approved by the board;
b. prohibited by a loan agreement with any financial institution or creditor from declaring dividends without its
consent is not yet obtained; and
c. shown that such retention is necessary under special circumstances obtaining in the corporation, as there is a
need for a special reserve for probable contingencies
No action can be brought against a corporation because it is not a matter of right but of consensus.

No.
Under the Corporation Code, a corporation generally requires a minimum of 5 and a maximum of 15
incorporators.
Also, the number of directors to be elected in a stock corporation are 5 but not more than 15. In connection with
this, every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which
share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one
(1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director.
If one individual will acquire all the outstanding capital stock of a corporation, it means that he can only be the
one who is eligible to be a director. Hence, it does not meet the minimum of 5 directors.

1. INCREASE CAPITAL STOCK by increasing the number of shares without increasing par value, by increasing par
value without increasing the number of shares, or both
2. STOCK DIVIDEND DECLARATION - issued by resolution of the board of directors and approval of the resolution
by the stockholders representing 2/3 of the outstanding capital stock at meeting duly called for the purpose.
3. INCUR, CREATE OR INCREASE BONDED INDEBTEDNESS - Approved by a majority vote of the board of
directors and, at a stockholders' meeting duly called for the purpose, two-thirds (2/3) of the outstanding capital stock
shall favor the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded
indebtedness.

The contract entered into by ABC Corp. and XYZ Corp is valid as long as there is no fraud and the contract is fair and
reasonable. It is voidable at the option of the corporation where he has a nominal share if a director's interest in one
corporation is substantial and his interest in the other corporation is nominal. Shareholdings in excess of 20% of the
outstanding capital stock shall be considered substantial.
Although voidable, the contract shall be valid when:
(a) presence of the director/trustee in the board meeting in which the contract was approved was not necessary to
constitute a quorum
(b) his vote is not necessary to approve the contract
(c) that the contract is fair and reasonable under the circumstances. In the case of an officer, the contract has previously
approved by the board.

Page 8 of 21
If however, conditions (a) and (b) are absent, the contract may be ratified by 2/3 vote of the outstanding capital stock in
the meeting duly called for such purpose with full disclosure of the adverse interest being made at the meeting and that
the contract is nevertheless fair and reasonable.

Contract between ABC Corp and A - voidable at the option of the Corporation
Contract between XYZ Corp and A - voidable at the option of the Corporation

De Facto Corporation is one which actually exists for all practical purposes as a corporation but which has no legal right
to corporate existence as against the State. The liabilities and penalties attending to officers and directors/ trustees of
a de jure corporation shall be the same as those of a de facto corporation.

DISTINCTION BETWEEN A VOTING TRUST AGREEMENT and PROXY

a voting trustee can appoint a proxy a proxy, as a rule, cannot further delegate
his authority
a voting trustee votes in his own name a proxy is an agent of the shareholder

Yes. RIGHT OF APPRAISAL is the right of stockholder to demand payment of the fair value of its shares after
dissenting from a proposed corporate action involving a fundamental change in the corporation in the cases provided
for by law. It is available when the articles are amended and such has the effect of changing or restricting the rights of
a shareholder or a class of shares or authorizing preferences in any respect superior to those outstanding shares of any
class such as what happened to Ramon.
As a rule, in the absence of express provision in the AOI as to their convertibility feature, preferred shares
cannot be converted into common. The terms of the preferred share contract cannot be changed without the consent of
the stockholders.

Yes. Ramon is entitled to the common shares corresponding to his preferred shares. He enjoys the rights of a
SH as long as he is not delinquent. Moreover, under the Corporation Code, shares may be paid by outstanding shares
exchanged for stocks in the event of a reclassification or conversion.

Page 9 of 21
DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION is a doctrine that allows the State to disregard for
certain justifiable reasons the notion that a corporation has a personality separate and distinct form the persons
composing it. It is an exception to the Doctrine of Separate Juridical Personality because the application of the doctrine
seeks to hold the stockholder or members of the corporation personally liable for corporate obligations.

DOCTRINE OF CORPORATE OPPORTUNITY (SEC 34) - When a director is disloyal by virtue of his office, he acquires
for himself a business opportunity which should belong to the corporation, thereby obtaining profit, he must account for
it by refunding the same to the corporation, even if the director risked his own funds in the venture, unless, his act is
rectified by a vote of the stockholders owning or representing 2/3 of outstanding capital stock.

CLOSE CORPORATION is a corporation whose articles provide that:

1. All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more
than a specified persons not to exceed 20.
2. All issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted in this
title.
- ANY RESTRICTION CAN BE PUT PROVIDED:
a. the restriction must appear in the articles of incorporation/by-laws as well as the certificate of
stock, otherwise it is not binding on a purchaser in good faith
b. it or they should not be more onerous than that granting the existing stockholders or the
corporation the option to purchase the shares with such reasonable terms, conditions or periods
stated therein.
3. The corporation must not list in any stock exchange or make any public offering of any of its stock of any class.

No. There is no veil to pierce in the case.

DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION is a doctrine that allows the State to disregard for
certain justifiable reasons the notion that a corporation has a personality separate and distinct form the persons
composing it. The application of the doctrine seeks to hold the stockholder or members of the corporation personally
liable for corporate obligations.

In the case of Tony, the contract was entered into by Tony and Jun, and not the corporation. Thus, the corporation has
no obligation to Tony.

TESTS TO DETERMINE APPLICABILITY

 when the corporation is used to defeat public convenience
 in fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime
 where a corporation is merely a farce since it is mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or an adjunct of another corporation
 where the end result in piercing the veil is to make the stockholders liable for debts and obligations of the corporation

Y is correct that X cannot run for directorship under XYZ Corp.

Page 10 of 21
A corporation is authorized to prescribe the qualifications of its directors. A provision in the by-laws of the corporation
that no person shall qualify or be eligible for nomination for elections to the board of directors if he is engaged in any
business which compete with that of the Corporation is valid; provided, however, that before such nominee is
disqualified, he should be given due process to show that he is covered by the disqualification.

A director stands in fiduciary relation to the corporation and its stockholders. The disqualification of a competitor from
being elected to the board of directors is a reasonable exercise of corporate authority. Sound principles of corporate
management counsel against sharing sensitive information with a director whose fiduciary duty to loyalty may well
require that he discloses this information to a competitive rival. (John Gokongwei, Jr. v. SEC, et al., G.R. No. L-45911,
April 11, 1979)

No. The provision in the by-laws limiting the number of proxies that may be held by a proxy is void.

The right to appoint a proxy cannot be denied to stockholders in a stock corporation. If proxies will be limited only to a
specified share, then it would defeat the purpose of proxy which is to enable those who do not wish to attend a
stockholders’/ members’ meeting to protect their interest by exercising their right to vote through a representative.

The By-laws may provide for other requisites but it may not provide rules which are in contravention with the Corporation
Code.

Yes.

When the foreign corporation is suing to seek redress for an isolated business transaction, which is a transaction or a
series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention
to engage in the progressive pursuit of the object/purpose of the business organization. This is an exception as it is not
the intention of the law to favor a domestic corporation who later on repudiate obligations on account of the foreign
corporation's lack of a license.

REQUISITES FOR ITS APPLICATION ARE:

(a) It must disclose that it is not doing business in the Philippines and is suing under the Isolated Business Transaction
Rule
(b) It must prove its juridical personality as a foreign corporation
(c) It must name its duly authorized representatives or resident agent.

Any foreign corporation not doing business in the Philippines may maintain an action in our courts upon any cause of
action, provided that the subject matter and the defendant are within the jurisdiction of the court. It is not the absence of
the prescribed license but "doing business" in the Philippines without such license which debars the foreign corporation
from access to our courts. In other words, although a foreign corporation is without license to transact business in the
Philippines, it does not follow that it has no capacity to bring an action. Such license is not necessary if it is not engaged
in business in the Philippines. (Columbia Pictures v. CA, G.R. No. 110318, August 28, 1996)

Page 11 of 21
Retail trade enterprises with paid-up capital of less than US$2.5 M should be 100% Filipino Owned and Zero percent
(0%) foreign equity.

Domestic market enterprise is an enterprise which produces goods for sale, or renders services to the domestic market
entirely or if exporting a portion of its output fails to consistency export at least 60% thereof (R.A. 7042, Sec 3 [f]).

A domestic market enterprise may change its status to export enterprise if the Domestic market enterprise consistently
exports in each year thereof sixty per cent (60%) or more of its output over a three (3) year period (RA 7042, Sec. 7).

A non-Philippine national may own fully a domestic market enterprise

A non-Philippine national may own up to 100% of a domestic market enterprise (RA 7042, Sec. 7).

Requirements for a non-Philippine national to own up to 100% of a domestic market enterprise

1. A non-Philippine national must register with the SEC or with the Bureau of Trade Regulation and Consumer Protection
(BTRCP) of DTI in the case of single proprietorship for it to do business or invest in a domestic enterprise up to 100%
of its capital.
2. The participation of non-Philippine national in the enterprise is must not be prohibited or limited to a smaller
percentage by existing law and/ or under Foreign Investment Negative list (RA 7042, Sec. 5).

Imposition of additional limitation on the extent of foreign ownership in an enterprise other than those provided
for under RA 7042 by the SEC or BTRCP
GR: The SEC or BTRCP, as the case may be, shall not impose any limitations on the extent of foreign ownership in an
enterprise additional to those provided in R.A. 7042.

To ensure compliance with the constitutional limitation(s) of corporations engaging in nationalized activities, the
nationality of a corporation must be determined by ascertaining if 60% of the investing corporation’s outstanding capital
stock is owned by “Filipino citizens”, or as interpreted, by natural or individual Filipino citizens. If such investing
corporation is in turn owned to some extent by another investing corporation, the same process must be observed.
(Redmont Consolidated MinesCorporation vs. McArthur Mining Corporation, SEC En Banc Case No. 09-09-177, March
25, 2010)

One must not stop until the citizenships of the individual or natural stockholders of layer after layer of investing
corporations have been established, for this is the very essence of the Grandfather Rule. (ibid)

Before a foreign corporation can lawfully transact business in the Philippines, it must first obtain a license to transact
business in the country in accordance with the Code and a certificate of authority from the appropriate government
authority. (Sec. 23.) These requirements insure compliance by the registrant corporation, whether domestic or foreign,
with the policies or regulations of the government agency concerned.

A close corporation is a corporation whose articles provide that:

1. All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more
than a specified persons not to exceed 20.
2. All issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted in this
title.
- ANY RESTRICTION CAN BE PUT PROVIDED:
c. the restriction must appear in the articles of incorporation/by-laws as well as the certificate of
stock, otherwise it is not binding on a purchaser in good faith

Page 12 of 21
 d. it or they should not be more onerous than that granting the existing stockholders or the
corporation the option to purchase the shares with such reasonable terms, conditions or periods
stated therein.
3. The corporation must not list in any stock exchange or make any public offering of any of its stock of any class.

INTRACORPRATE DISPUTES:
- controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or
associations between any or all of them and the corporation, partnership or association of which they are
stockholders, members, or association respectively between such corporation, connected with the regulation of the
internal affairs of the corporation.
REQUIREMENTS:

1. the plaintiff must be a stockholder or member at the time the acts or transactions subject of the action occurred;
2. he exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all
remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires;
3. No appraisal rights are available for the act or acts complained of; and
4. The suit is not a nuisance or harassment suit.

THE ATTRIBUTES OF A CORPORATION

1. created by operation of law

2. it is an artificial being
3. it only has the power, attributes and property expressly allowed by law or incident to its existence
4. it has the right of succession

State three corporate acts, besides electing directors or trustees that is vested exclusively in the stockholders
or members of a corporation. (3 pts) When is a director or officer of a corporation personally liable for a
corporate act? (5 pts) What is the purpose of the requiring the election of an independent director? (2 pts)

ACTS vested exclusively in the stockholders or members of a corporation

MAJORITY VOTE OF THE SH
1. Fixing of compensation of directors
2. Adoption of by-laws
3. Fixing the issued price of no-par value shares

PERSONAL/SOLIDARY LIABILITIES OF A DIRECTOR OR OFFICER

1. Willfully and knowingly assents or votes about the unlawful act of the Corporation
2. Guilty of gross negligence or bad faith in directing the affairs of the Corporation.
Example is illegal dismissal of employees when attended by bad faith or malice, where they would be solidarily
liable with the Corporation.
3. Acquisition of any personal or backing any interest in conflict with his duty in respect of matter reposed in him in
confidence,
4. Consents to the issuance of watered stocks or having knowledge of the issuance of watered stock does not quantify
the corporate secretary in writing of the fact of issuance
5. Agrees to be personally liable
6. Made liable by specific provision of law

INDEPENDENT DIRECTORS:
 An independent director is a person who, apart from his fees and shareholdings, is independent of management
and free from any business or other relationship which could, or reasonably perceived to interfere with his
exercise of independent judgment in carrying out his responsibilities as a director.
 Independent directors should always attend board meetings. Unless otherwise provided in the by-laws, their
absence shall not affect the quorum requirement. However, the Board may, to promote transparency, require
the presence of at least one independent director in all its meetings.
WHERE INDEPENDENT DIRECTORS REQUIRED
 Issuers of registered securities to the public - requires at least 2 independent directors or 20% of the board,
whichever is lesser.
 In a bank - requires at least 2.
 A stock or securities exchange - requires at least 3, and the president must be an independent director.
 Finance companies, investment houses, brokers, investment companies, pre-need companies and subsidiaries
of foreign corporations operating and are listed in the Philippine Stock Exchange - requires at least 1.

Page 13 of 21
The By-Laws of Acme Corporation provides that for the transaction of business of the corporation involving
amounts of at least PHP 1,000,000.00, the affirmative vote of a majority of a quorum consisting of 40% of the
outstanding capital stock shall be necessary to authorize or ratify the subject transaction. Is this provision
valid? (5 pts)

QUORUM
GENERAL RULE: a majority of the directors/trustees as stated in the articles of incorporation shall constitute a
quorum.
 The formula for determining the majority is one half plus one of the entire numbers of directors/trustees
notwithstanding the existence of vacancies in the board.

EXCEPTION: What is provided in the by-laws but may only provide the increase of a quorum but not the decrease.
 A quorum once established is not broken by the subsequent withdrawal of one or a part of a faction of those
present, unless the transaction requires the affirmative vote of a greater proportion.

In directors or trustees meetings, there being a quorum, all acts are valid. But if not undertaken in a duly convened
meeting, they are generally invalid but may be ratified.

XYZ Corporation was originally incorporated on March 1, 1975 for a term of 25 years. In 2002, it purchased real
property for which title was issued in its name. In 2005, it was discovered that it was operating under a lapsed
corporate term. To address what it believed as an administrative oversight, it re-incorporated under the same
name, capital structure, purpose, principal office and substantially the same incorporators, board and officers.
Is the re-incorporated XYZ Corporation considered as the owner of the property acquired in 2002? (5 pts)

No.
A corporation is considered dissolved upon expiration of the term. XYZ Corporation was dissolved ipso facto upon the
expiration of its original term, which was on 2000. It ceased to be a body corporate for the purpose of continuing the
business for which it was organized, except only for purposes connected with its winding up or liquidation. Purchase of
real property is not an act to wind up or litigate XYZ’s affairs. It is contrary to the idea of winding up the affairs of the
corporation.
A corporation that has been reincorporated after its original terms of existence has expired does not automatically
succeed to the assets of the original corporation which is deemed dissolved in the absence of a corporate liquidation
under Section 222.
Legal title to corporate property is vested in shareholders.
A corporation automatically terminates upon the expiration of the stated period. It is not necessary to seek the aid of
the Securities and Exchange Commission or a court to terminate the corporation or to formally dissolve and liquidate
it. The task of distributing the assets of the corporation resets upon the board of directors.
But there is nothing to prevent the stockholders from conveying their shareholdings toward the creation of a new
corporation to continue the business of the old. It is not unlawful for the old board of directors to negotiate and transfer
the assets of the dissolved corporation to the new corporation intended to be created as long as the stockholders have
given their consent. (Chung Ka Bio v Intermediate Appellate Court, G.R. No. 71837, July 26, 1988.

A foreign corporation and a domestic corporation commenced negotiations for the former to supply the latter
with raw materials. At the conclusion of the negotiations, the domestic corporation was able to secure an
agreement that it would be granted 90-day credit terms for every purchase of raw materials. Is the foreign
corporation deemed to be doing business in the Philippines? (5 pts)

Yes.
A foreign corporation is “deemed doing business in the Philippines” if it is continuing the body or substance of the
business or enterprise for which it was organized. It is the intention of an entity to continue the body of its business in
the country.
The grant and extension of 90-day credit terms of a foreign corporation to a domestic corporation for every purchase
shows an intention to continue transacting with the latter.
DOING BUSINESS CAN THUS BE INFERRED FROM:
(a) continuous business acts or transactions
(b) isolated transaction or business act if an inference can be drawn or of such a character as distinctly to indicate
a purpose or the part of the foreign corporations to do business and to make the state the base of its operations for
the conduct of its ordinary business.

When a person is given the right to subscribe to a certain portion of the unissued stock of a corporation within
a certain period and under certain terms and conditions, is it a subscription contract? (3 pts)

No. It is a stock option.

Page 14 of 21
A Stock option is a privilege granted to a party to subscribe to a certain portion of the unissued capital stock of a
corporation within a certain period and under the terms and conditions of the grant exercisable by the grantee at anytime
within the period granted.
On the other hand, subscription contract is any contract for the acquisition of unissued stock in an existing corporation
or a corporation still to be formed notwithstanding the fact that the parties refer to it as a purchase or some other contract.

XYZ Corporation has been operating unprofitably from date of incorporation to 2007. Towards the end of last
year, the corporation’s Chairman and President, X was able to determine that the effect of newly passed
legislation on the market is to make XYZ Corporation profitable. X then resolved to implement a plan to buy out
the stockholders of XYZ Corporation without disclosing what he had come to determine. Is X insider trading?
(5 pts)

No, X is not insider trading.

Under the law, Insider Trading occurs when an insider sells or buys a security of the issuer, while in possession of
material information with respect to the issuer or the security that is not generally available to the public.

Material non-public information includes:

1. Information about the issuer or the security has not been generally disclosed to the public and would likely affect the
market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to
absorb the information; or
2. Would be considered by a reasonable person important under the circumstances in determining his course of action
whether to buy, sell or hold a security. (SRC, Sec. 27.2)
The information that the effect of newly passed legislation on the market is to make XYZ Corporation profitable is not
non-public information because everyone has the access to the laws being passed and it is our obligation as citizens to
be abreast.

Hector, in his capacity as the president of XYZ Corporation, signed a contract with Antonio, in his capacity as
the president of ABC Corporation for the development of the property of Mariano, the majority shareholder of
XYZ Corporation. ABC Corporation reneged on its obligation as provided for in the contract. XYZ Corporation
immediately filed suit for specific performance against Antonio? Will the suit prosper? (5 pts)

No because the suit should be againt ABC Corporation. The proper party shall be the party to the contract. XYZ Corp
entered into a contract with ABC Corp, and not Antonio himself but only acting as president of ABC Corp.

AAA Corporation has purchased the entire capital stock of ZZZ Corporation, thereby acquiring all the assets
and assuming all the liabilities of the latter corporation. Is this a merger or a consolidation? (5 pts)

It cannot be considered a consolidation because consolidation occurs when two or more corporations unite, giving rise
to a new corporate body and dissolving the constituent corporations which cease to exist as separate corporations. Here
AAA Corporation assumes all the liabilities of ZZZ Corporation and new corporation is created.

The purchase is a sale of assets wherein one corporation sells all or substantially all of its assets to another. Such sale,
usually, though not necessarily made in the course of the dissolution of the vendor corporation. Generally, therefore,
where one corporation sells or otherwise transfers all its assets to another corporation, the latter is not liable for the
debts and liabilities of the transferor. But, if in the agreement, a new corporation expressly acquired the assets and
properties, and assumed the obligations and liabilities of an old corporation which is succeeded, the former cannot
excuse itself from said obligations and liabilities on the theory that said two corporations are distinct and separate.

However, the sale of the assets for stock, if followed by dissolution, has the effect of a merger
A merger-like result may be achieved by the sale-of-stock approach, by liquidating or merging the acquired company
when a controlling interest in its stock has been obtained. Stock purchase may in fact be the first step in acquiring
assets. Dissident minority interests may then be eliminated, although care must be exercised to ensure proper treatment
of them under the plan.

Merger, as actually observed and practised in the Philippines,4 necessitates a transfer of all assets and the assumption
of debts and liabilities of the absorbed corporation by the acquiring corporation followed by a separate action on the part
of the absorbed corporation of dissolving itself, generally by amendment of its articles of incorporation shortening its
term of existence, (see Sec. 40.) In return for the transfer of all the assets and assumption of the liabilities of the absorbed
corporation (the latter with the consent of the creditors), the acquiring entity issues a block of shares equal to the net
asset value transferred, which stocks are in turn distributed to the stockholders of the absorbed corporation.

XYZ Corporation had acquired the shares of Juan during a delinquency sale. The shares were eventually sold by the
corporation to Jose for less than its par value. Do pre-emptive rights to the shares exist? Is the sale of the shares watered?
(5 pts)
Page 15 of 21
YES, pre-emptive rights exist to the shares unless denied by the articles or an amendment thereto.

PRE-EMPTIVE RIGHTS refer to the right to subscribe on issues or disposition of shares in proportion by stockholders shareholdings.
Instances when pre-emptive right is not available
1. Shares to be issued to comply with laws requiring stock offering or minimum stock ownership by the public;
2. Shares issued in good faith with the approval of the stockholders representing 2/3 of the outstanding capital stock in exchange for
property needed for corporate purposes;
3. Shares issued in payment of previously contracted debts;
4. In case the right is denied in the AOI;
5. Waiver of the right by the stockholder.

When a corporation reacquires its own shares which thereby become treasury shares, all shareholders are entitled to pre-emptive
right when the corporation reissues or sells these treasury shares. The re-issuance of treasury shares is not among the exception
provided by Sec. 39 when pre-emptive right does not exist.

No. The sale of the shares, although below the par value, is not watered. Only originally issued stock may be watered, as a
subsequent transfer in a sale, the provision says issuance.

WATERED STOCK is stock issued not in exchange for its equivalent in cash, property, shares of stock dividends or services. It
Includes stock that is issued:
(a) without consideration
(b) as fully paid when the corporation receives a sum less than par or issued value
(c) for a consideration other than cash, the fair valuation of which is less than par or issued value
(d) as stock dividend without sufficient returned earnings or surplus

The corporate term of ABC Corporation expired on December 31, 2004. On March 1, 2005, an election was held to elect
directors. Can the board so elected validly exercise corporate functions? (5 pts)

No. They cannot validly exercise corporate functions because there is no corporation for which they are board.

Under the law, upon the expiration of the period fixed in the articles of incorporation, in the absence of compliance with the legal
requisites for the extension of the period, the corporation ceases to exist and is dissolved ipso facto.

EFFECTS OF DISSOLUTION
1. legal title to corporate property is vested in shareholders
2. corporation ceases as a body politic to continue the business for which it was organized
3. it cannot be revived
4. dissolution does not, by itself imply the diminution or extinguishment of rights
5. upon expiration of the winding up period of 3 years, the corporation ceases, it can no longer sue or be sued

CORPORATION BY ESTOPPEL - A corporation by estoppel arises when the persons assume to act as a corporation knowing it to
be without authority to do so; in this case said persons shall be liable as general partners for debts, liabilities and damages and it
cannot, as a defense, neither can one dealing with it, resist performance. Hence, one who assumes an obligation to an ostensible
corporation as such cannot resist performance thereof on the ground that there was in fact no corporation.

When is a securities transaction considered fraudulent? (5 pts)

The following are considered as fraudulent transactions:

1. Employment of any device, scheme or artifice to defraud investors;
2. Obtaining money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary
in order to make the statement made not misleading;
3. Engaging in any act, transaction, practice or course of business, which operates as a fraud or deceit upon any person.

Why is the manipulation of security prices prohibited? (5 pts)

SECURITY PRICE MANIPULATION is an artificial control of security prices. It is an attempt to force securities to sell at prices either
above or below those which would exist as a result of the normal operations of supply and demand. The manipulator hopes to profit
by creating fictitious prices at the expense of the general trading public.

Nature of the Securities Regulation Code (SRC)

The SRC is the law that regulates securities (its issuance, distribution and sale) and the person who deals with such securities. It is
enacted to protect the public from unscrupulous promoters, who stake business or venture claims which have really no basis, and
sell shares or interests therein to investors. The SRC also serves to protect investors, promote investor confidence, and stabilize the
financial markets.
The law does not guarantee that a person who invests in securities will make money. The law only ensures that there will be a fair
and full disclosure of information regarding securities so that the investor could make an informed judgment. (Divina, 2014)

Page 16 of 21
TRUE OR FALSE
 A stockholder bringing a derivative suit is a mere nominal party.
 The unregistered transferee of a certificate of stock has the right to vote and be voted upon until
challenged.
 The doctrine of piercing the veil of corporate fiction may justify service of summons directed to a
corporation on the principal stockholder.
 A stranger can become an insider.
 A security issued by the bank is an exempt security.
 An offer to purchase shares in a corporation must be made the subject of a tender offer.
 The Securities Regulation Act seeks to promote the development of the capital market.

ASSESSMENT EXAMINATION
CORPORATION CODE AND RELATED LAWS
INSTRUCTIONS: Determine if the following statements are true or false. Write T if true or F if false in the
space provided for. SCORE: ___________

____1.The law creating a XYZ corporation has been declared invalid. Hence, XYZ Corporation is now a de
facto corporation.
____2.X subscribed to 100 shares of ABC Corporation. X paid 25% of the value of the said subscription.
Pending payment of the entire consideration, X can be enjoined from voting at a stockholders meeting.
____3.The board of ABC Corporation can declare that for every share of stock held by its 100 stockholders,
they would be entitled to receive one share of stock of XYZ Corporation by way of a dividend without the
need for the approval of its stockholders.
____4.A vacancy in the board due to an increase in the number of required directors can be filled up by the
board as long as it still constitutes a quorum.
____5.A contract entered into between corporations A and B who have the same majority stockholder, who
acts as the president in Corporation A and as secretary in Corporation B is valid.
____6.A stock corporation can be converted into a non- stock corporation by amendment of its Articles.
____7.The lack of a license to transact business does not bar a foreign corporation from bringing suit before
a Philippine court.
____8.A sale of treasury shares at a price less than its stated par value does not violate the Trust Fund
Doctrine.
____9.The Business Judgment Rule bars courts from interfering in corporate management if the questioned
acts are undertaken in good faith and do not amount to the wanton destruction of the rights of the minority.
____10.No pre-emptive rights exist when the shares are issued with the approval stockholders representing
2/3 of the outstanding capital stock in exchange for a property to be used by the president of the corporation.
____11.An ultra vires is always considered an unlawful or illegal act.
____12.Stockholders or members are entitled to payment or compensation for attending meetings.
____13.Privilege granted to a party to subscribe to a certain portion of unissued stock within a certain period
is a subscription contract.
____14.A derivative suit is available as a remedy in cases where the corporate officers are over
compensated.
____15.The right of appraisal may be exercised when the shares of a stockholder of Corporation A is required
to be exchanged for the shares in Corporation B.
____16.A savings bank with 12 stockholders who have agreed to convey their shares only to each other
should they be inclined to dispose of them is considered as close corporation.
____17.Dissolution brings about the termination of corporate existence as far as the right to go on doing
ordinary business.
____18.An intra-corporate dispute is determined by the status of the relationship between the parties and
nature of the question that is the subject of the controversy.
____19.An order to buy a security with knowledge that a corresponding order to sell the same security at
substantially the same price and time by another party is a prohibited manipulation of its price.
____20.Insider trading occurs when corporate officers sell to each other shares of stock of the corporation
where they are both officers, while in possession of material information with respect to the shares that is not
generally available to the public.

Page 17 of 21
Page 18 of 21
8. In the distribution of profits in a corporation and in a partnership, which of the following is false?

a. Only those who have given capital are entitled to a share of the profits
b. The share in the profits is determined by the extent of the given capital
c. The delivery of a share in the profits is a demandable right
d. The period for delivery of a share in the profits is determined by agreement

9. A Corporation and B Corporation intend to merge. To effect the merger, each of the
corporations executes the required plan and articles of merger. It is also their intention to have A
Corporation survive upon merger. A certificate of merger is subsequently issued by the SEC.
Which among the following may ensue?

a. A Corporation can now bring suit against X, a debtor of B Corporation

b. Y, a creditor of B Corporation can maintain his pending suit against it
c. The credit of Z, a creditor of A Corporation may be secured by property of B Corporation
d. (a), (b) and (c)

10. AAA Corporation has acquired the entire capital stock of ZZZ Corporation by exchanging two
of its shares for each share of the latter corporation, thereby acquiring all the assets and assuming
all the liabilities attached to the assets of the latter corporation. As a consequence thereof:

a. AAA Corporation has merged with ZZZ Corporation

b. AAA Corporation has consolidated with ZZZ Corporation
c. ZZZ Corporation has sold all its assets and accompanying liabilities to AAA Corporation
d. Neither (a), (b), or (c)

11. In its Articles of Incorporation, ABC Corporation was supposed to exist for 10 years. After 11
years from the date of its incorporation, it continues to exist. ABC Corporation is now a:

a. Corporation by Estoppel
b. Corporation De Jure
Page 19 of 21
c. Corporation De Facto
d. Neither (a), (b), or (c)

12. XYZ Corporation entered into a contract with ABC Corporation. A and X are on the board of
both corporations. B and Y are stockholders of both corporations. A owns 25% of the outstanding
capital stock of XYZ Corporation and 30% of the outstanding capital stock of ABC Corporation. X
owns 15% of the outstanding capital stock of XYZ Corporation and 10% of the outstanding capital
stock of ABC Corporation. B and Y each own 10% of the outstanding capital stock of XYZ
Corporation and 30% of the outstanding capital stock of ABC Corporation. The contract is:

a. Valid, because it is not contract involving interlocking directors

b. Valid, because it is fair and reasonable
c. Voidable, because of the presence of interlocking directors
d. Voidable, because it is in effect a contract between XYZ Corporation and its directors

13. The corporate powers that are not vested by law in the board of a corporation, does not
include:

a. Removal of directors or trustees

b. Grant of per diems to directors
c. Delegation of the power to amend By-Laws
d. Calling of a meeting of the stockholders, upon good cause, when no person is authorized to call
it

14. X, a stockholder in ABC Corporation gave a written proxy to stockholder A. Prior to the
meeting, A designated stockholder B as his alternate proxy. On the date of the meeting for which
the proxy was intended, A and B were both present. A arrived earlier than B. Who between A and
B should exercise the voting rights pertaining to the shares of X?

a. A, because the proxy was originally given to him

b. A, because he had impliedly revoked the proxy given to B
c. B, because the later presentation his proxy revoked the proxy given to A
d. B, because the execution of his subsequent proxy has the effect of revoking the proxy of A

15. The trust fund doctrine is violated by a corporation’s acquisition of its own shares when:

a. The corporation takes up redeemable shares before they are due

b. The corporation is the sole bidder at a delinquency sale
c. The corporation pays a dissenting stockholder
d. (b) and (c)

16. X subscribed to 100 shares of ABC Corporation. X paid 25% of the value of the said
subscription. During an ensuing stockholders’ meeting, X sought to vote his 100 shares but was
prevented from doing so by the corporate secretary because he has a balance on his subscription.
The act of the corporate secretary is improper:

a. Because X can exercise all the rights of a stockholder

b. Because X can settle his subscription prior to the conduct of the meeting
c. Because the corporate secretary is not the proper party to raise the matter of an unpaid
subscription
d. Because only the board can demand the payment of an unpaid subscription

Page 20 of 21
17. A,B,C, D and E decided to form XYZ Corporation to engage in the business of manufacturing
and sale of computers, with authorized capital stock of PHP1,000,000.00. All five incorporators
subscribed equally. Even before they could pay for 25% of their respective subscriptions, they had
already entered into a contract to supply a university with computers. For lack of funds though,
they were unable to comply with their contract. What is the liability of XYZ Corporation?

a. XYZ Corporation incurs no liability because the A,B, C, D and E as stockholders are the ones
who will be liable
b. XYZ Corporation incurs sole liability because it is a corporate debt that has been incurred
c. XYZ Corporation incurs no liability because A,B,C,D and E incur personal liability
d. XYZ Corporation incurs solidary liability with A,B,C,D and E

18. ABC Corporation has authorized capital stock of PHP 1,000,000.00 divided into 50,000
common shares and 50,000 preferred shares. At its inception, the Corporation offered for
subscription all the common shares. However, only 40,000 shares were subscribed. Recently, the
directors thought of raising additional capital and decided to offer to the public all the authorized
shares of the Corporation at their market value. Would Mr. X, a stockholder holding 4,000 shares,
have preemptive rights to the remaining 10,000 shares?

a. Yes, because all stockholders of a corporation shall enjoy pre-emptive right to subscribe
to all issues or disposition of shares of any class, in proportion to their respective
shareholdings
b. Yes, because the interest of X will be diminished
c. No, because these shares have already been offered at incorporation and he chose not to
subscribe to them. He, therefore, has waived his right thereto and the corporation may offer them
to anyone
d. (a) and (b)

19. Plaintiffs filed a collection action against X Corporation. Upon execution of the court’s decision,
X Corporation was found to be without assets. Thereafter plaintiffs filed an action against its
present and its present and past stockholder Y Corporation which owned substantially all of the
stocks of X Corporation. The two corporations have the same board of directors and Y Corporation
financed the operations of X Corporation. May Y Corporation be held liable for the debts of X
Corporation?

a. Yes, because both corporations have the same board of directors

b. Yes, because the situation justifies the conclusion that X Corporation is merely an extension of
the personality of Y Corporation
c. Yes, because the doctrine of piercing the veil of corporate fiction applies
d.(a) and (b)

20. What is the nationality of a corporation organized and incorporated under the laws of a foreign
country but is owned 100% by Filipinos?

a. It is a Filipino corporation
b. It is a Foreign corporation
c. It is both a Foreign corporation and a Filipino corporation
d. Neither (a), (b) or (c)

Page 21 of 21