REVIEW NOTES

Corporation - is an artificial being created by other jurisdiction unless it has obtained a

operation of law, having the right of succession license or authority from the foreign state.
and the powers, attributes and properties 3. The shareholders’ limited liability tends to
expressly authorized by law or incident to its limit the credit available to the corporation
existence. as a separate legal entity.
4. Transfers of share may result to uniting
Attributes of a Corporation incompatible and conflicting interests.
1. It is an artificial being 5. Minority shareholders have practically no
2. It is created by operation of law say in the conduct of corporate affairs.
3. It has the right of succession 6. Stockholders voting rights may become
4. It has the powers, attributes and properties merely fictitious and theoretical because of
expressly authorized by law or incident to disinterest in management, wide scale
its existence ownership and inaccessible place of
meeting.
Advantages of Corporate Form of Business 7. Double taxation may be imposed on
1. Capacity to act as a single unit. corporate income.
2. Limited shareholders liability. 8. Corporations are subject to governmental
3. Continuity of existence regulations, supervision and control
4. Transferability of shares including submission of reportorial
5. Centralized management. requirements not otherwise in other
6. Standardized method of organization, business form.
management and finance.
Classification of corporations
Disadvantages of the Corporate Form of 1. As to whether shares of stock are issued or
Business not
1. To have a valid and binding corporate act, a. Stock corporation – a corporation in
formal proceedings, such as board meetings which capital stock is divided into
are required. shares and is authorized to distribute to
2. The business transactions of a corporation holders thereof of such shares
are limited to the State of its incorporation dividends or allotment of the surplus
and may not act as such corporation in profits on the basis of the shares held.

b. Non-stock corporation – a corporation Filipino citizens and corporation to do

which does not issue stocks and does business in its own country or state.
not distribute dividends to their 3. As to number of persons composing them
members. a. Corporation aggregate
2. As to the state or country under whose laws b. Corporation sole
it was created 4. As to whether its purpose is public or
a. Domestic corporation – a corporation private
formed, organized or existing under the a. Public corporation - geographical
laws of the Philippines. subdivisions or political subdivisions of
b. Foreign corporation - is a corporation the state. (Ex: Municipality, City,
which is formed, organized or existing Province)
under any laws other than those of the
Philippines and whose laws allow
 b. Private corporation – this is a such appearance cannot be permitted
corporation where the main purpose of to deny its existence in an action under
which is for profit said contract. Not actually a real
5. As to whether its purpose is religious or not corporation.
a. Ecclesiastical or religious corporation
b. Lay Corporation Share of stock - is one of the units into which the
6. As to whether its purpose is charitable or capital stock of the corporation is divided.
not
a. Eleemosynary corporation Stock certificate - is the written acknowledgment
b. Civil corporation by the corporation of the stockholder’s interest
7. As to their legal right to corporate existence in the corporation and its property.
a. De Jure Corporation – one created in
strict or substantial conformity with the Classification of Shares
statutory requirements for 1. Preferred shares - issued by any corporation
incorporation. Cannot be attacked may be given preference in the distribution
directly or collateraly. of the assets of the corporation in case of
De facto corporation – a corporation where liquidation and in the distribution of
there exists a flaw in its incorporation. Can be dividends, or such other preferences as may
attacked by the state in a proper proceeding be stated in the articles of incorporation
which are not violative of the provisions of
(Qou Warranto).
this Code
What are the requisites? 2. Redeemable shares - may be issued by the
8. As to their relation to another corporation corporation when expressly so provided in
or other corporations the articles of incorporation. They may be
a. Parent or Holding Corporation - One purchased or taken up by the corporation
which owns the shares of another upon the expiration of a fixed period,
corporation and having power, directly regardless of the existence of unrestricted
or indirectly, over the latter includes retained earnings in the books of the
the election of the directors thereof. corporation, and upon such other terms and
b. Subsidiary Corporation - One whose conditions as may be stated in the articles
shares of stock are owned by another of incorporation, which terms and
corporation, called the parent conditions must also be stated in the
corporation, which has the power to certificate of stock representing said shares.
elect its directors. 3. Founders’ shares- classified as such in the
9. As to whether its shares may be held by the articles of incorporation may be given
public or not certain rights and privileges not enjoyed by
a. Close corporation the owners of other stocks, provided that
b. Open corporation where the exclusive right to vote and be
10. Other classifications voted for in the election of directors is
1. Corporation by prescription granted, it must be for a limited period not
2. Corporation by estoppel – group of to exceed five (5) years subject to the
persons which holds itself out as a approval of the Securities and Exchange
corporation and enters into a contract Commission. The five-year period shall
with a third person on the strength of commence from the date of the aforesaid
 approval by the Securities and Exchange 8. Dissolution of the corporation.
Commission.
4. Treasury shares- are shares of stock which Contents of the articles of Incorporation
have been issued and fully paid for, but 1. The name of the corporation.
subsequently reacquired by the issuing 2. The purpose or purposes of the
corporation by purchase, redemption, corporation
donation or through some other lawful 3. The place of the principal office which
means. Such shares may again be disposed must be in the Philippines.
of for a reasonable price fixed by the board 4. The term of existence
of directors. 5. Names, nationalities and residencies of
5. Watered stock – those issued without the incorporators
consideration or with no adequate 6. Number and qualifications of
consideration. incorporators
6. Par Value Shares 7. Number, names, nationalities and
7. No Par Value Shares residences of the directors or trustees.
8. Voting shares – those entitled to vote in the 8. The amount of authorized capital stock
meetings of the corporation. in lawful money of the Philippines, if
9. Non-voting shares – those without voting the number of shares are without par
rights, except in certain cases. value, the number of authorized shares
and the fact that they are without par
value must be stated.
⮚ Where the articles of incorporation
9. The names of the subscribers,
provide for non-voting shares in the nationalities, number of shares
cases allowed by this Code, the holders subscribed, amount subscribed,
of such shares shall nevertheless be amount subscribed, and amount
entitled to vote on the following paid-in
matters: 10. Other matters not inconsistent with
law and which the incorporators may
1. Amendment of the articles of deem
incorporation; 11. necessary or convenient.
2. Adoption and amendment of by-laws; 12. The name of the temporary treasurer
3. Sale, lease, exchange, mortgage, pledge elected (treasurer-in-trust).
or other disposition of all or 13. Notarial acknowledgment.
substantially all of the corporate 14. Treasurer’s affidavit.
property;
4. Incurring, creating or increasing Amendment of the articles of incorporation
bonded indebtedness; 1. Purpose
5. Increase or decrease of capital stock; It must be for a legitimate purpose or
6. Merger or consolidation of the purposes.
corporation with another corporation 2. Procedure:
or other corporations; Majority vote of the Directors, and the vote
7. Investment of corporate funds in or written assent of 2/3 of the outstanding
another corporation or business in capital stock for stock corporation or 2/3 of
accordance with this Code; and the members for non-stock corporation.
3. When effective:
⮚ Governing body of the corporation - the
Upon approval of SEC or if not acted upon
by SEC within six (6) months from the date corporate powers of all corporations formed
of filing provided that delay cannot be under the Corporation Code shall be
attributed to the corporation. exercised, all business conducted and all
property of such corporations controlled
Effect of non-use of corporate charter for 2 and held by the board of directors or
years? trustess.
⮚ Term of office of directors or trustees – one
Effect of continuous non-operation for 5 years? (1) year and until their successors are
elected and qualified.
Grounds when articles of incorporation or
amendment may be rejected or disapproved. ⮚ Number of directors or trustees
The Securities and Exchange Commission may 1. In stock corporations : Not less than 5
reject the articles of incorporation or disapprove nor more than 15 directors.
any amendment thereto if the same is not in 2. Non-stock corporations: Not less than
compliance with the requirements of this Code. 5 nor more than 15 trustees with the
term of office of 1/3 of their number
Provided: That the Commission shall give the shall expire every year.
incorporators a reasonable time within which to 3. Close corporations : the articles of
correct or modify the objectionable portions of incorporation may provide that the
the articles or amendment. business of the corporation shall be
managed by its stockholders rather by
The following are grounds for such rejection or a board of directors, in which case no
disapproval: meeting of stockholders need not be
1. That the articles of incorporation or held to elect directors.
any amendment thereto is not 4. Trustees of non-stock educational
substantially in accordance with the corporations: Not less than 5 nor more
form prescribed herein; than 15, provided that the number
2. That the purpose or purposes of the shall be in multiples of 5, with the term
corporation are patently of office of 1/5 of their number
unconstitutional, illegal, immoral, or expiring every year.
contrary to government rules and 5. Corporation sole: no board of directors
regulations; or trustees because it only consists of
3. That the Treasurer's Affidavit one member or corporator only.
concerning the amount of capital stock 6. Religious societies: Not less than 5 nor
subscribed and/or paid if false; more than 15.
4. That the percentage of ownership of
the capital stock to be owned by ⮚ Qualifications of directors or trustees::
citizens of the Philippines has not been 1. Stock corporations :
complied with as required by existing a. Every director must own at least
laws or the Constitution. one share of the capital stock.

Board of Directors, Trustees and Officers

 b. The share of stock must be Immediately after their election, the directors
registered in his name on the must formally organize by the election of the
books of the corporation. following officers:
c. Every director must continuously
✔ President – Must be a director but cannot
own at least a share of stock
during his term, otherwise, he act as president and secretary or president
shall automatically cease to be a and treasurer at the same time. The powers
director. of the president of the corporation are such
d. Majority of the directors must be only as are conferred upon him by the
residents of the Philippines board of directors or trustees or vested in
2. Non-stock corporations – trustees of him by the by-laws.
non-stock corporations must be ✔ Treasurer – may be a director or not.
members thereof and like in stock
corporations, a majority of them must ✔ Secretary – must be a resident and citizen of
be residents of the Philippines. the Philippines. Need not be a director
unless required by the by-laws.
Election of directors or trustees
✔ Other officers as may be provided in the
1. They are elected at a meeting called for the
purpose. by-laws.
2. There must be present in person or by
representative authorized by written proxy: What are the requisites of board meeting?
a. The owners of the majority of the ⮚ Quorum - is the number of directors or
outstanding capital stock, if a stock trustees sufficient to transact business.
corporation. - Quorum in meeting of directors or
b. The majority of the members, if a trustees:
non-stock corporation. General rule: Majority of the number of
3. The election must be by ballot if requested directors or trustees fixed in the articles of
by any voting stockholder or member. incorporation.
4. No delinquent stock shall be voted. Exception: If the articles of incorporation or
5. Methods of voting. by-laws provide for a for a greater number
a. Stock corporation
1. Straight voting ⮚ Vote required to have a valid corporate act
2. Cummulative voting for one (1) ⮚ Majority of those present provided there is
candidate a quorum except in the election of officers
3. Cummulative voting by which requires a majority vote or all
distribution. members of the board.
b. Non-stock corporation ⮚ Directors or trustees cannot attend or vote
A member may cast as many votes as by proxy at board meetings.
there are trustees to be elected but
may not cast more than one vote for Report of election of directors, trustees and
one candidate. officers.
⮚ Within thirty (30) days after the election of
Corporate officers the directors, trustees and officers of the
 corporation, the secretary, or any other 5. Death
officer of the corporation, shall submit to 6. Abandonment
the Securities and Exchange Commission, 7. Disqualification
the names, nationalities and residences of
the directors, trustees, and officers elected.
✔ Filling of vacancy
⮚ Should a director, trustee or officer die, A vacancy in the office of the board of
resign or in any manner cease to hold office, directors or trustees may be filled as
his heirs in case of his death, the secretary, follows:
or any other officer of the corporation, or
the director, trustee or officer himself, shall 1. By the stockholders or members
immediately report such fact to the If the cause of vacancy is any of
Securities and Exchange Commission. the following:
I. If the vacancy results from the
Disqualification of directors, trustees or removal by the stockholders
officers? or members or the expiration
off term.
Removal of directors of trustees II. If the vacancy occurs other
Requisites than by removal or by
a. The removal must take place in a expiration of term, such as
regular meeting of the corporation or death, resignation,
in a special meeting called for the abandonment, or
purpose. disqualification, if the
b. Previous notice of the intention to remaining directors or
propose such removal must have been trustees do not constitute a
given to the stockholders or members. quorum for the purpose of
c. The following vote must been obtained filling the vacancy.
to effect the removal: III. If the vacancy may be filled by
1) Stock corporation- by the the remaining directors or
stockholders representing at least trustees but the board refers
2/3 of the outstanding at least 2/3 the matter to the
of the outstanding capital stock stockholders or members.
entitled to vote. IV. If the vacancy is created by
2) Non-stock corporation- 2/3 of the reason of an increase in the
members entitled to vote. number of directors or
trustees.
✔ Vacancies in the office of director or
2. By the board of directors or
trustee trustees
1. Removal If the cause of vacancy is other
2. Expiration of term than removal, expiration of term
3. Increase in the number of or increase in the number of
directors directors, and the remaining
4. Resignation
 directors or trustees still to which equity imposes a disability upon
constitutes a quorum. him to deal in his own behalf, he shall be
liable as a trustee for the corporation and
Compensation of directors must account for the profits which
General rule: Directors are not entitled to otherwise would have accrued to the
compensation as such as directors. corporation.
Exception: Directors are entitled to
compensation in the following cases: In what instances the director, trustee is
1. Fixed in the by-laws. therefore liable for damages?
2. Giving of compensation is approved by
the stockholders representing at least a
⮚ The director, trustee or officer would be
majority of the outstanding capital
stock. held accountable to the corporation,
3. The compensation refers to reasonable stockholders or members for the secret
per diems profits which would have accrued to the
4. If the director is also a corporate corporation.
officer. ⮚ Nature of directors/trustees position
1. They are agents of the corporation
Limitation on compensation 2. They are personally liable to the
The total yearly compensation (excluding per corporation for any loss or injury
diems) of directors, as such directors must not arising from gross negligence or
exceed 10% of the net income before income tax unauthorized acts or violation of their
of the corporation during the preceding year. duties.
3. They are not liable for business losses
Liability of directors or trustees for damages because of honest bad judgment.
⮚ Directors or trustees who willfully and
knowingly vote for or assent to patently
unlawful acts of the corporation or who are
guilty of gross negligence or bad faith in
directing the affairs of the corporation or
acquire any personal or pecuniary interest Dealings of directors, trustees or officers with
in conflict with their duty as such directors the corporation.
or trustees shall be liable jointly and A contract of the corporation with one or more
severally (Solidary) for all damages resulting of its directors or trustees or officers is voidable,
therefrom suffered by the corporation, its at the option of such corporation, unless all the
stockholders or members and other following conditions are present:
persons. 1. That the presence of such director or
trustee in the board meeting in which the
⮚ When a director, trustee or officer attempts contract was approved was not necessary to
to acquire or acquires, in violation of his constitute a quorum for such meeting;
duty, any interest adverse to the 2. That the vote of such director or trustee
corporation in respect of any matter which was nor necessary for the approval of the
has been reposed in him in confidence, as contract;
3. That the contract is fair and reasonable
⮚ Provided, That if the interest of the
under the circumstances; and
4. That in case of an officer, the contract has interlocking director in one corporation is
been previously authorized by the board of substantial and his interest in the other
directors. corporation or corporations is merely
nominal, he shall be subject to the
Where any of the first two conditions set forth in provisions of the dealings of directors,
the preceding paragraph is absent, in the case of trustees or officers insofar as the latter
a contract with a director or trustee, such corporation or corporations are concerned.
contract may be ratified by the vote of the ▪ The latter corporation stated by the law
stockholders representing at least two-thirds refers to the corporation where the
(2/3) of the outstanding capital stock or of at interlocking director has a nomimal
least two-thirds (2/3) of the members in a interest. The rule in the dealings of
meeting called for the purpose. directors, trustees or officers shall be
applicable.
Provided, That full disclosure of the adverse
interest of the directors or trustees involved is ▪ This rule in contracts between
made at such meeting: Provided, however, That corporations with interlocking directors
the contract is fair and reasonable under the shall not be applicable in cases of
circumstances. fraud, and provided the contract is fair
⮚ The contract shall be valid if all the and reasonable under the
circumstances.
conditions enumerated above are present.
⮚ Stockholdings exceeding twenty (20%)
⮚ If the first or the second condition is absent,
percent of the outstanding capital stock
the contract may still be valid if ratified to shall be considered substantial for purposes
by the stockholders holding at least 2/3 of of interlocking directors.
the outstanding capital stock or at least 2/3
of the members Disloyalty of a director.

In addition: ⮚ Where a director, by virtue of his office,

▪ The contract must be fair and acquires for himself a business opportunity
which should belong to the corporation,
reasonable. thereby obtaining profits to the prejudice of
▪ There must be a meeting duly called for such corporation, the director must account
that purpose. to the corporation for all such profits by
refunding the same.
Contracts between corporations with
interlocking directors.
Executive committee
⮚ Contract between two or more corporations
⮚ The by-laws of a corporation may create an
having interlocking directors shall not be
invalidated on that ground alone. executive committee, composed of not less
than three members of the board, to be
appointed by the board.
 5. To adopt by-laws, not contrary to law,
⮚ The executive committee may act, by
morals, or public policy, and to amend or
majority vote of all its members, on such repeal the same in accordance with this
specific matters within the competence of Code.
the board, as may be delegated to it in the 6. In case of stock corporations, to issue or
by-laws or on a majority vote of the board. sell stocks to subscribers and to sell stocks
⮚ The executive committee has no power to to subscribers and to sell treasury stocks in
act on the following: accordance with the provisions of this Code;
1. Approval of any action for which and to admit members to the corporation if
shareholders' approval is also required. it be a non-stock corporation.
2. The filing of vacancies in the board. 7. To purchase, receive, take or grant, hold,
3. The amendment or repeal of by-laws or convey, sell, lease, pledge, mortgage and
the adoption of new by-laws. otherwise deal with such real and personal
4. The amendment or repeal of any property, including securities and bonds of
resolution of the board which by its other corporations, as the transaction of the
express terms is not so amendable or lawful business of the corporation may
repealable. reasonably and necessarily require, subject
5. A distribution of cash dividends to the to the limitations prescribed by law and the
shareholders. Constitution.
8. To enter into merger or consolidation with
Powers of Corporation other corporations as provided in this Code.
9. To make reasonable donations, including
Kinds of powers those for the public welfare or for hospital,
1. Express powers- powers expressly charitable, cultural, scientific, civic, or
authorized by the Corporation Code and similar purposes: Provided, That no
other laws, and its Articles of Incorporation corporation, domestic or foreign, shall give
or charter. donations in aid of any political party or
2. Implied powers- those that can be inferred candidate or for purposes of partisan
from or necessary for the exercise of the political activity.
express powers. 10. To establish pension, retirement, and other
3. Incidental or inherent powers-by reason of plans for the benefit of its directors,
its very existence as a corporation. trustees, officers and employees.
11. To exercise such other powers as may be
Express Powers essential or necessary to carry out its
General Powers purpose or purposes as stated in the articles
1. To sue and be sued in its corporate name. of incorporation.
2. Of succession by its corporate name for the
period of time stated in the articles of Specific Powers
incorporation and the certificate of a. Power to extend or shorten corporate term.
incorporation. A private corporation may extend or
3. To adopt and use a corporate seal. shorten its term as stated in the articles of
4. To amend its articles of incorporation in incorporation when approved by:
accordance with the provisions of this Code. I. a majority vote of the board of
directors or trustees and ratified at a
 meeting by the stockholders increasing of any bonded indebtedness
representing at least two-thirds (2/3) and of the time and place of the
of the outstanding capital stock stockholder's meeting at which the
II. or by at least two-thirds (2/3) of the proposed increase or diminution of the
members in case of non-stock capital stock or the incurring or
corporations. increasing of any bonded indebtedness
is to be considered, must be addressed
⮚ Written notice of the proposed
to each stockholder at his place of
action and of the time and place residence as shown on the books of the
of the meeting shall be corporation and deposited to the
addressed to each stockholder addressee in the post office with
or member at his place of postage prepaid, or served personally.
residence as shown on the
books of the corporation and A certificate in duplicate must be
deposited to the addressee in signed by a majority of the directors of
the post office with postage the corporation and countersigned by
prepaid, or served personally. the chairman and the secretary of the
⮚ Provided, That in case of stockholders' meeting, setting forth:
extension of corporate term, 1. That the requirements of this
any dissenting stockholder may section have been complied with.
exercise his appraisal right 2. The amount of the increase or
under the conditions provided diminution of the capital stock.
in this code. 3. If an increase of the capital stock,
the amount of capital stock or
b. Power to increase or decrease capital number of shares of no-par stock
stock; incur, create or increase bonded thereof actually subscribed, the
indebtedness. names, nationalities and
No corporation shall increase or decrease its residences of the persons
capital stock or incur, create or increase any subscribing, the amount of capital
bonded indebtedness unless: stock or number of no-par stock
subscribed by each, and the
⮚ approved by a majority vote of the amount paid by each on his
board of directors and, at a subscription in cash or property, or
stockholder's meeting duly called for the amount of capital stock or
the purpose, two-thirds (2/3) of the number of shares of no-par stock
outstanding capital stock shall favor allotted to each stock-holder if
the increase or diminution of the such increase is for the purpose of
capital stock, or the incurring, creating making effective stock dividend
or increasing of any bonded therefor authorized.
indebtedness. 4. Any bonded indebtedness to be
incurred, created or increased.
⮚ Written notice of the proposed
5. The actual indebtedness of the
increase or diminution of the capital corporation on the day of the
stock or of the incurring, creating, or meeting.
 6. The amount of stock represented The power of pre-emptive right may be
at the meeting; and denied in the following instances?
7. The vote authorizing the increase
or diminution of the capital stock, d. Sale or other disposition of assets. –
or the incurring, creating or Subject to the provisions of existing laws on
increasing of any bonded illegal combinations and monopolies, a
indebtedness. corporation may sell, lease, exchange,
mortgage, pledge or otherwise dispose of
Trust Fund Doctrine - Under this all or substantially all of its property and
doctrine, the capital stock and assets, including its goodwill, upon such
assets of the corporation are held terms and conditions and for such
in trust for creditors. Accordingly, consideration, which may be money, stocks,
there shall be no distribution of bonds or other instruments for the payment
assets to shareholders until the of money or other property or
claims of creditors have been paid consideration, by:
or appropriations of such assets I. a majority vote of its board of
have been made for the payment directors or trustees and when
of such claims. authorized by the vote of the
stockholders representing at least
⮚ Non-stock corporations may
two-thirds (2/3) of the outstanding
incur or create bonded capital stock, or in case of non-stock
indebtedness, or increase the corporation, by the vote of at least
same, with the approval by a to two-thirds (2/3) of the members,
majority vote of the board of in a stockholder's or member's
trustees and of at least meeting duly called for the purpose.
two-thirds (2/3) of the
members in a meeting duly
called for the purpose. ⮚ Written notice of the proposed
action and of the time and place
⮚ Bonds issued by a corporation
of the meeting shall be
shall be registered with the addressed to each stockholder
Securities and Exchange or member at his place of
Commission, which shall have residence as shown on the
the authority to determine books of the corporation and
the sufficiency of the terms deposited to the addressee in
thereof. the post office with postage
prepaid, or served personally.
c. Power to deny pre-emptive right. II. Provided, That any dissenting
All stockholders of a stock corporation shall stockholder may exercise his
enjoy pre-emptive right to subscribe to all appraisal right under the conditions
issues or disposition of shares of any class, provided in this Code.
in proportion to their respective III. A sale or other disposition shall be
shareholdings. deemed to cover substantially all the
corporate property and assets if
 thereby the corporation would be case of non-stock corporations, at a
rendered incapable of continuing stockholder's or member's meeting
the business or accomplishing the duly called for the purpose.
purpose for which it was II. Written notice of the proposed
incorporated. investment and the time and place of
the meeting shall be addressed to
each stockholder or member at his
⮚ In non-stock corporations where
place of residence as shown on the
there are no members with books of the corporation and
voting rights, the vote of at least deposited to the addressee in the
a majority of the trustees in post office with postage prepaid, or
office will be sufficient served personally:
authorization for the III. Provided, That any dissenting
corporation to enter into any stockholder shall have appraisal
transaction authorized by this right as provided in this Code.
section. IV. Provided, however, That where the
investment by the corporation is
e. Power to acquire own shares. reasonably necessary to accomplish
A stock corporation shall have the power to its primary purpose as stated in the
purchase or acquire its own shares for a articles of incorporation, the
legitimate corporate purpose or purposes, approval of the stockholders or
including but not limited to the following members shall not be necessary.
cases: Provided, That the corporation has
unrestricted retained earnings in its books g. Power to declare dividends.
to cover the shares to be purchased or The board of directors of a stock
acquired. corporation may declare dividends out of
the unrestricted retained earnings which
Purposes why the corporation has the shall be payable in cash, in property, or in
power to acquire own shares? stock to all stockholders on the basis of
outstanding stock held by them.
f. Power to invest corporate funds in another
corporation or business or for any other ⮚ Provided, That any cash dividends due
purpose. on delinquent stock shall first be
Subject to the provisions of this Code, a applied to the unpaid balance on the
private corporation may invest its funds in subscription plus costs and expenses,
any other corporation or business or for any while stock dividends shall be withheld
purpose other than the primary purpose for from the delinquent stockholder until
which it was organized when approved by: his unpaid subscription is fully paid.
I. a majority of the board of directors
⮚ Provided, further, That no stock
or trustees and ratified by the
stockholders representing at least dividend shall be issued without the
two-thirds (2/3) of the outstanding approval of stockholders representing
capital stock, or by at least two not less than two-thirds (2/3) of the
thirds (2/3) of the members in the outstanding capital stock at a regular or
 special meeting duly called for the members of the board of directors
purpose. of the managed corporation, then
the.
⮚ Stock corporations are prohibited from
Ultra vires acts of corporations.
retaining surplus profits in excess of No corporation under this Code shall possess or
one hundred (100%) percent of their exercise any corporate powers except those
paid-in capital stock, what are the conferred by this Code or by its articles of
exception? incorporation and except such as are necessary
or incidental to the exercise of the powers so
h. Power to enter into management contract. conferred.
⮚ As a general rule: No corporation shall
conclude a management contract with By-Laws
another corporation unless such Relatively permanent and continuing rules of
contract shall have been approved by action adopted by the corporation for its own
the board of directors and by government and that of the individuals
stockholders owning at least the composing it and those having the direction,
majority of the outstanding capital management and control of its affairs, in whole
stock, or by at least a majority of the or in part, in the management and control of its
members in the case of a non-stock affairs and activities.
corporation, of both the managing and
the managed corporation, at a meeting Requisites:
duly called for the purpose. 1. must be consistent with the Corporation
Code, other pertinent laws and regulations.
⮚ Exception: The management contract 2. It must be consistent with the Articles of
must be approved by the stockholders Incorporation.
of the managed corporation owning at 3. It must be reasonable and not arbitrary or
least two-thirds (2/3) of the total oppressive.
outstanding capital stock entitled to 4. It must not disturb vested rights, impair
vote, or by at least two-thirds (2/3) of contract or property rights of stockholders
the members in the case of a non-stock or members or create obligations unknown
corporation in the following instances: to law.
I. where a stockholder or
stockholders representing the Adoption of By-laws
same interest of both the 1. Prior to incorporation
managing and the managed a. Submitted together with the articles of
corporations own or control more incorporation, to the SEC and
than one-third (1/3) of the total b. Approved and signed by all the
outstanding capital stock entitled incorporators.
to vote of the managing
corporation; or 2. After incorporation
II. where a majority of the members a. Submitted within 1 month after the
of the board of directors of the receipt of the official notice of the
managing corporation also issuance of certificate of the
constitute a majority of the incorporation, and.
 b. Approved by the stockholders Kinds of meeting
representing at least a majority of the
outstanding capital stock, or by a 1. Meetings of directors or trustees
majority of the members. a. Regular meetings of the board of
directors or trustees of every
When effective : Upon the issuance of the SEC of corporation shall be held monthly,
certification that the by-laws are not inconsistent unless the by-laws provide otherwise.
with the Corporation Code. b. Special meetings of the board of
directors or trustees may be held at any
Amendment: time upon the call of the president or
1. May be made by the as provided in the by-laws.
a. Stockholders together with the Board :
Majority of Board plus Majority of ✔ Notice of regular or special meetings
outstanding capital stock. stating the date, time and place of the
b. Board only: meeting must be sent to every director
Delegation of power to amend or or trustee at least one (1) day prior to
repeal by-laws or adopt new by-laws to the scheduled meeting, unless otherwise
board of directors or trustees provided by the by-laws
a. Delegation of the power
✔ Meetings of directors or trustees of
The owners of 2/3 of the
outstanding capital stock or 2/3 of corporations may be held anywhere in
the members may delegate to the or outside of the Philippines, unless the
board of directors or trustees the by-laws provide otherwise.
power to amend or repeal by-laws ✔ A director or trustee may waive this
or adopt new by-laws. In such a requirement, either expressly or
case, the board of directors or impliedly
trustees may amend or repeal the
by-laws or adopt new by-laws by a ✔ Quorum in meetings - Majority of the
majority vote of those present number of directors or trustees stated in
provided there is a quorum. the articles of incorporation, unless such
b. Revocation of the power articles or the by-laws provide for a
The owners of the majority of the greater majority.
outstanding capital stock or
✔ The president shall preside at all
majority of the members may
revoke the power previously meetings of the directors or trustees,
delegated to the board. unless the by-laws provide otherwise.
✔ Directors or trustees vote during
2. When amendment or new by-laws effective meetings per head. Directors or trustees
Upon the issuance by the SEC of a cannot attend or vote by proxy at board
certification that the amended or new meetings.
by-laws are not inconsistent with the
Corporation Code. 2. Meetings of stockholders or members
Meetings
 ⮚ Regular meeting - This is held annually 2) Through representative voting
on a date fixed in the by-laws, or if not a) By means of proxy
so fixed, on any date in April every year
as determined by the board of Proxy (3 DEFINITIONS)
directors or trustees (1) The formal authority
given by the shareholder
▪ Notice of regular meeting should
or member to another
be sent at least 2 weeks prior to person to exercise the
the meeting, unless a different voting right.
period is required by the by-laws (2) The person given the
authority by the
⮚ Special meeting shall be held at any stockholder or member
time deemed necessary or as provided for the exercise the
in the by-laws. voting right.
▪ Notice of special meeting should (3) The written instruments
be sent at least 1 week prior to the evidencing the authority
meeting, unless a different period given by the stockholder
is required by the by-laws or member for the
exercise of the voting
right.
✔ They shall be held in the city or municipality b) By means of a voting trust
where the principal office of the corporation agreement
is located, and if practicable in the principal The trustee under the
office of the corporation. For this purpose, voting trust agreement
Metro Manila shall be considered a city or shall exercise the voting
municipality. right.
c) Through legal representatives
✔ Majority of the outstanding capital stock or
Executors administrators,
majority of the members shall constitute a receivers and other legal
quorum, unless a greater majority is representatives duly
provided for in the Corporation Code or in appointed by the court
the by-laws. may-attend and vote in
✔ The president, shall preside at all meetings of behalf of the stockholder
stockholders or members, unless the by-laws or members without need
provide otherwise. of any written proxy.

✔ Manner of voting Right to vote of pledgors, mortgagors, and

a. Stockholders vote by shares. Members administrators.
vote on the per head basis unless the ⮚ In case of pledged or mortgaged shares in
by-laws provide otherwise. stock corporations, the pledgor or
b. Right to vote mortgagor shall have the right to attend and
1) Directly or personally by the vote at meetings of stockholders, unless the
stockholders or member pledgee or mortgagee is expressly given by
 the pledgor or mortgagor such right in
⮚ A voting trust agreement must be in writing
writing which is recorded on the
appropriate corporate books. and notarized, and shall specify the terms
and conditions thereof. A certified copy of
⮚ Executors, administrators, receivers, and such agreement shall be filed with the
other legal representatives duly appointed corporation and with the Securities and
by the court may attend and vote in behalf Exchange Commission; otherwise, said
of the stockholders or members without agreement is ineffective and unenforceable.
need of any written proxy.
⮚ The certificate or certificates of stock
Voting in case of joint ownership of stock. covered by the voting trust agreement shall
be canceled and new ones shall be issued in
⮚ In case of shares of stock owned jointly by the name of the trustee or trustees stating
two or more persons, in order to vote the that they are issued pursuant to said
same, the consent of all the co-owners agreement. In the books of the corporation,
shall be necessary, unless there is a written it shall be noted that the transfer in the
proxy, signed by all the co-owners, name of the trustee or trustees is made
authorizing one or some of them or any pursuant to said voting trust agreement.
other person to vote such share or shares.
Subscription contract
⮚ Provided, That when the shares are owned
in an "and/or" capacity by the holders ⮚ Any contract for the acquisition of unissued
thereof, any one of the joint owners can stock in an existing corporation or a
vote said shares or appoint a proxy therefor. corporation still to be formed shall be
deemed a subscription within the meaning
Voting right for treasury shares of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some
⮚ Treasury shares shall have no voting right as
other contract.
long as such shares remain in the Treasury.
Pre-incorporation subscription
Voting trusts
⮚ A subscription for shares of stock of a
⮚ One or more stockholders of a stock
corporation still to be formed shall be
corporation may create a voting trust for irrevocable for a period of at least six (6)
the purpose of conferring upon a trustee or months from the date of subscription,
trustees the right to vote and other rights unless all of the other subscribers consent
pertaining to the shares for a period not to the revocation, or unless the
exceeding five (5) years at any time. incorporation of said corporation fails to
⮚ Provided, That in the case of a voting trust materialize within said period or within a
specifically required as a condition in a loan longer period as may be stipulated in the
agreement, said voting trust may be for a contract of subscription.
period exceeding five (5) years but shall ⮚ Provided, That no pre-incorporation
automatically expire upon full payment of subscription may be revoked after the
the loan.
 submission of the articles of incorporation
to the Securities and Exchange Commission. Certificate of stock and transfer of shares
⮚ The capital stock of stock corporations shall
Consideration for stocks
be divided into shares for which certificates
⮚ Stocks shall not be issued for a signed by the president or vice president,
consideration less than the par or issued countersigned by the secretary or assistant
price thereof. Consideration for the issuance secretary, and sealed with the seal of the
of stock may be any or a combination of any corporation shall be issued in accordance
two or more of the following: with the by-laws.
1. Actual cash paid to the corporation;
⮚ Shares of stock so issued are personal
2. Property, tangible or intangible,
actually received by the corporation property and may be transferred by delivery
and necessary or convenient for its use of the certificate or certificates endorsed by
and lawful purposes at a fair valuation the owner or his attorney-in-fact or other
equal to the par or issued value of the person legally authorized to make the
stock issued; transfer.
3. Labor performed for or services
actually rendered to the corporation; Issuance of stock certificate
4. Previously incurred indebtedness of ⮚ No certificate of stock shall be issued to a
the corporation; subscriber until the full amount of his
5. Amounts transferred from unrestricted subscription together with interest and
retained earnings to stated capital; and expenses (in case of delinquent shares), if
6. Outstanding shares exchanged for any is due, has been paid.
stocks in the event of reclassification or
conversion. Liability of directors for watered stocks
⮚ Watered stock – issuance of stocks for a
⮚ Where the consideration is other than
consideration less than its par or issued
actual cash, or consists of intangible value or for a consideration in any form
property such as patents of copyrights, the other than cash, valued in excess of its fair
valuation thereof shall initially be value.
determined by the incorporators or the
board of directors, subject to approval by ⮚ Any director or officer of a corporation
the Securities and Exchange Commission. consenting to the watered stock, or who,
⮚ The issued price of no-par value shares having knowledge thereof, does not
forthwith express his objection in writing
may be fixed in the articles of incorporation and file the same with the corporate
or by the board of directors pursuant to secretary.
authority conferred upon it by the articles
of incorporation or the by-laws, or in the ⮚ What is the nature of the liability?
absence thereof, by the stockholders
representing at least a majority of the Interest on unpaid subscriptions
outstanding capital stock at a meeting duly
called for the purpose.
⮚ Subscribers for stock shall pay to the ⮚ The board of directors may, by resolution,
corporation interest on all unpaid order the sale of delinquent stock and shall
subscriptions from the date of subscription, specifically state the amount due on each
if so required by, and at the rate of interest subscription plus all accrued interest, and
fixed in the by-laws. If no rate of interest is the date, time and place of the sale which
fixed in the by-laws, such rate shall be shall not be less than thirty (30) days nor
deemed to be the legal rate. more than sixty (60) days from the date the
stocks become delinquent.
Payment of balance of subscription
⮚ Notice of said sale, with a copy of the
⮚ Subject to the provisions of the contract of resolution, shall be sent to every delinquent
subscription, the board of directors of any stockholder either personally or by
stock corporation may at any time declare registered mail. The same shall furthermore
due and payable to the corporation unpaid be published once a week for two (2)
subscriptions to the capital stock and may consecutive weeks in a newspaper of
collect the same or such percentage general circulation in the province or city
thereof, in either case with accrued interest, where the principal office of the
if any, as it may deem necessary. corporation is located.
⮚ Payment of any unpaid subscription or any ⮚ Unless the delinquent stockholder pays to
percentage thereof, together with the the corporation, on or before the date
interest accrued, if any, shall be made on specified for the sale of the delinquent
the date specified in the contract of stock, the balance due on his subscription,
subscription or on the date stated in the plus accrued interest, costs of
call made by the board. advertisement and expenses of sale, or
unless the board of directors otherwise
⮚ Failure to pay on such date shall render the
orders, said delinquent stock shall be sold
entire balance due and payable and shall at public auction to such bidder who shall
make the stockholder liable for interest at offer to pay the full amount of the balance
the legal rate on such balance, unless a on the subscription together with accrued
different rate of interest is provided in the interest, costs of advertisement and
by-laws, computed from such date until full expenses of sale, for the smallest number
payment. of shares or fraction of a share.
⮚ If within thirty (30) days from the said date ⮚ The stock so purchased shall be transferred
no payment is made, all stocks covered by to such purchaser in the books of the
said subscription shall thereupon become corporation and a certificate for such stock
delinquent and shall be subject to sale as shall be issued in his favor.
hereinafter provided, unless the board of
directors orders otherwise.
✔ Should there be no bidder at the public
⮚ Effect : DELINQUENT STOCK
auction who offers to pay the full
amount of the balance on the
Delinquency sale subscription together with accrued
 interest, costs of advertisement and merger or consolidation setting forth the
expenses of sale, for the smallest following:
number of shares or fraction of a share, 1. The names of the corporations
the corporation may, subject to the proposing to merge or consolidate,
provisions of this Code, bid for the hereinafter referred to as the
same, and the total amount due shall constituent corporations;
be credited as paid in full in the books 2. The terms of the merger or
of the corporation. consolidation and the mode of carrying
the same into effect;
✔ Nothing in this Code shall prevent the
3. A statement of the changes, if any, in
corporation from collecting by action in the articles of incorporation of the
a court of proper jurisdiction the surviving corporation in case of merger;
amount due on any unpaid subscription, and, with respect to the consolidated
with accrued interest, costs and corporation in case of consolidation, all
expenses. the statements required to be set forth
in the articles of incorporation for
Effect of delinquency corporations organized under this
⮚ No delinquent stock shall be voted for be Code; and
entitled to vote or to representation at any 4. Such other provisions with respect to
stockholder's meeting, nor shall the holder the proposed merger or consolidation
thereof be entitled to any of the rights of a as are deemed necessary or desirable.
stockholder
Stockholder's or member's approval
⮚ EXCEPT: the right to dividends in
⮚ Upon approval by majority vote of each of
accordance with the provisions of this Code,
until and unless he pays the amount due on the board of directors or trustees of the
his subscription with accrued interest, and constituent corporations of the plan of
the costs and expenses of advertisement, if merger or consolidation, the same shall be
any. submitted for approval by the stockholders
or members of each of such corporations at
⮚ Holders of subscribed shares not fully paid separate corporate meetings duly called for
which are not delinquent shall have all the the purpose.
rights of a stockholder. ⮚ Notice of such meetings shall be given to all
Merger or consolidation stockholders or members of the respective
corporations, at least two (2) weeks prior
⮚ Two or more corporations may merge into a to the date of the meeting, either
single corporation which shall be one of the personally or by registered mail. Said notice
constituent corporations or may consolidate shall state the purpose of the meeting and
into a new single corporation which shall be shall include a copy or a summary of the
the consolidated corporation. plan of merger or consolidation.
⮚ The board of directors or trustees of each ⮚ The affirmative vote of stockholders
corporation, party to the merger or representing at least two-thirds (2/3) of the
consolidation, shall approve a plan of outstanding capital stock of each
 corporation in the case of stock 3. As to each corporation, the number of
corporations or at least two-thirds (2/3) of shares or members voting for and
the members in the case of non-stock against such plan, respectively.
corporations shall be necessary for the
approval of such plan. Effectivity of merger or consolidation
⮚ Any dissenting stockholder in stock ⮚ The articles of merger or of consolidation,
corporations may exercise his appraisal right signed and certified as herein above
in accordance with the Code: Provided, That required, shall be submitted to the
if after the approval by the stockholders of Securities and Exchange Commission in
such plan, the board of directors decides to quadruplicate for its approval: Provided,
abandon the plan, the appraisal right shall That in the case of merger or consolidation
be extinguished. of banks or banking institutions, building
and loan associations, trust companies,
⮚ Any amendment to the plan of merger or
insurance companies, public utilities,
consolidation may be made, provided such educational institutions and other special
amendment is approved by majority vote of corporations governed by special laws, the
the respective boards of directors or favorable recommendation of the
trustees of all the constituent corporations appropriate government agency shall first
and ratified by the affirmative vote of be obtained. If the Commission is satisfied
stockholders representing at least that the merger or consolidation of the
two-thirds (2/3) of the outstanding capital corporations concerned is not inconsistent
stock or of two-thirds (2/3) of the with the provisions of this Code and
members of each of the constituent existing laws, it shall issue a certificate of
corporations. Such plan, together with any merger or of consolidation, at which time
amendment, shall be considered as the the merger or consolidation shall be
agreement of merger or consolidation. effective.

Articles of merger or consolidation ⮚ If, upon investigation, the Securities and

Exchange Commission has reason to believe
⮚ After the approval by the stockholders or
that the proposed merger or consolidation
members as required by the preceding is contrary to or inconsistent with the
section, articles of merger or articles of provisions of this Code or existing laws, it
consolidation shall be executed by each of shall set a hearing to give the corporations
the constituent corporations, to be signed concerned the opportunity to be heard.
by the president or vice-president and Written notice of the date, time and place
certified by the secretary or assistant of hearing shall be given to each constituent
secretary of each corporation setting forth: corporation at least two (2) weeks before
1. The plan of the merger or the plan of said hearing.
consolidation;
2. As to stock corporations, the number of Effects of merger or consolidationT
shares outstanding, or in the case of
non-stock corporations, the number of ⮚ The merger or consolidation shall have the
members; and following effects:
1. The constituent corporations shall prosecuted by or against the surviving
become a single corporation which, in or consolidated corporation. The rights
case of merger, shall be the surviving of creditors or liens upon the property
corporation designated in the plan of of any of such constituent corporations
merger; and, in case of consolidation, shall not be impaired by such merger
shall be the consolidated corporation or consolidation.
designated in the plan of consolidation;
2. The separate existence of the APPRAISAL RIGHT
constituent corporations shall cease,
⮚ Any stockholder of a corporation shall have
except that of the surviving or the
consolidated corporation; the right to dissent and demand payment of
3. The surviving or the consolidated the fair value of his shares in the following
corporation shall possess all the rights, instances:
privileges, immunities and powers and 1. In case any amendment to the articles
shall be subject to all the duties and of incorporation has the effect of
liabilities of a corporation organized changing or restricting the rights of any
under this Code; stockholder or class of shares, or of
4. The surviving or the consolidated authorizing preferences in any respect
corporation shall thereupon and superior to those of outstanding shares
thereafter possess all the rights, of any class, or of extending or
privileges, immunities and franchises of shortening the term of corporate
each of the constituent corporations; existence;
and all property, real or personal, and 2. In case of sale, lease, exchange,
all receivables due on whatever transfer, mortgage, pledge or other
account, including subscriptions to disposition of all or substantially all of
shares and other choses in action, and the corporate property and assets as
all and every other interest of, or provided in the Code; and
belonging to, or due to each 3. In case of merger or consolidation.
constituent corporation, shall be
deemed transferred to and vested in How right is exercised
such surviving or consolidated ⮚ The appraisal right may be exercised by any
corporation without further act or stockholder who shall have voted against
deed; and the proposed corporate action, by making a
5. The surviving or consolidated written demand on the corporation within
corporation shall be responsible and thirty (30) days after the date on which the
liable for all the liabilities and vote was taken for payment of the fair
obligations of each of the constituent value of his shares.
corporations in the same manner as if
such surviving or consolidated ⮚ Provided, That failure to make the demand
corporation had itself incurred such within such period shall be deemed a
liabilities or obligations; and any waiver of the appraisal right.
pending claim, action or proceeding
⮚ If the proposed corporate action is
brought by or against any of such
constituent corporations may be implemented or affected, the corporation
 shall pay to such stockholder, upon 1. The right of the members of any class or
surrender of the certificate or certificates of classes to vote may be limited, broadened
stock representing his shares, the fair value or denied to the extent specified in the
thereof as of the day prior to the date on articles of incorporation or the by-laws.
which the vote was taken, excluding any Unless so limited, broadened or denied,
appreciation or depreciation in anticipation each member, regardless of class, shall be
of such corporate action. entitled to one vote. (In person)
2. Unless otherwise provided in the articles of
⮚ If within a period of sixty (60) days from the
incorporation or the by-laws, a member
date the corporate action was approved by may vote by proxy in accordance with the
the stockholders, the withdrawing provisions of this Code.
stockholder and the corporation cannot 3. Voting by mail or other similar means by
agree on the fair value of the shares, it shall members of non-stock corporations may be
be determined and appraised by three (3) authorized by the by-laws of non-stock
disinterested persons, one of whom shall corporations with the approval of, and
be named by the stockholder, another by under such conditions which may be
the corporation, and the third by the two prescribed by, the Securities and Exchange
thus chosen. Commission.

Non-Stock Corporations Non-transferability of membership

⮚ is one where no part of its income is ⮚ Membership in a non-stock corporation and
distributable as dividends to its members, all rights arising therefrom are personal and
trustees, or officers, subject to the non-transferable, unless the articles of
provisions of this Code on dissolution incorporation or the by-laws otherwise
⮚ Provided, That any profit which a non-stock provide.
corporation may obtain as an incident to its ⮚ Membership shall be terminated in the
operations shall, whenever necessary or manner and for the causes provided in the
proper, be used for the furtherance of the articles of incorporation or the by-laws.
purpose or purposes for which the Termination of membership shall have the
corporation was organized, subject to the effect of extinguishing all rights of a
provisions of this Title. member in the corporation or in its
⮚ Non-stock corporations may be formed or property, unless otherwise provided in the
organized for charitable, religious, articles of incorporation or the by-laws.
educational, professional, cultural, fraternal,
literary, scientific, social, civic service, or TRUSTEES AND OFFICERS
similar purposes, like trade, industry, 1. Number of trustees
agricultural and like chambers, or any It may be more than 15 in number as may
combination thereof, subject to the special be fixed in the articles of incorporation or
provisions of this Title governing particular the by-laws. However, the number should
classes of non-stock corporations not be less than 5.
Right to vote 2. Qualifications of trustees
 a. Trustees must be members of the
corporation Articles of incorporation
b. Majority of them must be residents of
⮚ The articles of incorporation of a close
the Philippines
3. Term of office of trustees- unless otherwise corporation may provide:
provided in the articles of incorporation or 1. For a classification of shares or rights
by-laws, the term of office shall be as and the qualifications for owning or
follows: holding the same and restrictions on
a. The term of office of trustees shall be 3 their transfers as may be stated
years. therein, subject to the provisions of the
b. Trustees first elected shall so classify following section;
themselves so that the term of office of 2. For a classification of directors into one
1/3 of their number shall expire every or more classes, each of whom may be
year. Trustees thereafter elected to fill voted for and elected solely by a
vacancies shall serve only for the particular class of stock; and
unexpired term of the person they 3. For a greater quorum or voting
replace. requirements in meetings of
stockholders or directors than those
CLOSE CORPORATIONS provided in this Code.

⮚ is a corporation whose articles of ⮚ The articles of incorporation of a close

incorporation provide the following: corporation may provide that the business
1. All of the corporations issued stock of of the corporation shall be managed by the
all classes, excluding treasury shares, stockholders of the corporation rather than
shall be held of record by not more by a board of directors. So long as this
than a specified number of persons, provision continues in effect:
not exceeding 20. 1. No meeting of stockholders need be
2. All of the issued stock of all classes called to elect directors;
shall be subject to one or more 2. Unless the context clearly requires
restrictions on transfer. otherwise, the stockholders of the
3. The corporation shall not list in any corporation shall be deemed to be
stock exchange or make any public directors for the purpose of applying
offering of any of its stock of any class. the provisions of this Code; and
3. The stockholders of the corporation
What may not be incorporated as a close shall be subject to all liabilities of
corporation directors.
1. Mining corporations
2. Oil companies ⮚ The articles of incorporation may
3. Stock exchanges likewise provide that all officers or
4. Banks employees or that specified officers or
5. Insurance companies employees shall be elected or
6. Public utilities appointed by the stockholders, instead
7. Educational Institutions of by the board of directors.
8. Corporations vested with public interest
When board meeting is unnecessary or voting rights, or of such greater proportion
improperly held of shares as may be specifically provided in
the articles of incorporation for amending,
⮚ Unless the by-laws provide otherwise, any
deleting or removing any of the aforesaid
action by the directors of a close provisions, at a meeting duly called for the
corporation without a meeting shall purpose.
nevertheless be deemed valid if:
1. Before or after such action is taken, Deadlocks
written consent thereto is signed by all
the directors; or ⮚ Notwithstanding any contrary provision in
2. All the stockholders have actual or the articles of incorporation or by-laws or
implied knowledge of the action and agreement of stockholders of a close
make no prompt objection thereto in corporation, if the directors or stockholders
writing; or are so divided respecting the management
3. The directors are accustomed to take of the corporation's business and affairs
informal action with the express or that the votes required for any corporate
implied acquiescence of all the action cannot be obtained, with the
stockholders; or consequence that the business and affairs
4. All the directors have express or of the corporation can no longer be
implied knowledge of the action in conducted to the advantage of the
question and none of them makes stockholders generally, the Securities and
prompt objection thereto in writing. Exchange Commission, upon written
petition by any stockholder, shall have the
Pre-emptive right in close corporations power to arbitrate the dispute.
⮚ The pre-emptive right of stockholders in ⮚ In the exercise of such power, the
close corporations shall extend to all stock Commission shall have authority to make
to be issued, including reissuance of such order as it deems appropriate,
treasury shares, whether for money, including an order:
property or personal services, or in payment 1. canceling or altering any provision
of corporate debts, unless the articles of contained in the articles of
incorporation provide otherwise. incorporation, by-laws, or any
stockholder's agreement;
Amendment of articles of incorporation 2. canceling, altering or enjoining any
resolution or act of the corporation or
⮚ Any amendment to the articles of
its board of directors, stockholders, or
incorporation which seeks to delete or officers;
remove any provision required by this Title 3. directing or prohibiting any act of the
to be contained in the articles of corporation or its board of directors,
incorporation or to reduce a quorum or stockholders, officers, or other persons
voting requirement stated in said articles of party to the action;
incorporation shall not be valid or effective 4. requiring the purchase at their fair
unless approved by the affirmative vote of value of shares of any stockholder,
at least two-thirds (2/3) of the outstanding either by the corporation regardless of
capital stock, whether with or without
 the availability of unrestricted retained
⮚ It is incorporated by one person and
earnings in its books, or by the other
stockholders; consists of one member such as the
5. appointing a provisional director; chief archbishop, bishop, priest,
6. dissolving the corporation; or minister or rabbi or other presiding
7. granting such other relief as the elder.
circumstances may warrant. ⮚ Purpose: To administer and manage as
trustee the affairs, property and
⮚ Who is a Provisional director? temporalities of any religious
denomination, sect or church.
Special Corporations
✔ Filling of vacancies
Educational Corporations ⮚ The successors in office of any chief
1. Laws applicable
a. Special laws governing them archbishop, bishop, priest, minister,
b. General provisions of the Corporation rabbi or presiding elder in a
Code corporation sole shall become the
2. Indorsement from the Department of corporation sole on their accession to
Education (DepEd) or Commision on Higher office and shall be permitted to
Education transact business as such on the filing
3. Board of Trustees with the Securities and Exchange
a. Number and term of office Commission of a copy of their
1) Stock educational corporation commission, certificate of election, or
The number and term of directors letters of appointment, duly certified
shall be governed by the provision by any notary public.
on stock corporations.
2) Non-stock educational ✔ Dissolution
corporations ⮚ A corporation sole may be dissolved
a) The number shall not be less
than 5 nor more than 15 but and its affairs settled voluntarily by
the number should be in submitting to the Securities and
multiples of 5 (i.e., 5, 10, 15 ). Exchange Commission a verified
b) Unless provided in the articles declaration of dissolution.
or by-laws, the trustees shall The declaration of dissolution shall set
so classify themselves so that forth:
the term of office of 1/5 of 1. The name of the corporation;
their number shall expire 2. The reason for dissolution and
every year. winding up;
3) Quorom - A majority of the 3. The authorization for the
trustees shall constitute a quorum. dissolution of the corporation by
the particular religious
Religious corporations denomination, sect or church;
1. Corporation sole
 4. The names and addresses of the or diocese, synod, or district
persons who are to supervise the organization of the religious
winding up of the affairs of the denomination, sect or church, setting
corporation. forth the following:
1. That the religious society or
⮚ Upon approval of such declaration of religious order, or diocese, synod,
dissolution by the Securities and or district organization is a
Exchange Commission, the corporation religious organization of a religious
shall cease to carry on its operations denomination, sect or church;
except for the purpose of winding up 2. That at least two-thirds (2/3) of
its affairs. its membership have given their
written consent or have voted to
2. Religious Society incorporate, at a duly convened
⮚ It is incorporated by an aggregate of meeting of the body;
persons consisting district organization Dissolution Stock or Non-Stock Corporation
of any religious denomination the
purpose of which is to administer or ⮚ is the termination of the existence of a
manage its temporalities, affairs and corporation.
property.
Kinds of Dissolution
⮚ It must file verified articles of 1. Voluntary dissolution where no creditors
incorporation with the SEC. are affected
⮚ Any religious society or religious order, ⮚ If dissolution of a corporation does not
or any diocese, synod, or district prejudice the rights of any creditor
organization of any religious having a claim against it, the
denomination, sect or church, unless dissolution may be effected by
forbidden by the constitution, rules, majority vote of the board of directors
regulations, or discipline of the or trustees, and by a resolution duly
religious denomination, sect or church adopted by the affirmative vote of the
of which it is a part, or by competent stockholders owning at least
authority, may, upon written consent two-thirds (2/3) of the outstanding
and/or by an affirmative vote at a capital stock or of at least two-thirds
meeting called for the purpose of at (2/3) of the members of a meeting to
least two-thirds (2/3) of its be held upon call of the directors or
membership, incorporate for the trustees after publication of the notice
administration of its temporalities or of time, place and object of the
for the management of its affairs, meeting for three (3) consecutive
properties and estate by filing with the weeks in a newspaper published in the
Securities and Exchange Commission, place where the principal office of said
articles of incorporation verified by the corporation is located;
affidavit of the presiding elder,
2. Voluntary dissolution where creditors are
secretary, or clerk or other member of
affected
such religious society or religious order,
 Code. A copy of the amended articles
⮚ Where the dissolution of a corporation
of incorporation shall be submitted to
may prejudice the rights of any the Securities and Exchange
creditor, the petition for dissolution Commission in accordance with this
shall be filed with the Securities and Code. Upon approval of the amended
Exchange Commission. articles of incorporation of the
⮚ The petition shall be signed by a expiration of the shortened term, as
majority of its board of directors or the case may be, the corporation shall
trustees or other officers having the be deemed dissolved without any
management of its affairs, verified by further proceedings, subject to the
its president or secretary or one of its provisions of this Code on liquidation.
directors or trustees, and shall set forth 4. Involuntary dissolution
all claims and demands against it, and
that its dissolution was resolved upon ⮚ A corporation may be dissolved by the
by the affirmative vote of the Securities and Exchange Commission
stockholders representing at least upon filing of a verified complaint and
two-thirds (2/3) of the outstanding after proper notice and hearing on the
capital stock or by at least two-thirds grounds provided by existing laws,
(2/3) of the members at a meeting of rules and regulations.
its stockholders or members called for
Corporate liquidation
that purpose.
1. Concept; corporation to exist for 3years
3. Dissolution by shortening corporate term after dissolution (winding period)
2. Who may effect liquidation
⮚ A voluntary dissolution may be effected a. By the corporation itself through the
by amending the articles of board of directors or trustees or by the
incorporation to shorten the corporate stockholders or members who have the
term pursuant to the provisions of this power to liquidate.
b. By receivership.

MULTIPLE CHOICE QUESTIONS

1. Rayemoon, after a day of rest and after her of Baguio along the foot of Session road and
plane landed in the Philippine jurisdiction head of Burnham Park. She paid 25% of the
following a surgery she underwent in said subscription. During the stockholders
Thailand and just after the ruling of the court meeting, can Rayemoon vote all her
rendering an order/judgment that he is a subscribed shares?
she, subscribed to 10,000 shares of stock of A. No, because the subscription has not yet
NORTHERN Corporation located at the heart been fully paid.
 B. No, because A’s shares have become B. Valid because the stock certificate can
delinquent which cannot be voted. only be issued after the full payment of
C. No as to the unpaid percentage of the subscription.
subscription. C. Valid with respect to the unpaid portion
D. Yes, because unpaid shares not of the subscription
delinquent can be voted. D. Not valid because only delinquent share
may be denied stock certificate.
2. Rod Bake Corporation posted a P1M profit in
its realty business and its real estate has 4. Based on the same facts, is Zeu Rex correct in
appreciated in value in the amount of P4M refusing to pay for the remaining shares, the
despite the El Nino phenomenon that struck company being already insolvent?
the northern and southern Philippines. The A. No, under the trust and fund doctrine
board then declared dividends to its upon the insolvency of the corporation
stockholders computed on the basis of 5M to which he is still liable for his unpaid
representing profits and appreciation in value subscription.
of its real state. Is the dividend declaration B. No, because of the doctrine of piercing
valid? the veil of corporate fiction.
A. Not valid because there was no approval C. Yes, his obligation extinguished due the
of 2/3 of the outstanding capital stock. insolvency of the corporation and his
B. Valid because it was based on profit and discharge from liability by reason
increment in the value of the corporate thereof.
assets. D. Yes, because he is denied of his right to
C. Not valid because dividends must only receive stock certificate.
come from the unrestricted retained
earnings.
D. Valid if no creditors shall be prejudiced 5. •After dissolution but within the three-year
and approved by the required votes of period for liquidation a corporation’s term
the directors and stockholders. may still be extended by amendment of its
3. Mr. Zeu Rex, named after his beautiful articles of incorporation.
mother and handsome father, subscribed to •The dissolution of a corporation shall take
100 shares of Sharryl Aduncion Corporation, place because it had been in continuous
paying 25% of the amount thereof. The non-operation for five-years.
corporation refuses to issue to the former a A. Both statements are false.
stock certificate for his subscription despite B. Both are true.
the demand of Zeu Rex for a stock certificate C. First is false, second is true.
corresponding to 25 shares which he claims D. First is true, second is false.
have been paid. Meanwhile, the corporation
has become insolvent and Zeu Rex now 6. •The by-laws may provide that the holders of
refuses to pay for his unpaid balance on his a majority of the outstanding capital stock
subscription. Is the refusal of the corporation may elect all the members of the board of
to issue the certificate valid? directors.
A. Not valid because there can be issued a •That it may also provide that no officer of
stock certificate for the number of the corporation shall be required to be a
shares already paid. stockholder.
 A. Both statement are true. C. First is true, second is false.
B. Both are false. D. First is false, second is true.
C. First is true, second is false. 11. • The doctrine of corporate opportunity rests
D. First is false, second is true. on the unfairness of an officer or director of
a corporation taking advantage of an
7. Which of the following is not a requisite for a opportunity for his own personal benefit
close corporation? adverse to the corporation.
A. The number of stockholders shall not •The by-laws must be filed with the SEC for
exceed twenty. the corporation to acquire juridical
B. That no close corporation is a personality.
stockholder thereof owning at least 2/3 A. Both statements are true.
of the voting stocks. B. Both statements are false.
C. There is a restriction in the transfer in C. First is true, second is false.
the shares. D. First is false, second is true.
D. There is no public offering of shares.
12. Private corporations have the following
8. •The declaration of dividends out of the attributes, except:
capital and not surplus profits is violation of A. It is created by law as a juridical person.
the doctrine of piercing the veil of corporate B. It has the right of succession.
fiction. C. Its may be formed, organized and
•When the used as an alter ego or conduit to existing under a special law or charter.
avoid the performance of an obligation is D. It has the powers, attributes and
violation of the trust fund doctrine. properties expressly authorized by the
A. Both statements are false. law or incident to its existence.
B. Both statements are true.
C. First is false second is true. 13. In three of the following instances, shares
D. First is true second is false. with or without voting rights can be voted,
except:
9. Majority of the following must residents of A. Increase or decrease of capital stock.
the Philippines, except: B. Dissolution of the corporation.
A. Members of the board of directors. C. Election of directors or trustees.
B. Members of the board of trustees. D. Merger or consolidation with other
C. Incorporators corporation.
D. Officers
14. One of the following does not have voting
10. •Stockholders’ meeting must be in the city or rights:
municipality where the principal office is A. Preferred shares
located while members meeting of non-stock B. Redeemable shares
corporation may be outside thereof. C. Treasury shares
•The secretary of the corporation must D. Common shares
generally be a citizen and a resident of the
Philippines. 15. The executive committee cannot act on this
A. Both are true. matter except:
B. Both are false.
 A. Filling of vacancy in the board of C. Amounts transferred from unrestricted
directors. retained earnings
B. Cash dividend declaration. D. Services to be performed by a lawyer on
C. Board resolution on depository bank of the proposed increased in capital stock
the corporation. of the corporation
D. Stock dividend declaration.
19. A certificate of stock is distinguished from a
16. At the annual meeting of REY BAL-REX BANG share of stock in that a share of stock
Corporation (a distributor of the nationwide A. Is the written evidence of a
overflowing famous coffee known as “KAPE, stockholder’s interest in the assets and
DOS PESOS LANG”) for the election of five management of a corporation
directors, A, B, C, D, E, F and G were B. Is tangible personal property
nominated. A, B, C, D and E received the C. Is one of the units into which the capital
highest number of votes and proclaimed stock is divided
elected. F received ten votes less than E. D. May not be issued if the subscription has
Subsequently, E sold his share to F. Who not been duly paid
between E and F has the right to attend as
director in the board meeting? The transfer 20. A, B, C, D, E, F and G are the duly elected
of shares having been registered with the directors for 2012 of FIDELITY Corporation
corporation. whose article of incorporation provide for 7
A. E is the director because his term is one directors. On August 1, 2012, Directors A, B,
year until successor is elected and C, D and E met to fill the two vacancies in the
qualified. board brought about by the valid removal of
B. F is the director for he has acquired all F for disloyalty to the corporation and the
the shares of E. death of G. In the said meeting, the
C. Either of them shall be director. remaining directors voted for X to replace F
D. Neither of them shall be director. and Y, a son of G, to replace his father. Both
17. The articles of incorporation differ from the X and Y are owners of at least one share of
by-laws in that the articles of incorporation stock of the corporation. The election of X
is: and Y by the remaining directors:
A. The rules action adopted by the A. Valid for both X and Y
corporation for its internal government B. Not valid for both X and Y
B. Adopted before or after incorporation C. Valid with respect to X, not valid with
C. A condition precedent in the acquisition respect to Y
by a corporation of a juridical D. Not valid with respect to X, valid with
personality respect to Y
D. Approved by the stockholders if adopted
after the incorporation 21. In the meeting of the board of directors of
NORTH Corporation, a construction company
18. The following may be the consideration of held on March 31, 2010, directors, A, B, C, D
the shares of stock of a corporation, except and E were present among the 9 directors.
A. Actual cash paid to the corporation The meeting had for its agenda the following:
B. Previously incurred indebtedness of the I. The appointment of Y a new manager
corporation as allowed by the by-laws
 II. The approval of the contract for the 25. Corporations as distinguished from
purchase of office supplies worth partnerships
P130,000 from CPA Supplies Co. A. the liability extends up to private
When the voting took place, directors A, B, C properties
and D voted for the election of Y as the new B. created by agreement
manager, and directors A, B and C voted for C. interest or ownership is transferable
the approval of the contract with CPA only if the other owners consent
Supplies D. no dissolution in case of death,
A. Both corporate acts are valid withdrawal or resignation of an owner
B. Both corporate acts are not valid 26. Corporations begin to have corporate
C. The election of Y as a new manager is existence and juridical personality
valid, the approval of the contract with A. From the moment of the execution of
CPA Supplies is not valid the Articles of Incorporation
D. The election of Y as a new manager is B. From the moment of the execution of
not valid, the approval of the contract the Constitution and by-laws
with CPA Supplies is valid C. From the moment of the execution of
22. Under this theory, the nationality of the the Treasurer’s Affidavit
corporation is that of the country whose law D. From the date of the issuance of the
it was formed certificate of incorporation by the SEC
A. Control test under its official seal
B. Incorporation test 27. One established for charitable purposes
C. Domicile test A. Ecclesiastical corporation
D. Grandfather rule B. Lay Corporation
C. Corporation sole
23. A corporation created in strict compliance D. Eleemosynary corporation
with all the legal requirements and whose 28. A religious corporation which consists of one
right to exist as a corporation cannot be member only or his successors
successfully attacked in a direct proceeding A. Corporation aggregate
for that purpose by the State is? B. Lay Corporation
A. De jure corporation C. Corporation sole
B. De facto corporation D. Eleemosynary corporation
C. Corporation by estoppels
D. Corporation by prescription 29. One organized for a purpose other than for
religion
24. Stock dividends differ from cash dividend in A. Ecclesiastical corporation
that stock dividends B. Lay corporation
A. Do not increase the legal capital C. Corporation sole
B. Involves the disbursement of corporate D. Eleemosynary corporation
funds
C. Require the approval of both the board 30. One incorporated under the laws of the
of directors and the stockholders Philippines
D. Once received by the stockholders, are A. Domestic corporation
beyond the reach of corporate creditors B. Foreign corporation
 C. De facto corporation 37. Persons who bring about or cause to bring
D. Close corporation about the formation and organization of a
corporation by bringing together the persons
31. A corporation in fact and in law interested in the enterprise
A. De facto corporation A. Subscribers
B. Do Raymoon corporation B. Promoters
C. De jure corporation C. Corporators
D. De open corporation D. Incorporators

32. A corporation existing in fact but not in law 38. Amount equal to the aggregate par value or
A. De jure corporation issued value of the outstanding capital stock
B. De Bal corporation A. Legal Capital
C. De facto corporation B. Unissued capital stock
D. De open corporation C. Outstanding capital stock
D. Authorized capital stock
33. One which is limited to selected persons or
members of a family 39. Shares without par value may not be issued
A. Open corporation for a consideration
B. Close corporation A. Less than P2 per share
C. Lay corporation B. Less than P5 per share
D. Ecclesiastical corporation C. Outstanding capital stock
34. One which is so related to another D. Less than P99 per share
corporation that the majority of its directors 40. Issued to those who in some way interested
can be elected by such other corporation to the company, for incorporating the
A. Subsidiary corporation company, for services rendered in launching
B. Parent or holding corporation the welfare of the company
C. Quasi corporation A. Preferred share of stock
D. Corporation by prescription B. Common share of stock
C. Promotion stock
35. Corporators in a stock corporation D. Share in escrow
A. Members
B. Stockholders 41. When a corporation is used to defeat public
C. Incorporators convenience, justify wrong, protect fraud, or
D. Promoters defend crime or made as a shield to confuse
the legitimate issues or where a corporation
36. Persons who have agreed to take and pay for is a mere alter ego or business conduit of a
original unissued shares of a corporation person, this doctrine applies
formed or to be formed A. Doctrine of business opportunity
A. Promoters B. Trust fund doctrine
B. Subscibers C. De Jure doctrine
C. Incorporation D. Doctrine of piercing the veil of corporate
D. Corporators fiction
42. If the remaining directors constitute a B. Both answers are false
quorum, they can fill up the vacancy C. Only the first answer is true
A. In case of removal of a director D. Only the second answer is true
B. In case of expiration of term of a
director 47. May rightfully question an ultra-vires act of a
C. If there is an increase in the number of corporation, except
directors A. Stockholders
D. In case of abandonment of a director B. State
C. Competitors
••Items 43 and 44 are based on the following: D. Creditors, if fraud is charged
If the authorized capital stock is P60,000, divided
into 600 shares with par value of P100 per share 48. The veil of corporate fiction may be pierced
43. And P40,000 has been subscribed, the in the following cases, except:
minimum paid-up should be A. When used as cloak to cover fraud,
A. P40,000 illegality or it results in injustice
B. P15,000 B. To defeat public convenience, justify
C. P10,000 wrong, defend crime
D. P5,000 C. Where two factories are made to appear
as one and used as a device to defeat
44. If P15,000 has been subscribed, the the ends of law or as a shield to confuse
minimum paid-up should be legitimate issues
A. P15,000 D. Where two corporations have the same
B. P10,000 president
C. P5,000 49. Shares deposited by the seller or his agent
D. P3,750 with a bank or third party to be delivered to
the buyer or subscriber only upon the
45. The board of directors of a corporation fulfillment of the stipulated suspensive
consists of nine (9) members, where two (2) condition
were removed and two (2) have resigned, A. Promotion shares
who fills up the vacancy? B. Founders shares
First answer – the remaining members of the C. Redeemable shares
Board D. Escrow shares
Second answer – the stockholders
A. Both answer are true 50. Unless sooner dissolved or extended, the life
B. Both answers are false of a corporation may be for a period not
C. Only the first answer is true exceeding
D. Only the second answer is true A. Five &1/2 years
B. Fifteen years
46. Using number 45, except that three (3) have C. Fifty years
resigned, who fills up the vacancy? D. Seventy years
First answer – the remaining members of the
Board 51. As regards treasury shares, which is not
Second answer – the stockholders correct?
A. Both answers are true
 A. They have no voting rights as long as 55. A corporate officer or director cannot, take
they remain in the treasury advantage for their personal benefit a
B. They are considered as part of earned or business opportunity which the corporation
surplus profits and therefore is financially able to undertake.
distributable as dividends A. Doctrine of corporate fiction.
C. They are not entitled to dividends B. Trust fund doctrine.
D. They may be distributed as property C. Doctrine of corporate opportunity
dividend if there are retained earnings D. Doctrine of limited capacity
arising from the business of the
corporations 56. A corporation has only such powers as are
expressly granted and those that are
52. Each of the incorporator of a stock necessarily implied from those expressly
corporation must own or be a subscriber to granted or those which are incidental to its
at least existence
A. One share of the capital stock of the A. Doctrine of corporate fiction
corporation B. Trust fund doctrine
B. Two and 1/2 shares of the capital stock C. Doctrine of corporate opportunity
of the corporation D. Doctrine of limited capacity
C. Three shares of the capital stock of the
corporation 57. For purposes of interlocking directors, the
D. Four shares of the capital stock of the stockholdings shall be considered substantial
corporation if
A. Exceeding 10% of the authorized capital
53. The board of directors of a corporation stock
consists of nine (9) members, where two (2) B. Exceeding 10% of the outstanding
have died during their term of office and one capital stock
(1) is abroad, the quorum would be C. Exceeding 20% of the authorized capital
A. Five (5) members stock
B. Four (4) members D. Exceeding 20% of the outstanding
C. Six (6) members capital stock
D. Seven (7) members
58. A shareholders’ option to subscribe to
54. In no case shall the total yearly allotment of shares in proportion to his
compensation of directors, as such directors, holding of outstanding shares, before new
exceed shares are offered to others
A. 5% of the net income before income tax A. Voting right
during the preceding year B. Pre-emptive right
B. 10% of the net income before income C. Ultra vires act
tax during the preceding year D. Appraisal right
C. 10% of the net income after income tax
during the preceding year 59. The assets of the corporation as represented
D. 10% of the net income after income tax by its capital stock are to be maintained
during the current year unimpaired that there can be no distribution
of such assets among the stockholders
 without provision being first made for the 65. The corporation shall be deemed dissolved
payment of corporate debts and its corporate powers cease, if from the
A. Doctrine of corporate fiction date of its incorporation, it does not formally
B. Trust fund doctrine organize and commence the transaction of
C. Doctrine of corporate opportunity its business or the construction of its works
D. Doctrine of limited capacity within
A. 4 years
60. Dividend in the form of a promissory note B. 3 years
and may be issued to bear interest C. 2 years
A. Optional dividend D. 5 years
B. Composite dividend
C. Preferred dividend 66. If the corporation has commenced the
D. Scrip dividend transaction of its business, the corporate
franchise or certificate of incorporation may
61. Dividend which is partly in cash and partly in be suspended or revoked, if it subsequently
stocks becomes continuously inoperative for a
A. Optional dividend period of at least
B. Composite dividend A. 4 years
C. Cumulative dividend B. 3 years
D. Liquidating dividend C. 2 years
D. 5 years
62. Dividend which gives the stockholder an 67. A representative action where a stockholder
option to receive cash or stock dividend brings an action in the name and in behalf of
A. Optional dividend the corporation and any relief obtained
B. Bond dividend belongs to the corporation and not to the
C. Cumulative dividend stockholders individually or collectively
D. Liquidating dividend A. Individual suit
B. Derivative suit
63. Dividend which are actually distributions of C. Representative suit
the assets of the corporation upon D. Corporate suit
dissolution or winding up
A. Bond dividend 68. An action brought by a stockholder against
B. Preferred dividend the corporation for direct violation of his
C. Cumulative dividend contractual rights
D. Liquidating dividend A. Individual suit
B. Derivative suit
64. Rules of action adopted by the corporation C. Representative suit
for its internal government and for the D. Corporate suit
government of its officers and of its
stockholders or members 69. Where a stockholder may bring suit in behalf
A. Contract of himself and all other stockholders who are
B. Articles of Incorporation similarly situated when a wrong is committed
C. Ultra Vires act against them
D. By-laws A. Individual suit
 B. Derivative suit consideration at all is justified if such issues
C. Representative suit are bonus shares.
D. Corporate suit B. A director is removed from office by a
vote of the stockholders holding at least 2/3
70. Any profit which it may earn shall be used for of the outstanding capital stock. The vacancy
the furtherance of the purpose for which the occasioned by such removal can be filled by a
corporation was organized as such profit is vote of the majority of the remaining
not distributable to its members directors if still constituting a quorum.
A. non stock corporation A. Only letter A is correct;
B. close corporation B. Both letters are correct;
C. stock corporation C. Only letter B is correct;
D. private corporation D. Both letters are wrong.

71. All of this corporation’s issued stock of all 74. Which of these conditions comply with the
classes exclusively of treasury shares shall be minimum requirements of law to corporate
held of record by not more than twenty (20) formation?
Authorized Subscribed Paid-up
persons Capital Capital Capital
A. close corporation A. P64,000 P16,000 P4,000
B. stock corporation B. P100,000 25,000 12,500
C. private educational corporation C. P200,000 10,000 10,000
D. non stock corporation D. P200,000 50,000 1,000
72. Which of the following statements is correct? 75. Which of the following conditions will allow
A. To sell lease, mortgage or otherwise corporate formation and S.E.C. registration?
Authorized Subscribed Paid-up
dispose of all or some of the corporate Capital Capital Capital
assets, majority vote of directors or a. P90,000.00 P12,500.00 P3,125.00
trustees and majority of the outstanding b. P100,000.00 20,000.00 5,000.00
capital stock or of the members is c. P100,000.00 25,000.00 5,000.00
needed; d. 60,000.00 15,000.00 6,000.00
B. To enter into management contract, a
majority vote of the board of directors 76. The authorized capital stock of a proposed
and majority of the outstanding capital corporation is P1,000,000 divided into 10,000
stock or of the members is required; shares with a par value of P100 each. The
C. To issue stock dividends, majority vote minimum amount of subscription that must
of the quorum of the board of directors be paid is?
and majority of the outstanding capital A. P62,500 or 625 shares
stock is required; B. P50,000 or 500 shares
D. To invest corporate funds in another C. P75,000 or 750 shares
corporation or business, majority vote of D. P87,500 or 875 shares.
directors or trustees and majority of the
outstanding capital stock or of the 77. Which of the following will qualify as an
members thereof. incorporator in a corporation?
A. A minor;
73. A. It is illegal to issue watered stocks. B. A corporation
However, stock issues without any C. Partnership
 D. Foreigner. corporation shall be deemed dissolved. Such
voluntary inaction may result from?
78. The Corporation Code requires that; A. Inaction of the corporation through its
A. At least a majority of the directors are failure to formally organized and
residents of the Philippines; commence with the transaction or its
B. All of the directors or trustees are business or the construction of its work
residents of the Philippines; within two (2) years from the date of its
C. All of the directors or trustees are incorporation;
citizens of the Philippines; B. Failure of the corporation to submit the
D. Majority of the directors are citizens of annual reports required by the S.E.C. for
the Philippines. a period of five (5) years;
79. The voting proportion required to enable a C. Merger or consolidation with respect to
corporation to invest its fund in any other absorbed corporation;
corporation or business or for any purpose D. None of the above.
other than its primary purpose?
A. 2/3 vote of the board of directors and 82. One of the following is a ground for the
ratified by majority of the outstanding suspension or revocation of the certificate of
capital stock; incorporation by the S.E.C.
B. Majority vote of the board of directors A. If the corporation fails to commence and
and ratified by majority of the start to operate and the failure is due to
outstanding capital stock; a cause beyond its control;
C. Majority vote of the board of directors B. If the corporation has commenced its
and ratified by 2/3 of the outstanding business transaction and afterwards
capital stock; ceased operations continuously for a
D. Majority vote of the board of directors period of at least 5 years;
and ratified by 2/3 of the stockholders. C. If the corporation has commenced its
operations and subsequently become
80. Watered stock is share of stock issued by a continuously inoperative for two years.
corporation for a consideration less than its D. None of the above.
par or issued value or for a consideration in
any form other than cash, valued in excess of 83. The following are corporate acts in which a
its par value. In this regard? stockholder of a corporation shall have the
A. The agreement that it shall be paid for right to dissent and demand payment of the
less than its par value is illegal and void fair value of his shares of stock, except one?
and cannot be enforced; A. In case of an amendment of the articles
B. the issue itself is void; of incorporation which has the effect of
C. The subscriber shall not be liable for full changing or restricting the rights of any
par value; stockholder;
D. Answer not given B. In case of incurring, creating, or
increasing bonded debts;
81. Corporate dissolution may take place by C. In case of merger or consolidation;
voluntary inaction which will result in the D. In case of sale, lease, mortgage or other
cessation of its corporate powers and the disposal of all or any corporate assets.
84. Which of the following statements is not C. Trust fund doctrine
correct in terms of appraisal right? D. Corporate opportunity.
A. In case of merger or consolidation;
B. In case of incurring, creating or 88. A stockholder who does not approve the
increasing bonded debts; action taken by the Board of Directors in
C. In case of sale, lease, mortgage or other proposing to amend the articles of
disposal of all corporate assets; incorporation is not allowed to withdraw
D. In case of an amendment or articles of from the corporation in one of the following
incorporation which in effect of instances?
changing, restricting the rights of any
stockholder. A. Creating, incurring, increasing or
85. OLD RAMBO CORPORATION has a total 1,000 decreasing any bond indebtedness;
delinquent shares at P10 par value, to be B. Shortening or prolonging corporate
sold at public auction sale. Total amount existence;
recoverable includes: total amount of the C. Investing of corporate funds in another
delinquent shares P10, 000 and total corporation;
expenses of the sale P5, 000. Who will be D. Merger or Consolidation.
declared the highest bidder among the
following bidders in the public sale? 89. Which of the following statement is not
A. M, who is willing to pay the P15,000 at correct?
920 shares; A. The sale of delinquent stock at public
B. A, who is willing to pay the P15,000 at auction can be stopped if the board of
950 shares; directors stop the sale for valid reasons;
C. N, who is willing to pay the P15,000 at B. Payment of unpaid subscription may not
970 shares; be enforced by applying cash dividends
D. G, who is willing to pay the P15,000 at to delinquent stockholders;
900 shares; C. In delinquency sale at public auction the
highest bidder is one who offers to pay
86. The following are ways of enforcing payment the full amount of the balance of the
of unpaid subscription, which is the subscription plus interest and expenses
exception? of the sale for the highest number of
A. Filing a court action to recover unpaid shares;
subscription;
B. Sale at public auction of delinquent 90. One of the following does not require
stocks; stockholder’s approval?
C. Denying delinquent stock cash A. Change of corporate name;
dividends; B. Merger or consolidation;
D. Denying delinquent stock the right to C. Declaration of cash dividend;
vote and voted upon. D. Investment or corporate funds outside
main purpose of the corporation.
87. A corporate doctrine which the stockholders
are not personally liable for corporate debts? 91. Which of the following is the disadvantage of
A. Piercing the veil of corporate fiction forming a corporation?
B. Separate legal entity
 A. The subservience of minority 95. Purely ultra vires acts of the officers of a
stockholders to the wishes of the corporation to invest corporate funds in
majority subject only to equitable another business or corporation, i.e., acts not
restraints; contrary to law, morals, public policy may be
B. The free and ready transferability of ratified by:
ownership; A. Majority vote of all members of the
C. The shareholders are not liable for the board;
debts of the business; B. Stockholders with ½ of voting power;
D. The owner of shares has a right of C. Stockholders holding 2/3 of the voting
succession and the existence of the power;
entirety is not affected by the personal D. Majority vote of the board present.
vicissitudes of the individual 96. Requirement to effect the amendment of the
stockholders. by-laws of a corporation?
A. Majority vote of the board of directors;
92. In a corporation, two or more positions may B. Majority vote of the outstanding capital;
be held concurrently by the same person, C. Vote of 2/3 of the outstanding capital
except that no person shall act as? stock;
A. President and chairman of the board. D. Majority vote of the board of directors
B. President and secretary; and majority vote of the outstanding
C. Secretary and treasurer; capital stock.
D. Treasurer and director.
97. The interest or right of the stockholder in the
93. The following are qualifications of corporate corporation’s profits or in the net assets of
directors, except? corporation on dissolution is?
A. Must own at least one share of stock; A. Shares of stock
B. Must not be convicted by final judgment B. Dividend
with imprisonment exceeding 6 yrs. and C. Capital
committed within 5 yrs. prior to D. Certificate of stock.
election;
C. Majority are citizens of the Philippines; 98. The right of a corporation to exist as juridical
D. Ownership of shares must be recorded person during its term as stated in the
in the books of the corporation. articles of incorporation despite the death of
any of its stockholders is?
94. The following are the requisites except one, A. Right of existence;
for valid declaration and/or issuance of stock B. Right of succession;
dividend. C. Pre-emptive right;
A. Existence of the original and unissued D. Right of redemption.
shares;
B. Existing unrestricted retained earnings; 99. The following cannot be an incorporator of a
C. Dividends declaration by the Board of corporation?
Directors and approved by 2/3 vote of A. A corporation organized under the
the outstanding capital stock; Philippine laws
D. It is issued to increase the authorized B. A resident alien
capital. C. A pastor who memorized John 3:16 and
the entire book of Revelation
 D. Subscriber who pays less than 25% of his C. The stock certificate is not cancelled;
subscription D. The trustee may attend the
stockholders’ meeting even in the
100. One of the characteristics of treasury shares presence of the stockholder-trustor
is that?
A. They may be reissued or sold again; 104. The following defect will preclude the
B. They have status of outstanding shares; creation of even a de facto corporation?
C. They may participate in the meeting of A. The incorporators or a certain number of
corporation as voting shares; them are not residents of the
D. They are the exclusive shares of the Philippines;
corporate treasurer B. Lack of certificate of incorporation from
101. Which of the following is a ground for the the SEC;
suspension or revocation of the certificate of C. Name of the corporation closely
incorporation by the SEC? resembles that of a pre-existing
A. If the corporation has commenced its corporation and may deceive the public;
business and subsequently become D. There is actual use of corporate powers.
continuously inoperative for two years;
B. If the corporation has ceased operations 105. The holders of non-voting shares shall
continuously for a period of at least five nevertheless be entitled to vote on the
years; following matter, except:
C. If the corporation did not commence its A. Increase or decrease of capital stock;
business transactions for 2 years; B. Adoption or amendment of by-laws;
D. If the corporation did not formally C. Dissolution of the corporation;
organize after incorporation. D. Dividend declaration.

102. Watered stocks are shares of stock issued by

a corporation for a consideration less than its
par or issued value or for a consideration in
any form other than cash, valued in excess of
its par value. In this regard?
A. The agreement that it shall be paid for
less than its par value is illegal and void
and cannot be enforced;
B. The subscriber or purchaser shall not be
liable for the full par value of the shares;
C. The issue itself is void;
D. The directors officers and stockholder
are jointly liable.

103. The distinction between proxy and voting

trust is that in a voting trust?
A. The trustee has no legal title to the
shares of the transferring stockholder;
B. It is limited to any particular meeting;
106. (1) Appraisal right means that whenever B. Only (2) is false;
the capital stock of a corporation is C. All are false;
increased and new shares of stock are D. All are true.
issued, the new issue must first be offered
to the stockholders in proportion to their 107. (1) A foreign corporation doing business in
existing shareholdings before subscription the Philippines without a license may be
are received from the general public. sued but it cannot sue.
(2) Ultra vires acts are illegal and therefore (2) A written demand for payment of the
void. fair value of the shares made in the exercise
(3) Certificate of incorporation is the of the appraisal right will suspend the
document prepared by the persons stockholder’s rights.
establishing the corporation and filed with A. (1) is false but (2) is true;
the SEC containing the matter required by B. (1) is true but (2) is false;
the Corporation Code. C. Both are false;
A. Only (1) is true; D. Both are true.