Consolidated Samplex Files

MULTIPLE CHOICE
1. A stockholder whose shares are declared delinquent will have

a. No voting and dividend rights
b. No voting rights at any meeting
c. Voting and dividend rights
d. Voting rights but no dividend rights
2. Which of the following meetings is not valid?

a. Members’ meeting held in Tagaytay City where the principal office is located in Makati but the by-
laws provide that meetings of the members may be held anywhere in the Philippines
b. Stockholders’ meeting held in Tagaytay City where the principal office is located in Makati but the by-
laws provide that stockholders’ meetings may be held anywhere in the Philippines
c. Trustees’ meeting held in Baguio City where the principal office is located in Makati
d. Directors’ meeting held in Macau where the principal office is located in Makati.
3. A fraudulent transaction in the trading of securities that involves no change in the beneficial
ownership of the shares is called
a. Matched order
b. Squeezing the float
c. Painting the tape
d. Wash sale
4. The fair market value of the shares of a stockholder exercising his appraisal right should be
determined on the date
a. Of the meeting where he interposed his objection
b. Of receipt of his written demand that he paid the value of his shares
c. Prior to the meeting where the matter was taken up
d. Of the payment of his shares
5. A close corporation may validly provide in its AOI or by-laws that

a. Cumulative voting shall be denied to the stockholders
b. Proxy voting shall be denied to the stockholders
c. Quorum and voting requirements in stockholders’ meeting imposed by the code shall be more than
that required by law
d. Meetings of stockholders may be held anywhere in the Philippines
TRUE OR FALSE. If your answer is FALSE state your reason/s. If TRUE no need to explain
1. In cases of merger, the employees of the absorbed/dissolved corporation are automatically

absorbed by the absorbing/surviving corporation
True
FALSE. They are not automatically absorbed because what is bought in cases of mergers are the
assets and liabilities of a corporation. Employees are not assets or liabilities. Although in protection of
labor, the corporation may terminate employment only for a lawful cause. It may also allow such
employee to resign, retire or otherwise sever whether before or after the merger, subject to existing
contractual obligations.
2. A corporation sole may validly sell/transfer its old van for purposes of acquiring a new one
without court intervention
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True
3. A stockholder issued no par value shares below their determined issued value as indicated in
AOI is solidarily liable with the responsible directors/officers for the water in the stocks
False, no-par value shares, once issued are deemed fully paid and non-assessable. Since they are
deemed fully paid, the stockholder shall bear no personal liability for the unpaid subscription. Only the
directors/officers will be liable therefor.
4. Pending the issuance of the replacement certificate, the owner of a lost certificate of stock may
validly transfer his shares by a mere notarized deed
False, a mere notarized deed will not suffice. Although a stock may be transferred by a notarized deed,
such is not case where a stock certificate has already been issued. The operative act of transferring
shares is through endorsement made by the owner or by his attorney-in-fact coupled with the delivery
thereof to the transferee. Only in doing these 2 acts will there be a valid transfer as between the parties.
Here, a certificate has already been issued and the owner cannot transfer such for having lost it.
5. A transferee of a certificate of stock in a non-stock corporation, if they are transferable by virtue of a

by-law provision, has the same right, power and authority to compel the corporation to register the said
transfer in the corporate books in his name, in order that he may be considered as a shareholder, in
the same manner that the transferee of a certificate of stock in a stock corporation may do so.
True
• Distinctions between CC and OSC (see page 106!)

o Add: application of the business judgment rule does not apply in a CC in case of deadlock
o In OSC, a transferee has a right to have his stock transferred under his name. if denied, mandamus
▪ In a CC, CC may deny such if one does not qualify
6. Absent any rules and regulations of SEC regarding short sale, any person engaging thereto may be
subjected to the penal sanctions of section 73 of SRC
True
7. Absent any by-law provision authorizing the holding of a meetings of members in a non-stock
corporation, members’ meetings may nonetheless be validly held anywhere in the Philippines
False, in the absence of any by-law provision, members’ meeting of a non-stock corporation should be
held in the city or municipality where the principal office of the corporation is located.
8. The appointment of a distributor/representative in the Philippines made by a foreign corporation

necessarily results to doing/transacting business in the country
False, the foreign corporation is not doing business in the Philippines if the representative is an
independent entity acting in his own name for in its account not for account of foreign corporation.
9. The winning bidder in a delinquency sale is the highest bidder
False, the winning bidder in a delinquency sale is the lowest bidder as regards the number of shares
to be bought, i.e., the bidder who tenders to pay the full amount of delinquency plus cost and expenses
for the least number of shares.
10. The beneficial owner of a voting trust agreement may validly transfer his shares by a mere notarized
deed.
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False, to effectively transfer the shares covered by voting trust agreement, the certificate of voting trust
agreement must be presented.
OBJECTIVES
1.
a. Four instances when a stockholder may be able to exercise his appraisal right (4pts)
1.) In case of any amendment to the articles of incorporation has the effect of changing or restricting
the rights of any stockholder or class of shares or of authorizing preferences in any respect
superiors to those of outstanding shares of any class, or of extending or shortening the term of
corporate existence.
2.) In case of sale, lease, mortgage, pledge or disposition of all or substantially all of the corporate
property and assets as provided in the code.
3.) In case of merger or consolidation
b. The twin requirement in order that the Special Commercial Court may be justified in appointing
a management committee, board or body in a corporation (4pts)
1.) Dissipation, loss, wastage or destruction of assets or other properties and;

2.) Paralyzation of its business operations which maybe prejudicial to the interest of the minority
stockholders, parties litigant or the general public.
2. All of the following statements are correct. Why it is said that:

a. If not denied by a provision in AOI, the pre-emptive right of a stockholder in a close
corporation is absolute (3pts)
A close corporation is not subject to the 60:40 foreign equity requirement, since it may not offer any
shares through initial public offering in the first place. The pre-emptive right of a stockholder in a close
corporation is thus considered absolute.
is broadened to include all stock to be issued including reissuance of treasury shares, whether for
money, property or personal services or in payment of corporate debts, unless the articles of
incorporation provides otherwise.
b. The ruling of the High Court in EB Villarosa v. Benito that service of summons upon a
corporation must be made to a person named in the statute, i.e., president, general manager,
treasurer, corporate secretary or in-house counsel, does not apply if the action brought
against the corporation is an intra-corporate controversy. (3pts)
In case of intra-corporate controversy, Rule 2 Section 5 of the Interim Rules of Procedure on Intra-
Corporate controversy, service of summons shall be deemed adequate if made upon any of the
statutory or corporate officers as fixed in the by laws or their respective secretary.
c. Wash sale and matched order are not illegal per se (3pts)
Wash sales and matched orders are only illegal when used as a means to create a false or misleading
appearance of active trading.
d. The three (3) year period of liquidation will not apply if a trustee/assignee/ receiver is
appointed to undertake the same (3pts)
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The three year period of liquidation will not apply if a trustee is appointed to undertake the same
because from and after any such conveyance by the corporation of its property in trust for benefit of
stockholder, members, creditors and others in interest which the corporation had in property
terminates, the legal interests vest in trustee and beneficial interest in stockholders, members,
creditors or other persons in interest.
e. Certificate of stock are merely quasi-negotiable but non-negotiable (3pts)
Certificate of stock is quasi negotiable because it maybe transferred by endorsement coupled with
delivery thereof. It is nonetheless non-negotiable in the sense that the transferee takes it without
prejudice to all the rights and defenses which the true and lawful owner may have except insofar as
the principles governing estoppel may apply.
3. What are the three (3) qualifying conditions required to be indicated in AOI in order that the
corporation may be considered as a close one (6pts)
1.) All the corporation’s issued stock of all classes exclusive of treasury shares, shall be held of record
by not more than specified number of persons not exceeding (20)
2.) All the issued stock of all classes shall be subject to one or more specified restriction on transfer
permitted by this title.
3.) The corporation shall not list in any stock exchange or make any public offering of any of its stock of
any class.
CASE ANALYSIS
1. X Co., Inc., engaged in the manufacturing concern. It leased a parcel of land where it
erected its plant warehouse and offices. It has an authorized capital stock of Php100M
divided into 100M shares with a par value of Php1.00 per share. Php50M has been
subscribed. One of the stockholders thereof is “A” who subscribed to Php5M and has paid
Php2.5M out of his subscription.
a.) May “A” be issued a stock certificate covering 2.5M shares? Why or why not? (3pts)
No section 63 of the corporation code provides that no certificate of stock shall be issued to a
subscriber until the full amount of his subscription together with interest and expenses ( in case of
delinquent shares) if any has been paid.
Assume that the corporation has been incurring loses to the tune of php5M and to raise
much needed funds to pay its liabilities, the BOD decided to make a call for the unpaid
portion of the subscriptions of its stockholders including “A” who did not pay the same
on the date specified in the call. The Corporation then decided to sell his shares at
public auction but no bidders appeared.
b.) May the corporation bid? Why or why not? (3pts)
No. The corporation may bid subject to the provisions of the corporation code. Section 41 provides
that the corporation shall have the power to acquire its own shares provided that it has unrestricted
retained earnings. In this case, the corporation has no unrestricted retained earnings because it is
incurring loses.
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Assume that the corporation and “Y” entered into a contract of sale in January 2016
for the latter to acquire 10M of the remaining unissued stocks of the corporation with
a stipulation that “Y” shall pay a down payment of Php5M, the balance to be paid on or
before the end of June 2016, and that until and unless he shall have paid the balance
of his acquisition cost he shall have paid the balance of his acquisition cost he shall
not be considered as a stockholder. A meeting of the acquisition of the stockholders
is called to be held in June 7, 2016 to elect a new set of directors, at a point in time
when he has not yet paid his full acquisition cost.
c.) Is “Y” qualified to vote and be voted for as a director? Why or why not? (3pts)
Yes. The moment his subscription becomes effective, he becomes a stockholder for all intents and
purposes and the only requirement to be qualified as a director is that he must have at least one
share in his own name.
d.) Assume that on June 10, 2016, the entire compound of the corporation was ravaged
by fire, turning everything into ashes. May “Y” be compelled to pay the balance of
his acquisition cost? Why or why not? (5pts)
Yes. The corporation code provides that any contract for the acquisition of unissued stock in an
existing corporation or a corporation still to be formed shall be deemed a subscription, notwithstanding
the fact that the parties refer to is as a purchase or some other contract. Thus, a person whether
deemed a purchaser or subscriber of the unissued stocks of an existing corporation or a corporation
still to be formed becomes entitled to all the rights and of stockholder and subjected to all liabilities
that attach thereunder upon execution and effectivity of the contract, and the corporation can compel
the payment of the balance of the unpaid portion of the subscription. Such is in consonance with the
Trust Fund Doctrine which states that subscriptions to the capital of a corporation constitute a fund
to which creditors have the right to look up to for the satisfaction of their claims.
e.) Assume further that the by-laws of the corporation provided for the election of an
Assistant Finance Manager to be elected by the board. Pursuant thereto, the board
elected “Z” as such. He is not a stockholder of the corporation. Later, however, he
was removed/ousted as such Assistant Finance Manager. He files a case before the
Special Commercial Court questioning the validity of his removal therefrom. The
corporation moves for the dismissal of the case in that it is the NLRC that is
possessed with jurisdiction and case in that it is the NLRC that there is no-intra
corporate relationship between the parties. Rule and explain (5pts)
A corporate officer’s dismissal is always a corporate act and/or an intra-corporate controversy. In this
case, the officer asserts his right as such officer and questions his removal or ouster. Thus, it is not
the NLRC who has the authority to hear the present case, but the Special Commercial Court. As
provided under Section 5(c) of PD 902-A, the Special Commercial Court has exclusive and original
jurisdiction to hear and decide cases involving controversies in the election or appointment of
directors, trustees, officers or managers of such corporation as provided under.
f.) Disregarding letter D., and assume that 3 of the 5-man member board reconstituted
the AOI falsely adding new purposes not originally included thereat such as lumber
concession, cattle ranch, mining and agriculture, thereby misapplying and
misusing corporate funds and assets. May a stockholder file a dissolution
proceedings against the corporation? Why or why not? (3pts)
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No. Dissolution of the corporation is warranted only when the acts of the directors constitute or
threaten a substantial injury to the public or such as to amount to a violation of the fundamental
conditions of its charter, or its conduct is characterized by obduracy or pertinacity in contempt of law.
g.) If a case is instituted and you were the Judge, will you grant the prayer for
dissolution? Why or why not? (3pts)
No. Dissolution is an extreme remedy and as such, a judge must proceed with extreme caution in
granting in.
Here, considering the ground of the complaint, I will not order the corporation dissolved. Instead, I
will grant a conditional dissolution, by which the board members will be given a reasonable period to cease
and desist from committing the acts complained. Otherwise, the corporation will be dissolved.
h.) Will your answer be the same if the corporation is a close one? Why or why not?
(3pts)
No. Unlike an ordinary corporation, dissolution in a close corporation may be grounded on mere
dishonesty or any act that maybe detrimental to any of the stockholder or corporation itself.
i.) Assume that the corporation is engaged in the discovery of natural gas and its
shares are being traded in stock exchange. It was able to discover natural gas of
commercial quantity. The Board, instead of disclosing the matter immediately to the
SEC and the Philippine Stock Exchange, called their respective brokers for the
acquisition of shares of the corporation before proceeding to a printer for the
publication of the discovery. The printer, however, before doing his job, also called
his broker to acquire shares of the corporation. What violation of the provisions of
SRC is committed by a.) Directors? (3pts) b.) Did the printer committed the same
violation? Why or why not? (3pts)
a.) Director committed an insider trading. An act of an insider to buy or sell security of the issuer while in
possession of material information with respect thereto that is not generally available to the public is
illegal. In this case, the director acquired or purchased the shares of the corporation while in
possession of material non-public information.
b.) Yes the printer committed the same violation. His relationship to the issuer gives him material access
to material information about the issuer or the security that is not generally available to the public. In
this case, he had access to material information.
2. Give your comment of the decision of the High Court in Clemente v. CA regarding a
juridical entity, long dissolved (40 years) that did not undertake liquidation and winding to
the effect that:
“The termination of the life of a juridical entity does not by itself cause the extinction
or diminution of rights and liabilities of such entity (citing Gonzales v. Sugar Regulatory
Administration) nor those of its owners and directors. If the three year period extended
life has expired without a trustee or receiver having been expressly designated by the
corporation within that period. The BOD or trustee itself, following the rationale of SC’s
decision in Gelano v. CA may be permitted to so continue as “trustee” by legal
implication to complete the liquidation. Still in the absence of a BOD or trustees, those
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having any pecuniary interest in the assets, including not only the stockholders but
likewise the creditors of the corporation, acting for and in its behalf, might make proper
representations with the (proper forum), which has primary and sufficiently board
jurisdiction in matters of this nature, for working out a final settlement of the corporate
concern.” (5pts)
DE FACTO CORPORATIONS identity of corporate interest between the two

• REQUISITES: companies and be considered as a sufficient ground
1. There is a valid statute under which the for disregarding distinct personalities.
corporation could have been created as a de o EXC: Piercing the veil of corporate fiction
jure corporation (or according to some, an o It is very obvious that the second
apparently valid statute); corporation seeks the protective shield of
2. An attempt, in good faith, to form a a corporate fiction whose veil in the
corporation according to the requirements of present case could, and should be
law which goes far enough to amount to a pierced as it was deliberately and
“colourable compliance” with the law; maliciously designed to evade its financial
3. A user of corporate powers, the transaction of obligations to its employees. → a
business in some way as if it were a business conduit or alter-ego of petitioner
corporation; corporation and its emergence was
4. Good faith in claiming to be and doing skilfully orchestrated to avoid the financial
business as a corporation. liability attached to petitioner corporation.
o probative factors of identity that will
justify the application of the doctrine
CORPORATE ENTITY THEORY of PVCF:
• As a legal entity, the corporation is possessed with 1. Stock ownership by one or common
a juridical personality separate and distinct from ownership of both corporations;
the individual stockholders/members and is not 2. Identity of directors and officers;
affected by the personal rights, obligations or 3. The manner of keeping corporate
transactions of the latter. books and records;
• The properties it possesses belongs to it 4. Methods of conducting the business.
exclusively as a separate juridical entity such that o test in determining the applicability of
the personal creditors of its stockholders or piercing the veil of corporate fictions is
members cannot attach corporate properties to as follows:
satisfy their claims. 1. Control, not mere majority or
• On the other hand, the corporation is not likewise complete stock control, but complete
liable for the debts, obligations or liabilities of its domination, not only in finances but of
stockholders. Neither may its properties be made policy and business practice in
answerable to satisfy the claim of creditors against respect to the transaction attacked so
its stockholders/member even if the stockholder that the corporate entity as to this
concerned is its president. transaction had at the time no
separate mind, will or existence of its
own;
PVCF
2. Such control must have been used by
• GR: A corporation is an entity separate and
the defendant to commit fraud or
distinct from its stockholders or member and from other
wrong, to perpetuate the violation of a
corporations to which it may be connected.
statutory or other positive legal duty
• EXC: But when the notion of legal entity is used to
or dishonest and unjust act in
defeat public convenience, Justify wrong, Protect fraud,
contravention of plaintiff’s legal rights;
Defend crime, the law will regard the corporation as a
and
mere association of persons, or in the case of two
3. The aforesaid control and breach of
corporations, merge them into one, the one being merely
duty must proximately cause the
regarded as part or instrumentality of the other.
injury or unjust los complained of.
o GR: The ownership of all the stocks of a corporation WHEN X PVCF
by another corporation does not necessarily breed an
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Absent any of the following circumstances, the courts will POEA DOE NOT imply fraud. →It was
not be justified in disregarding the corporate entity; organized and registered in 1981, several
years before private respondent filed his
1. The corporation is used or being used to complaint with the POEA in 1985.
o defeat public convenience;
• Distinguished from other cases
o Justify wrong;
• LA CAMPANA – the two companies were
o Protect fraud;
substantially owned by the same person. They
o Defend crime;
had one office, one management, and a single
o Confuse legitimate issues;
payroll for both businesses. The laborers were
o Circumvent the law;
also interchangeable.
o Perpetuate deception; or
• CLARAPOLS – Both corporations were
o An alter-ego, adjunct or business conduit for
substantially owned and controlled by the same
the sole benefit of a stockholder or a group of
person and there was no break or cessation in
stockholders or another corporation.
operations. Moreover, all the assets of the old was
2. The wrong doing must be clearly and convincingly
transferred to the new corporation.
established. It cannot be justified by speculation and
• AC RANSOM – The distinguishing mark of fraud
can never be presumed.
were clearly apparent in AC Ransom, when such
3. The petitioner must seek to impose a claim against
corporation ceased operation after the decision of
the stockholders or officers directly liable, otherwise
the CIR and new one replacing it which was
piercing the veil of corporate fiction would not be
owned by the same family, engaging in the same
available nor justified.
business and operating in the same compound.
o In the present case, not only has there
• DEL ROSARIO v. NLRC
been failure to establish fraud, but it has
o The claim that PHILSA allowed its license
also not been shown that petitioner is the
to expire so as to evade payment of
corporation officer responsible for PR’s
private respondent’s claim is →not
predicament. It must be emphasized that
supported by facts. The license expired in
the claims were actually directed against
1985, it was delisted in 1986, there was
the employer, PHILSA became liable only
no judgment yet in favour of PR. An intent
because of its undertaking to be jointly
to evade payment of his claims cannot
and severally bound with the foreign
therefore be implied from the expiration of
employer, as required by POEA rules.
PHILSA’s license and its delisting.
o PHILSA International Placement and
Services Corp. and its registration with
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#5 D
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T/F
1. The prevailing view is that these contracts entered into where there is an interlocking director is not
voidable merely by reason of conflicting duties or interest as to corporations represented, even when a
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majority or all of the directors are common to both corporations. It is recognized that such will be upheld if
there is no bad faith or unfairness or collusion.
2. …
• BUSINESS JUDGMENT RULE: Although directors are commonly said to be responsible both for
reasonable care and also prudence, the formula is continually repeated that they are not liable for losses
due to imprudence or honest error of judgment. The business judgment rule in effect states that questions
of policy and management are left solely to the honest decision of the board of directors and the courts are
without authority to substitute its judgment as against the former. The directors are business managers and
as long as they act in good faith, its actuations are not subject to judicial review.
• Distinctions between CC and OSC (see page 106!)
o Add: application of the business judgment rule does not apply in a CC in case of deadlock
o In OSC, a transferee has a right to have his stock transferred under his name. if denied, mandamus
▪ In a CC, CC may deny such if one does not qualify
3. F
4. F
5. F
6. T
7. T
• GR: A contract entered into by a director with his own corporation is voidable at the latter’s option
• EXC: When all the conditions laid down in Sec. 31 are met.
1. Presence of such D/T not necessary to constitute a quorum
2. Vote of such D/T not necessary for the approval of the contract
3. Contract if fair and reasonable
4. Corporations vested with public interest
a. While a corporation remains solvent, we can see no reason why a director or officer, by the authority of a majority of the
stockholders or board of managers, may not deal with the corporation, loan it money or buy property from it, in like manner
as a stranger.
b. But the moment such a corporation becomes insolvent, its directors are trustees of all the creditors, whether they are
members of the corporation or not, and must manage its property and assets with strict regard to their interest; and if they
are themselves creditors while the insolvent corporation is under their management, they will not be permitted to secure
to themselves by purchasing the corporate property or otherwise any personal advantage over the other creditors.
i. Nevertheless, a director or officer may in good faith and for an adequate consideration purchase from a majority
of the directors or stockholders the property even of an insolvent corporation, and a sale thus made to him is
valid and binding upon the minority.
8. T
9. .
False, the foreign corporation is not doing business in the Philippines if the representative is an independent
entity acting in his own name for in its account not for account of foreign corporation.
10. T, multiples of 5
III. Objectives
1.
a. pre-emptive right in a close corp is absolute in that it is not subject to 60:40 rules
b. SEC. 56. Voting Right for Treasury Shares. – Treasury shares shall have no voting right as long as such shares
remain in the Treasury.
c. Sec. 104
d. not fraudulent unless used as a run-away corporation = PVCF

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e. Sec. 103 and 104?
f. answered
2. A foreign corporation
The rule is that the party is estopped to challenge the personality of a corporation after having acknowledged the
same by entering into a contract with it. And the doctrine of estoppel to deny corporate existence applies to foreign
as well as domestic corporation; one who has dealt with a corporation of foreign origin as a corporate entity is
estopped to deny its corporate existence and capacity. The principle will be applied to prevent a person contracting
with a foreign corporation from later taking advantage of its non-compliance with the statutes chiefly in case where
such person has received the benefits of the contract.
3. • Sec. 38: Any corporation listed for trading in the stock exchange, or with assets in excess of P50M and
having 200/more stockholders and at least 200 of which are holding, and at least 100 shares each shall have at
least 2 independent directors
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• 4. if there is no doubt as to whom the beneficial ownership and control of the corp belongs to. In that instance,
no need of dissection of ownership of shares.
• If doubt exists, investigate nationalities.
• Incorporation Test!
• But in times of war, CONTROL TEST
o GR: Citizenship of the controlling stockholders
o EXC: GRANDFATHER RULE
▪ If less than 60% Filipino ownership, only the no. of shares… considered as those of Philippine national
▪ If there are 100k shares reg’d
▪ And at least 60% owned by Filipinos, ALL the shares shall be recorded as belonging to Filipino citizens.
▪ If only 50% belongs to Filipinos, only 50k shares will be recorded as belonging to Filipino citizens
5. ..
a. Self-dealing
b. Beyond authority
c.
CASE ANALYSIS
• .
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MULTIPLE CHOICE
e. No voting and dividend rights
f. No voting rights at any meeting
g. Voting and dividend rights
h. Voting rights but no dividend rights

e. Members’ meeting held in Tagaytay City where the principal office is located in Makati but the by-
f. Stockholders’ meeting held in Tagaytay City where the principal office is located in Makati but the by-
laws provide that stockholders’ meetings may be held anywhere in the Philippines
g. Trustees’ meeting held in Baguio City where the principal office is located in Makati
h. Directors’ meeting held in Macau where the principal office is located in Makati.
e. Matched order
f. Squeezing the float
g. Painting the tape
h. Wash sale
e. Of the meeting where he interposed his objection
f. Of receipt of his written demand that he paid the value of his shares
g. Prior to the meeting where the matter was taken up
h. Of the payment of his shares
e. Cumulative voting shall be denied to the stockholders
f. Proxy voting shall be denied to the stockholders
g. Quorum and voting requirements in stockholders’ meeting imposed by the code shall be more than
h. Meetings of stockholders may be held anywhere in the Philippines
True
True
False, no par value shares once issued are deemed fully paid and non-assessable.
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14. Pending the issuance of the replacement certificate, the owner of a lost certificate of stock may
validly transfer his shares by a mere notarized deed
False, if a certificate of stock has been issued a mere notarized deed will not suffice. It must be coupled
with endorsement and delivery of stock certificate.
by-law provision, has the same right, power and authority to compel the corporation to register the said
transfer in the corporate books in his name, in order that he may be considered as a shareholder, in
the same manner that the transferee of a certificate of stock in a stock corporation may do so.
True
True
17. Absent any by-law provision authorizing t holding of a meetings of members in a non-stock corporation,
members’ meetings may nonetheless be validly held anywhere in the Philippines
False, in the absence of any by-law provision, members’ meeting of a non-stock corporation should be
held in the city or municipality where the principal office of the corporation is located.

False, the winning bidder is the lowest bidder from the wordings of statute. The bidder who tenders to
pay the full amount of delinquency plus cost and expenses for the least number of shares.
deed.
False, to effectively transfer the shares covered by voting trust agreement, the certificate of voting trust
agreement must be presented.
OBJECTIVES
4.
c. Four instances when a stockholder may be able to exercise his appraisal right (4pts)
4.) In case of any amendment to the articles of incorporation has the effect of changing or restricting
the rights of any stockholder or class of shares or of authorizing preferences in any respect
superiors to those of outstanding shares of any class, or of extending or shortening the term of
corporate existence.
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d. The twin requirement in order that the Special Commercial Court may be justified in appointing
a management committee, board or body in a corporation (4pts)


f. If not denied by a provision in AOI, the pre-emptive right of a stockholder in a close
The pre-emptive right of a stockholder in a close corporation is broadened to include all stock to be
issued including reissuance of treasury shares, whether for money, property or personal services or
in payment of corporate debts, unless the articles of incorporation provides otherwise.
g. The ruling of the High Court in EB Villarosa v. Benito that service of summons upon a
h. Wash sale and matched order are not illegal per se (3pts)
They must be used to create a false or misleading appearance of active trading in the security
concerned.
i. The three (3) year period of liquidation will not apply if a trustee/assignee/ receiver is
j. Certificate of stock are merely quasi-negotiable but non-negotiable (3pts)
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any class.
CASE ANALYSIS
subscribed. One of the stockholders thereof is “A” who subscribed to Php5M and has paid
Php2.5M out of his subscription.
j.) May “A” be issued a stock certificate covering 2.5M shares? Why or why not? (3pts)
Assume that the corporation has been incurring loses to the tune of php5M and to raise
much needed funds to pay its liabilities, the BOD decided to make a call for the unpaid
portion of the subscriptions of its stockholders including “A” who did not pay the same
on the date specified in the call. The Corporation this decided to sell his shares at
public auction but no bidders appeared.
k.) May the corporation bid? Why or why not? (3pts)
incurring loses.
a stipulation that “Y” shall pay a down payment of Php5M, the balance to be paid on or
before the end of June 2016, and that until and unless he shall have paid the balance
of his acquisition cost he shall have paid the balance of his acquisition cost he shall
not be considered as a stockholder. A meeting of the acquisition of the stockholders
is called to be held in June 7, 2016 to elect a new set of directors, at a point in time
when he has not yet paid his full acquisition cost.
l.) Is “Y” qualified to vote and be voted for as a director? Why or why not? (3pts)
m.) Assume that on June 10, 2016, the entire compound of the corporation was ravaged
by fire, turning everything into ashes. May “Y” be compelled to pay the balance of
his acquisition cost? Why or why not? (5pts)
19
existing corporation or a corporation still to be formed shall be deemed a subscription, nowithstanding
the fact that the parties refer to is as a purchase or some other contract. Thus, a person whether
deemed a purchaser or subscriber of the unissued stocks of an existing corporation or a corporation
still to be formed becomes entitled to all the rights and of stockholder and subjected to all liabilities
that attach thereunder upon execution and effectivity of the contract, and the corporation can compel
the payment of the balance of the unpaid portion of the subscription.
n.) Assume further that the by-laws of the corporation provided for the election of an
Assistant Finance Manager to be elected by the board. Pursuant thereto, the board
elected “Z” as such. He is not a stockholder of the corporation. Later, however, he
was removed/ousted as such Assistant Finance Manager. He files a case before the
Special Commercial Court questioning the validity of his removal therefrom. The
corporation moves for the dismissal of the case in that it is the NLRC that is
possessed with jurisdiction and case in that it is the NLRC that there is no-intra
corporate relationship between the parties. Rule and explain (5pts)
The Special Commercial Court has exclusive and original jurisdiction to hear and decide cases
involving controversies in the election or appointment of directors, trustees, officers or managers of
such corporation as provided under Section 5 (c) of PD902-A in this case, the officer asserts his right
as such officer and questions his removal or outster. A corporate officer’s dismissal is always a
corporate act and/ or an intracorporate controversy. ( Lozon vs. NLRC and PAL)
o.) Disregarding letter D., and assume that 3 of the 5-man member board reconstituted
the AOI falsely adding new purposes not originally included thereat such as lumber
concession, cattle ranch, mining and agriculture, thereby misapplying and
misusing corporate funds and assets. May a stockholder file a dissolution
proceedings against the corporation? Why or why not? (3pts)
conditions of its charter, or its conduct is characterized by obduracy or pertinacity in contempt of law.
p.) If a case is instituted and you were the Judge, will you grant the prayer for
No.
q.) Will your answer be the same if the corporation is a close one? Why or why not?
(3pts)
No my answer will not be the same if the corporation is a close one. Even mere dishonesty, any act
that maybe detrimental to any of the stockholder or corporation itself is a ground for dissolution in a
close corporation.
r.) Assume that the corporation is engaged in the discovery of natural gas and its
commercial quantity. The Board, instead of disclosing the matter immediately to the
SEC and the Philippine Stock Exchange, called their respective brokers for the
20
publication of the discovery. The printer, however, before doing his job, also called
his broker to acquire shares of the corporation. What violation of the provisions of
SRC is committed by a.) Directors? (3pts) b.) Did the printer committed the same
violation? Why or why not? (3pts)
c.) Director committed an insider trading. An act of an insider to buy or sell security of the issuer while in
possession of material information with respect thereto that is not generally available to the public is
illegal. In this case, the director acquired or purchased the shares of the corporation while in
possession of material non public information.
d.) Yes the printer committed the same violation. His relationship to the issuer gives him material access
to material information about the issuer or the security that is not generally available to the public. In
this case, he had access to material information.
juridical entity, long dissolved (40 years) that did not undertake liquidation and winding to
the effect that:
or diminution of rights and liabilities of such entity (citing Gonzales v. Sugar Regulatory
Administration) nor those of its owners and directors. If the three year period extended
life has expired without a trustee or receiver having been expressly designated by the
corporation within that period. The BOD or trustee itself, following the rationale of SC’s
decision in Gelano v. CA may be permitted to so continue as “trustee” by legal
implication to complete the liquidation. Still in the absence of a BOD or trustees, those
having any pecuniary interest in the assets, including not only the stockholders but
likewise the creditors of the corporation, acting for and in its behalf, might make proper
representations with the (proper forum), which has primary and sufficiently board
jurisdiction in matters of this nature, for working out a final settlement of the corporate
concern.” (5pts)
I. TRUE OR FALSE: If your answer is FALSE explain your answer. (20pts)

1. A corporation sole can acquire, alienate and/or dispose of its real properties in the same way and manner
as any other ordinary corporation.
FALSE. The extent of its power to sell or mortgage real properties is however, subject to a certain restriction
not otherwise imposed in any other corporation. That is, a proper court order must be first be secured for
that purpose. Sec. 113.
2. The by-laws of a stock corporation can validly provide that meetings of the stockholders may be held
anywhere in the Philippines.
FALSE. Only in the non-stock corporation may hold their regular or special meetings at any place even
outside the place where the principal office of the corporation is located and not in stock corporation. Sec.
93.
3. Cumulative voting is generally not allowed in non-stock corporations.
TRUE. p.161,436
4. It is not the lack of the requisite license but doing business without a license that bars a foreign corporation
from access to ours courts.
TRUE. p.537
5. All corporations dissolved necessarily undertake liquidation and winding up of their corporate affairs.
FALSE daw. Not sure …………
21
6. The mere appointment by a foreign corporation of a distributor domiciled in the Philippines necessarily
implies doing business in the country.
FALSE. The distributor appointed must transacts business in the name or for the account of a principal or
foreign corporation in order to imply that foreign corporation is doing business. p.570
7. There is no distinction between a purchase/sale and subscription of the unissued stocks of a corporation.
TRUE daw. not sure…
8. In a corporate controversy, service of summons upon a corporation is valid if made upon any of its
directors/trustees.
TRUE daw. not sure.. see Sec. 11 Rule 14 of Rules of Court and Sec. 5 Rule 1 p.679
9. All religious corporations commence to exist and are vested with juridical personality upon filing of the
Articles of Incorporation with the Securities and Exchange Commission.
FALSE. Only in corporation sole and not in religious societies. p.470,480
10. Any meeting of stockholders/members irregularly held or called is necessarily without force and effect.
FALSE. Even if the meeting be improperly held or called, provided all the stockholders or members of the
corporation are present or duly represented at the meeting the same shall be valid. Sec. 51.
II. WHICH OF THE FOLLOWING STATEMENTS ARE CORRECT? Write down the letters in your test
booklet. (Right minus wrong)
Shares of stock may be validly and effectively transferred by: p.436,361
a. A duly notarized deed of transfer without endorsement and delivery of the stock certificate which had
earlier been issued. wrong
b. Endorsement of the stock certificate coupled with delivery to the transferee. correct
c. A mere notarized deed if no certificate of stock has been issued. correct
d. A duly notarized deed coupled with the delivery of the already issued stock certificate. correct
e. Endorsement coupled with the delivery of the stock certificate even without a notarized deed. correct
f. Even if without endorsement and/or delivery of the issued stock certificate if the person sought to be a
stockholder is an officer of the corporation and has custody of the books of the corporation. Correct
III. OBJECTIVE:
1. Explain the following statements:
a. Subscriptions to shares of stock of a corporation are indivisible. (5pts.)
Subscriptions to shares of stock are indivisible such that a subscriber to such shares will not be entitled to
the issuance of a stock certificate until he has paid the full amount of his subscription. This is clear intent
of the law when it provides in “Section 64. Issuance of stock certificate- no certificate of stock shall be issued
to a subscriber until the full amount of his subscription together with interest and expenses (in case of
delinquent shares), if any is due, has been paid.”
b. Certificates of stock are merely quasi-negotiable and are non-negotiable. (5pts.)
Certificate of stock may be transferred by endorsement coupled with delivery thereof, and therefore merely
quasi-negotiable, it is nonetheless non-negotiable in that the transferee takes it without prejudice to all the
rights and defenses which the true and lawful owner may have except in so far as the principle governing
estoppel may apply.
c. A director/stockholder whose shares are declared delinquent is not automatically disqualified to be and
act as a director. (5pts.)
A director/stockholder whose shares are declared delinquent is not automatically disqualified to be and act
as director in a sense that we should wait first if there are remaining shares, if any, that shall be credited in
22
favor of the delinquent director/stockholder who shall likewise be entitled to the issuance of a certificate of
stock covering shares that are sold at public option. Sec. 68 par. 3.
Under Section 71 provides that, no delinquent stock shall be voted for or be entitled to vote or to
representation at any stockholder’s meeting, nor shall the holder thereof be entitled to any of the rights of a
stockholder except the right to dividends in accordance with the provision of this code, until and unless he
pays the amount due on his subscription with accrued interest, and the cost and expenses of advertisement,
if any.
2. Define: a) Wash Sale, b) Matched Order, and c) Short Sale. State whether they are illegal per se or when
they may become illegal. (6pts.)
a) Wash Sale is any transaction in a security which involves no change in the beneficial ownership.
b) Matched Order refers to an order or orders for the purchase or sale of security with the knowledge that a
simultaneous orders of substantially the same size, time and price for the sale or purchase of such security
has, or will be entered by or for the same or different parties.
Wash sale and matched orders are not by themselves illegal. To be illegal, thus subject to the penal sanctions
provided for in section 73, they must be used as a means “to create a false or misleading appearance of active
trading” in the security concerned.
c) Short Sale or selling security which the vendor does not own is now illegal per se under section 24.2, unless
of course, it is done in accordance with the rules and regulations of the SEC may prescribe as necessary or
appropriate in the public interest for the protection of investors.
TRUE OR FALSE
3. An educational institution can have nine (9) members.
FALSE. For educational institutions organized as non-stock corporations the number of trustee
shall be in multiples of 5. Nine members may only be allowed in educational institution organized
as stock corporations. Sec. 108
2. In all cases, dissolution is followed by liquidation and winding up.
3. A corporation is a close corporation if 2/3 of voting rights is owned by another corporation.
FALSE. A corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another corporation which is not a close
corporation. Sec. 96
4. Purchase of treasury shares is equivalent to subscription.
FALSE. Purchase of treasury shares is considered sales and not subscription. Thus, the purchasers
in this case may not be liable to unpaid balance because it is consider sales.
1. Popeye subscribed to shares of stock and paid it. He did not however register it. On February 14,
2000, he assigned said shares of stock to his girlfriend Olive through a duly notarized deed. Olive
asked the corporate secretary to register it but refused to do so. So Olive filed mandamus. The
23
corporate secretary filed a motion to dismiss contending that there is no cause of action because
there is no proper party.
a. Decide the case (Rural Bank of Salinas vs. CA)
The contention of corporate secretary is untenable. Under Section 63 of the Corporation Code
provides that, Shares of stock so issued are personal property and may be transferred by delivery
of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid, except between the parties,
until the transfer is recorded in the books of the corporation.
Under this Section the owner of shares, as owner of personal property, is liberty to dispose
them in favor of whomever he pleases, without limitation in this respect, than the general
provisions of law.
The only limitation imposed by law is when the corporation holds any unpaid claim against
the shares intended to be transferred, which is absent here.
The duty of the corporation to transfer is ministerial one and if it refuses to make such
transaction without good cause, it may be compelled to do so by mandamus.
What if it was transferred to Olive through a pledge where it was provided that in case of failure to
pay Popeye was authorized to foreclose said mortgage.
b. Will mandamus lie? (Tay vs. CA)
No, mandamus will not lie. In order that a writ of mandamus may issue, it is essential that
the person petitioning for the same has a clear legal right to the thing demanded and that it is the
imperative duty of the respondent to perform the act required. It neither confers powers nor imposes
duties and is never issued in doubtful cases. It is simply a command to exercise a power already
possessed and to perform a duty already imposed.
In the case at bar, petitioner has failed to establish a clear legal right. He does not have any
ownership rights at all by mere being 24ledge of the property
Hence mandamus will not lie.
What if Olive stole it from Popeye and forged his signature and sold it to her other boyfriend Brutus
(in good faith and for value).
c. Who has better right/title to the shares of stock? (forged and unauthorized transfer of stocks)
Popeye has the better right/title to the shares of stock. In forged or unauthorized transfer, it
is settled that the purchaser or purchasers thereof, no matter how innocent they may have been,
will acquire no title as against the lawful owner thereof by virtue of the doctrine of non-
negotiability of certificates of stock. The purchaser of shares of stock, in such a case, will have no
right or remedy against the corporation because he took the shares not by virtue of
misrepresentation made by the corporation but on the faith of a forged endorsement or
unauthorized transfer. Thus, the corporation incurs no liability to the person in whose favor the
certificates is endorsed or issued. If the old certificate is cancelled and new one is issued by the
corporation, the holder thereof may be required to return the same for its cancellation.
In forged and unauthorized transfer, what is forged or unauthorized is the transfer of the
certificate from the true and lawful owner to another person.
24
What if Olive after stealing and forging signature asked to corporation to register it in her name?
The corporation thinking that the signature was genuine cancelled the certificate of Popeye and
issued a new certificate to Olive. Olive then sold it to Brutus.
d. Who is the owner? Who has better title? (unauthorized issuance of stock)
Brutus has the better title to the shares of stock. This falls under the unauthorized issuance
of certificate of stock which refers to the act of the corporation in issuing the certificate, either
fraudulently or by mistake.
If the new certificate issued by the corporation, either by a virtue of a forged or unauthorized
transfer, however, passes into the hands of a subsequent bona fide purchaser, the latter may
rightfully acquire title thereto since the corporation will be estopped to deny the validity thereof.
The subsequent purchaser in good faith took the shares, not by virtue of a forged or unauthorized
transfer but on reliance of the genuineness of the certificate issued by the corporation or by virtue
of the representation made by the corporation that the same is valid and subsisting and that the
person named therein is the stockholder of the corporation. He may, therefore, compel the
corporation to recognize him as a stockholder or claim reimbursement and damages against the
latter.
Exceptions to the inherent right to vote are the following

1. Non-voting shares are not entitled to vote except in those instances provided for in the
penultimate paragraph of section 6 of the Code; (It is to be observed, however, that only preferred
and redeemable shares may be deprived of the right to vote);
2. Treasury shares have no voting rights while they remain in the treasury;
3. Shares of stock declare delinquent are not entitled to vote at any meeting; and,
4. Unregistered transferees of shares of stock.
Consideration for the issuance of stock may be any or a combination of any two or more of the
following:
1. Actual paid to the corporation;
2. Property, tangible or intangible, actually received by the corporation and necessary or
convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of
the stock issued;
3. Labor performed for or services actually rendered to the corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated capital; and
6. Outstanding shares exchanged for stocks in the event of reclassification or conversion. SEC.62
*Registration is necessary for the following reasons:

25
1. To enable the corporation to know who its stockholders are;
2. To enable the transferee to exercise his rights as stockholder;
3. To afford the corporation an opportunity to object or refuse registration of the transfer in case
allowed by law (as when it has unpaid claims on the shares transferred);
4. To avoid fictitious and fraudulent transfers; and
5. To protect creditors who have the right to look upon stockholders, in case of non-payment or
watered shares, for the satisfaction of their clams.
***Watered stock may be issued in either of the following ways:

1. For a monetary consideration less than its par or issued value;
2. For a consideration in property, tangible or intangible, valued in excess of its fair market value;
3. Gratuitously or under an agreement that nothing shall be paid at all; or
4. In the guise of stock dividends when there are no surplus profits of the corporation.
Stock watering is proscribed in view of its evil effects. Among them are:
1. The corporation is deprived of its capital thereby hurting its business prospects, financial
capability and responsibility;
2. Stockholders who paid their subscription in full, or promised to pay the same, are injured and
prejudices by the reduction of their proportionate interest in the corporation; and
3. Present and future creditors are deprived of the corporate assets for the protection of their
interest.
Call is not necessary in the following:

1. The contract of subscription provides for the date or dates when payment is due
2. When the corporation become insolvent.
Section 80 provides for the effects of a merger or consolidation. These are:

1. There will only be a single corporation. In case of merger the surviving corporation or the
consolidated corporation in case of consolidation;
2. The termination of corporate existence of the constituent corporation, except that of the
surviving corporation or the consolidated corporation;
3. The surviving corporation or consolidated corporation will posses all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of a corporation
organized under the Code;
4. The surviving or consolidated corporation shall possess all the rights, privileges, immunities and
franchises of the constituent corporations, and all property and all receivables due, including
subscriptions to shares and other chose in action, and every other interest of, or belonging to or due
to the constituent corporations shall be deemed transferred to and vested in such surviving or
consolidated corporation without further act and deed; and,
5. The rights of creditors or any lien on the property of the constituent corporations shall not be
impaired by the merger or consolidation.
**Instances when appraisal right may be exercised:

26
1. In case any amendment to the articles of incorporation has the effect of changing or restricting
the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior
to those of outstanding shares of any class, or of extending or shortening the term of corporate
existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as provided in the Code; and
3. In case of merger or consolidation. Sec.81
4. Investment of funds in another corporation or business or for any purpose other than its primary
purpose.
Instances when the right of a dissenting stockholder to be paid the fair value of his shares ceases:
1. When he withdraws his demand for payment and the corporation consent thereto;
2. When the proposed action is abandoned or restrained by the corporation;
3. When the proposed action is disapproved by the SEC where such approval is necessary;
4. When the SEC determines that he is not entitled to exercise his appraisal right.
5. When he fails to submit the stock certificate within 10 days from demand to the corporation for
notation that such shares are dissenting shares; and
6. If shares are transferred and the certificates subsequently cancelled. Sec. 84
CLOSE CORPORATIONS
Section 96
Section 97
Close Corporation vs. Ordinary Corporation Page 457
SPECIAL CORPORATIONS
Section 108
Section 112
Section 113
DISSOLUTION
Section 122
Liquidation may be undertaken in either of three (3) ways page 511
***FOREGING CORPORATIONS
As to whether or not a foreign corporation may sue or be sued in the Philippine courts Page 536
In effect, the general rule is that “It is not the lack of required license but doing business
without a license which bars a foreign corporation from access to our courts.”
It has also been laid to rest that a foreign corporation can sue before the Philippines Courts
even it has no license if the act or transaction involved are:
1. Isolated transaction
2. Not seeking to enforce any legal or contractual rights arising from, or growing out of, any
business which it has transacted in the Philippines
3. The purpose of the suit is to protect its trademark, tradename, corporate name, reputation or
goodwill
4. Based on the violation of the Revised Penal Code
5. Merely defending a suit filed against it
6. Where the party is estopped to challenge the personality of the corporation by entering into a
contract with it. Page 537
27
“DOING BUSINESS” with regard to FOREIGN CORPORATIONS
The true test, however, seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprises for which it was organized or whether it has substantially
retired from it and returned it over to another. (citation omitted) The term implies a continuity of
commercial dealings and arrangements and contemplates, to the extent, the performance of acts or
works or the exercise of some functions normally incident and in progressive prosecution of, the
purpose and objects of its organization.
“DOING BUSINESS” UNDER THE FOREIGN INVESTMENT ACT:
1. Doing Business
a. Soliciting orders, service contracts, opening offices
b. Appointing representatives, distributors domiciled in the Philippines or who stay for a
period or periods totalling 180 days or more;
c. Participating in the management, supervision or control of any domestic business, firm,
entity, or corporation in the Philippines;
d. Any act or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to some extent the performance of acts or works or the exercise of some functions
normally incident to and in progressive prosecution of, the purpose and object of its organization.
2. Not Doing Business
a. Mere investment as shareholder and exercise of rights as investor;
b. Having a nominee director or officer to represent its interest in the corporation;
c. Appointing a representative or distributor which transacts business in its own name and
for its own account.
THE SECURITIES REGULATION CODE
Establishing a free securities market that regulates itself, encourage widest participation of
ownership in enterprises, enhance the democratization of wealth, promote the development of
capital market, protect investor and minimize fraudulent and other market manipulations which
creates distortions in the free market.
“Insider” means; (a) the issuer; (b) a director or officer (or any person performing similar functions),
or a person controlling the issuer; (c) a person whose relationship or former relationship to the
issuer gives or give him access to the material information about the issuer or the security that is
not generally available to the public; (d) a government employee, director, or officer of an exchange,
clearing agency and/or self-regulatory organization who has access to material information about
an issuer or a security that is not generally available to the public; or (e) a person who learns such
information by a communication from any of the foregoing insiders.
28
Marking the close is the placing of purchase or sale order, at or near the close of the trading period.
The person the making the order would thus post a higher or lower for the security just barely
before the close of the market thereby increasing or lowering the closing price. The price of the
security on the following trading will thus be the same as marked or taped on the close the day
before.
Painting the tape is akin to making the close but the activity is made during the normal trading
hours. It involves buying activity among nominee accounts at increasingly higher or lower prices
or causing fictitious reports to appear of the “ticket tape”
Squeezing the float has been defines as the part or portion of the issuer or security which is
outstanding but intentionally held by the dealers or other person with the view of reselling them
for profit. There would thereby a short on supply or availability of the stock vis-à-vis the demand
which would generally raise the price of the security involved.
Page 645 for additional..
PRESIDENTIAL DECREE No. 902-A, AS AMENDED
Special Commercial shall have original and exclusive jurisdiction to hear and decide cases
involving:
a. Corporate devices or schemes amounting to fraud or misrepresentation detrimental to the public
and/or stockholders.
b. Intra-corporate controversies
c. Controversies in the appointment, election and removal of directors and officers
d. Petition for the appointment of receivership and suspension of payments
e. To create or appoint a management committee board or body
***For intra-corporate to exist, there must:

a. Necessarily be an intra-corporate relationship; and
b. The controversy must arise out of said relationship.
To be an intra-corporate controversy it must pertain to any of the following relationship:

1. between the corporation, partnership or association and the public;
2. between the corporation, partnership or association and its stockholders, partners, members or
officers;
3. between the corporation, partnership or association and the State in so far as its franchise,
permit or license to operate is concerned;
4. among stockholders, partners, or associates themselves.
29
Three possible remedies available to a cash strapped corporation seeking to suspend payment of its
obligations (under Sec. 5d receivership and suspension of payments)
1. Simple suspension of payments- is the mere deferment of payments of debts and it refers to a
petition which is filed by a corporation which possesses sufficient assets to cover its liabilities but
foresees the impossibility of meeting them when they respectively fall due owing to temporary
liquidity problems.
2. Suspension of payments accompanied by a proposal for rehabilitation- refers to a petition for
said suspension with a plan for rehabilitation of the distressed company and corresponding
repayment scheme for all its debts and liabilities.
3. Suspension of payments where the corporation in under a management committee or
rehabilitation receiver- may be availed of by the petitioning corporation, partnership or
association which has no sufficient assets to cover its liabilities.
***Requisites before the appointment of management committee, board or body

1. Where there is imminent danger of dissipation, loss, wastage or destruction of assets or other
properties or
2. Paralyzation of business operations of such corporation or entities which may be prejudicial to
the interest of minority stockholders, parties-litigants or general public
PART I
1. A, B, C, D and E organized/formed X CO., INC. and was issued a certificate of registration by the appropriate
government agency. It turned out, however, that C,D, and E are not residents of the Philippines. What type/kind of
corporation is X CP., INC.?
a. De Facto
b. De Jure
c. Corporation by Estoppel
d. It does not exist as a Corporation at all.
2. A director who was compensated and paid 15% of the net income before tax of the corporation for the preceding
year for the services rendered by him as corporate secretary by a mere Board resolution is
a. Valid since he is acting in a capacity other than as such director

b. Invalid since only 10% of the net income before tax is allowed by law
c. Invalid because it requires stockholders’ approval or a by-law provision authorizing it
d. Valid because all corporate powers, all businesses are conducted and all properties are controlled by the Board
of Directors
3. The declaration of stock dividends will generally have
a. the effect of decreasing the total assets of the corporation

b. the effect of an increase in the proportionate interest of the stockholders
c. no effect in the proportionate interest of the stockholders
d. the effect of increasing the authorized capital stock notwithstanding the fact that the corporation has a free
portion of its capital stock to cover the declaration/distribution
4. A contract between a corporation and its president is
a. valid id not tainted with fraud and the contract is fair and reasonable
30
b. valid if previously approved by the Board of Directors
c. voidable is the president holds a substantial interest in the corporation
d. voidable at the option of the corporation
5. It is common practice in X CO., INC. for the general manager to enter into contracts for an in behalf of the
corporation without prior approval of the Board of Directors. Said contracts are
a. invalid since the power and authority is lodged to that of the Board of Directors
b. valid because approval of the Board is not required for its validity
c. invalid because the general manager is not authorized by law to enter into contracts for and in behalf of the
corporation
d. valid because similar acts were approved and allowed by the Board as a matter of practice, custom and policy
and thus binding on the corporation even without formal Board resolution
6. Non-voting shares are not included in determining the voting requirements imposed by the code in cases of
a. removal of a member of the Board of Directors

b. providing for additional diqualifications of directors in the by-laws
c. shortening of the corporate terms
d. changing the principal office of the corporation
7. X CO., INC. declared cash dividends of P1.00 per share on January 18, 2011 to be paid to the stockholders of record
on January 31, 2011. Said declaration was duly announced to the stockholders. On January 20, 2011, “A”, one of
the stockholders holding 100,000 shares valued at P100,000 sold his shares for the same amount to “B”, who is not
a stockholder of the same corporation, and on January 25, 2011 the transfer in favor of “B” was duly recorded in
the books of the corporation. Absent any agreement to the contrary, as between “A” and “B” who has better right
to the dividends?
a. “A” because the transfer of his share was in violation of a by-law provision granting existing stockholders the
preferential right to buy the shares of a selling stockholders
b. “A” because he was the owner of the shares at the time of the declaration of the dividend
c. “B” because he was the recorded owner of the share even before payment of the dividend
d. “B” because he was the owner of the share at the time/date of payment
8. A stock corporation shall have the power to reacquire its own shares irrespective of the existence of unrestricted
retained earnings
a. to eliminate fractional shares arising out of stock dividends.

b. to pay dissenting stockholders in the exercise of their appraisal rights
c. to pay a stockholder in a close corporation who compels the latter that he be paid the value of his shares
d. to collect/compromise an indebtedness to the corporation arising out of unpaid subscription in a delinquency
sale
9. Only the stockholders/members can fill up a vacancy created in the office of a director if the said vacancy occurs
a. by virtue of the resignation of a hold-over director

b. by virtue of the death of a director
c. if the director ceases to be a stockholder
d. if the director is subsequently disqualified by a by-law provision
10. The Articles of Incorporation of X CO., INC. provides for a nine (9) man member Board of Directors. Two of them
died. On January 15, 2011, the corporate secretary of the company resigned such that at a Director’s meeting was
held and conducted to elect an0ther corporate secretary. Five (5) if the directors attended the meeting and four (4)
of them elected “A” to replace the resigned corporate secretary. Is the election valid?
31
a. Yes, because there are only seven (7) living members of the Board and the vote of four (4) constitutes a majority
b. No, because the vote required is majority of the Board as fixed in the Articles of Incorporation
c. No, because the quorum requirement was not complied with
d. Yes, because the vote required is only a majority of those present at which there is a quorum
11. X CO., INC. paid A CO., INC. 10% of the property dividend declared by the Board of Directors of the former
pursuant and in consideration of messengerial services actually rendered by the later. Is the payment valid?
a. Yes because it is a valid contractual arrangement between the parties

b. No because stockholders’ approval is required for its validity
c. No because it would result to a dilution of dividend rights of the stockholder
d. Yes because labor or services actually rendered may be paid by way of property
12. All persons who assume to act as a corporation knowing it without authority to do so shall be liable
a. only to the extent of their subscription to the capital stock of the corporation
b. only to the extent of the corporate assets
c. as limited partners for all debts, liabilities and damages arising therefrom
d. as general partners for all debts, liabilities and damages arising therefrom
13. A, B, C, D and E are the 5-man member of the Board of Directors of X CO., INC. On January 15, 2011, the
remaining members of the Board of Directors consisting of A, B and C conducted a meeting to fill up two (2)
vacancies in the Board cause by the removal of D by the stockholders and by the death of E. D was unanimously
replaced by F, and E by G. The election of F and G is
a. valid for both

b. not valid for both
c. not valid for G but valid for F
d. valid for G but not valid for F
14. X CO., INC. filed/submitted an amendment of its Articles of Incorporation with the SEC. If the latter does not act
on it within 6 months without fault attributable to the corporation, the amendment takes effect on the date of its
filing except
a. when the amendment consists of a decrease in the capital stock

b. when the amendment consists of a decrease in the number of directors
c. when the amendment consists of including reasonable restrictions on transfer of shares
d. when the amendment consists of a change in the principal office of the corporation
15. The Board of Directors cannot, without stockholders’ approval, pass a valid corporate act
a. to sell/dispose of its only property in the usual course of its business

b. to invest its corporate funds necessary to carry out the secondary purpose indicated in the articles of
incorporation
c. to declare property dividends
d. to reacquire its own shares
16. A contract between corporations with interlocking directors will be subject to the provisions of section 32 of the
Code (voidable) when
a. the interlocking director owns 20% of the outstanding capital stock in one corporation while 18% in the other
b. the interlocking director owns 22% in one corporation while 25% in the other
c. the interlocking director owns 20% in one corporation while 22% in the other
d. the interlocking director owns 22% in both corporation
32
17. A director who ceases to be a stockholder shall
a. automatically cease to be a director

b. continue to serve in a hold-over capacity until his successor has been duly elected and qualified
c. continue to serve as such until the expiration of his term.
d. continue to serve as such until the expiration of his term if authorized by the Board of Directors
18. X CO., INC. is engaged in the realty business with no other purpose indicated in the article of incorporation. It
entered into a catering service with Y CO., INC. for the retirement of the latter’s president for a consideration of
Php150,000. X CO. fully complied with its obligation but Y CO., later refused to pay the agreed amount claiming
that X CO., is not empowered/authorized to engage in the food catering business. In an action brought before the
Court, may Y CO., INC. be compelled to pay?
a. No, because the actuation of X CO., INC. is beyond its corporate powers and authority. (Doctrine of Limited
Capacity)
b. Yes, because the party who has received the benefits of the contract is estopped to set up that contract is beyond
the corporate powers of X CO., to defeat an action on the same.
c. Yes, because the contract is valid per se
d. No, because the court cannot interfere with the business judgment of the Board of Directors
19. A provision in the by-laws of a regulatory/ordinary stock corporation may validly provide
a. for a greater quorum and voting requirement in stockholders’ meeting

b. for a denial of cumulative voting of the stockholders
c. for a greater quorum and voting requirements in directors’ meeting
d. for the holding of stockholders’meeting anywhere in the Philippines
20. “A”, the President of X CO., INC. which is engaged in the realty business, bought (in his personal and individual
capacity) from his friend a parcel of land for Php5M and later sold it at Php5.5M thereby making a profit of Php.5M.
May his act be validly ratified by the stockholders at the objection of any one single stockholder?
a. Yes, because he acted as a natural person separate and distinct of the corporation which he is the President
b. No, because he acquired a personal interest in conflict with his duty as a director
c. No, because he serves in a fiduciary position and should not advance his selfish motives to the damage and
prejudice of the corporation
d. Yes, because he merely acquired a business opportunity rightfully belonging to the corporation
PART II
1. What is the test in determining whether a corporation has the implied power to do a certain act? log.rel. b/w act
done direct and immediate furtherance corp biz, fairly incident to its express powers, reasonably necessary to their
exercise
2. What is the limitation imposed by law on the right of a corporation to decrease its capital stock? Trust fund doc
3. What is the Business Judgment Rule? Define
4. Explain the statement that if not denied by a provision in the articles of incorporation, the pre-emptive right of a
stockholder in a close corporation is absolute. (i.e. the exceptions when a stockholder in an ordinary/regular
corporation may not be able to exercise it even if not denied by a provision in the articles of incorporation under
section 39 will not apply to the former) apo notes
33
5. Explain the statement that the failure of a corporation to adopt/file its by-laws within the time frame provided for
by law does not result to the automatic dissolution of the corporation.
6. Enumerate four (4) instances when the purchaser of all or substantially all of the corporate assets/properties may be
held liable for the debts and liabilities of the selling corporation. Apo notes
7. Enumerate the defenses available to the directors for their failure or refusal to declare dividends.
PART III
X CO., INC. which is engaged in land transportation business has an authorized capital stock of Php100M divided into
100M shares with a par value of Php1.00 per share. 50M has been subscribed and 25M was duly paid up. The Board of
Directors consist of 10 members as fixed in the Articles of Incorporation. The by-laws are silent as to whether or not
the company may create an Executive Committee. One of its stockholders, “A”, recently graduated Magna Cum Laude
in Business Administration from Yale University and the Board firmly believes that he (A) will be able to help bring
the company to its highest level of competence. The company approaches you if
1. The Board of Directors may create an executive committee. If yes, why and if not, why not, and what should be
done in order that one may be created? No.sec.35
2. If such an executive committee may be created, may it be composed of 5 members consisting of 4 directors and
“A” who is not a director? Why or why not? No.director only
3. May the company validly engage in water transportation without amending the articles of incorporation to include
such an activity in the purpose clause? Explain. No.entirely diff line of biz
4. May the company put up a 12 story building, occupy 3 stories for its offices and rent out the rest to the public? Why
or Why not? Yes. Power to invest other than its primary purpose
5. If the company made Php30M surplus profits (unrestricted retained earnings) may the Board be compelled to
declare dividends even if there are no preferred shareholders? If Yes, to what extent or how much may they be
compelled to declared? If no, why not? No.discretionary of the board. Unless. Apo notes
6. If X CO., INC. earlier entered into a contract with Z CO., which represented itself as a corporation for the
lease/rental of 5 of the buses of the former who was aware that Z CO., INC. is not in fact registered as a corporation,
and X CO., INC., fully complied with its obligation, on a suit brought to by it (X CO., INC.) directly against the
person/s who assumed to act as such corporation, may the latter interpose that X CO., INC. has no cause of action
against them because he dealt with Z CO., INC. as a corporation and thus admitted its legal existence as a corporate
body? May claim. Transaction with fraud. Doc. Of estoppel
7. Assuming that Z CO., INC., (as stated in no. 6) is a de facto corporation, may the stockholder who made
representation of the existence of the corporation be sued in their personal/individual capacities? No. Defacto
corp..corporate entity applies
8. If a stockholder is denied to exercise his pre-emptive right by the board of directors and the former intends to sue
the latter, what type of suit may he institute/bring? Personal suit
9. In relation to item 8, may service of summons be validly served upon a director who is neither the president,
managing director, in house counsel, corporate secretary or treasurer. Explain.provided in the by-laws.
10. If the president X CO., issues a corporate check to pay corporate liabilities and the check bounced for insufficiency
of funds, may he successfully advance the Corporate Entity Theory to evade liability in an action filed against his
person? Why or why not? B.p.22. No.
34
MULTIPLE CHOICE
a. No voting and dividend rights
b. No voting rights at any meeting
c. Voting and dividend rights
d. Voting rights but no dividend rights

a. Members’ meeting held in Tagaytay City where the principal office is located in Makati but the by-
b. Stockholders’ meeting held in Tagaytay City where the principal office is located in Makati but the
by-laws provide that stockholders’ meetings may be held anywhere in the Philippines
c. Trustees’ meeting held in Baguio City where the principal office is located in Makati
d. Directors’ meeting held in Macau where the principal office is located in Makati.
a. Matched order
b. Squeezing the float
c. Painting the tape
d. Wash sale
a. Of the meeting where he interposed his objection
b. Of receipt of his written demand that he paid the value of his shares
c. Prior to the meeting where the matter was taken up
d. Of the payment of his shares

a. Cumulative voting shall be denied to the stockholders
b. Proxy voting shall be denied to the stockholders
c. Quorum and voting requirements in stockholders’ meeting imposed by the code shall be more than
d. Meetings of stockholders may be held anywhere in the Philippines

True
True
False, no par value shares once issued are deemed fully paid and non-assessable.
4. Pending the issuance of the replacement certificate, the owner of a lost certificate of stock
may validly transfer his shares by a mere notarized deed
False, if a certificate of stock has been issued a mere notarized deed will not suffice. It must be
coupled with endorsement and delivery of stock certificate.

by-law provision, has the same right, power and authority to compel the corporation to register the
said transfer in the corporate books in his name, in order that he may be considered as a
shareholder, in the same manner that the transferee of a certificate of stock in a stock corporation
may do so.
True
True
7. Absent any by-law provision authorizing t holding of a meetings of members in a non-stock

corporation, members’ meetings may nonetheless be validly held anywhere in the Philippines
False, in the absence of any by-law provision, members’ meeting of a non-stock corporation should
be held in the city or municipality where the principal office of the corporation is located.

False, the winning bidder is the lowest bidder from the wordings of statute. The bidder who tenders to
pay the full amount of delinquency plus cost and expenses for the least number of shares.
deed.
False, to effectively transfer the shares covered by voting trust agreement, the certificate of voting
trust agreement must be presented.
OBJECTIVES
1.
a. Four instances when a stockholder may be able to exercise his appraisal right (4pts)
1.) In case of any amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares or of authorizing preferences in any
respect superiors to those of outstanding shares of any class, or of extending or shortening the
term of corporate existence.
b. The twin requirement in order that the Special Commercial Court may be justified in
appointing a management committee, board or body in a corporation (4pts)


a. If not denied by a provision in AOI, the pre-emptive right of a stockholder in a close
The pre-emptive right of a stockholder in a close corporation is broadened to include all stock to be
issued including reissuance of treasury shares, whether for money, property or personal services or
in payment of corporate debts, unless the articles of incorporation provides otherwise.
b. The ruling of the High Court in EB Villarosa v. Benito that service of summons upon a
c. Wash sale and matched order are not illegal per se (3pts)
They must be used to create a false or misleading appearance of active trading in the security
concerned.
d. The three (3) year period of liquidation will not apply if a trustee/assignee/ receiver is
e. Certificate of stock are merely quasi-negotiable but non-negotiable (3pts)
any class.
CASE ANALYSIS
subscribed. One of the stockholders thereof is “A” who subscribed to Php5M and has
paid Php2.5M out of his subscription.
a.) May “A” be issued a stock certificate covering 2.5M shares? Why or why not?
(3pts)
Assume that the corporation has been incurring loses to the tune of php5M and to
raise much needed funds to pay its liabilities, the BOD decided to make a call for the
unpaid portion of the subscriptions of its stockholders including “A” who did not pay
the same on the date specified in the call. The Corporation this decided to sell his
shares at public auction but no bidders appeared.
b.) May the corporation bid? Why or why not? (3pts)
incurring loses.
a stipulation that “Y” shall pay a down payment of Php5M, the balance to be paid on
or before the end of June 2016, and that until and unless he shall have paid the
balance of his acquisition cost he shall have paid the balance of his acquisition cost
he shall not be considered as a stockholder. A meeting of the acquisition of the
stockholders is called to be held in June 7, 2016 to elect a new set of directors, at a
point in time when he has not yet paid his full acquisition cost.
c.) Is “Y” qualified to vote and be voted for as a director? Why or why not? (3pts)
d.) Assume that on June 10, 2016, the entire compound of the corporation was
ravaged by fire, turning everything into ashes. May “Y” be compelled to pay the
balance of his acquisition cost? Why or why not? (5pts)
existing corporation or a corporation still to be formed shall be deemed a subscription,
nowithstanding the fact that the parties refer to is as a purchase or some other contract. Thus, a
person whether deemed a purchaser or subscriber of the unissued stocks of an existing corporation
or a corporation still to be formed becomes entitled to all the rights and of stockholder and
subjected to all liabilities that attach thereunder upon execution and effectivity of the contract, and
the corporation can compel the payment of the balance of the unpaid portion of the subscription.
e.) Assume further that the by-laws of the corporation provided for the election of an
Assistant Finance Manager to be elected by the board. Pursuant thereto, the
board elected “Z” as such. He is not a stockholder of the corporation. Later,
however, he was removed/ousted as such Assistant Finance Manager. He files a
case before the Special Commercial Court questioning the validity of his removal
therefrom. The corporation moves for the dismissal of the case in that it is the
NLRC that is possessed with jurisdiction and case in that it is the NLRC that there
is no-intra corporate relationship between the parties. Rule and explain (5pts)
The Special Commercial Court has exclusive and original jurisdiction to hear and decide cases
involving controversies in the election or appointment of directors, trustees, officers or managers of
such corporation as provided under Section 5 (c) of PD902-A in this case, the officer asserts his
right as such officer and questions his removal or outster. A corporate officer’s dismissal is always a
corporate act and/ or an intracorporate controversy. ( Lozon vs. NLRC and PAL)
f.) Disregarding letter D., and assume that 3 of the 5-man member board
reconstituted the AOI falsely adding new purposes not originally included thereat
such as lumber concession, cattle ranch, mining and agriculture, thereby
misapplying and misusing corporate funds and assets. May a stockholder file a
dissolution proceedings against the corporation? Why or why not? (3pts)
conditions of its charter, or its conduct is characterized by obduracy or pertinacity in contempt of
law.
g.) If a case is instituted and you were the Judge, will you grant the prayer for
No.
h.) Will your answer be the same if the corporation is a close one? Why or why not?
(3pts)
No my answer will not be the same if the corporation is a close one. Even mere dishonesty, any act
that maybe detrimental to any of the stockholder or corporation itself is a ground for dissolution in a
close corporation.
i.) Assume that the corporation is engaged in the discovery of natural gas and its
commercial quantity. The Board, instead of disclosing the matter immediately to
the SEC and the Philippine Stock Exchange, called their respective brokers for the
publication of the discovery. The printer, however, before doing his job, also
called his broker to acquire shares of the corporation. What violation of the
provisions of SRC is committed by a.) Directors? (3pts) b.) Did the printer
committed the same violation? Why or why not? (3pts)
a.) Director committed an insider trading. An act of an insider to buy or sell security of the issuer while
in possession of material information with respect thereto that is not generally available to the public
is illegal. In this case, the director acquired or purchased the shares of the corporation while in
possession of material non public information.
b.) Yes the printer committed the same violation. His relationship to the issuer gives him material
access to material information about the issuer or the security that is not generally available to the
public. In this case, he had access to material information.
juridical entity, long dissolved (40 years) that did not undertake liquidation and winding
to the effect that:
or diminution of rights and liabilities of such entity (citing Gonzales v. Sugar
Regulatory Administration) nor those of its owners and directors. If the three year
period extended life has expired without a trustee or receiver having been expressly
designated by the corporation within that period. The BOD or trustee itself, following
the rationale of SC’s decision in Gelano v. CA may be permitted to so continue as
“trustee” by legal implication to complete the liquidation. Still in the absence of a
BOD or trustees, those having any pecuniary interest in the assets, including not only
the stockholders but likewise the creditors of the corporation, acting for and in its
behalf, might make proper representations with the (proper forum), which has primary
and sufficiently board jurisdiction in matters of this nature, for working out a final
settlement of the corporate concern.” (5pts)
CORPORATION LAW FINAL EXAMINATION REVIEWER 6. Any meeting of a SH/members irregularly held
or called is necessarily without force and
TRUE OR FALSE effect?
1. The by-laws of a stock corporation may provide - False. Sec. 51: the meetings shall be valid even
that stockholders meeting may be held of irregularly held or called provided:
anywhere in the Philippines? • All proceedings had and any business
- False. Sec. 51 states that SH or members’ transacted is within the powers or
meetings, whether regular or special shall be authority of the corporation,
held in the city or municipality where the • All SH/members of the corporation are
principal office of the corporation is located. present or duly represented at the
meeting
2. Absent of any by-law provision authorizing the
holding of a meeting of members in a non- 7. No stockholder may be able to compel the
stock corporation, members’ meetings may corporation to pay the value of his shares if the
nonetheless be validly held anywhere in the corporation has no unrestricted retained
Philippines? earnings
- False. In the absence of a by-law provision to the - False, a stockholder of a close corporation may
contrary (Sec. 93), hold membership meeting for any reason, provided only that the
beyond the boundaries of the city or municipality corporation has sufficient assets to cover its
where its principal office is located under the debts and liabilities.
general rule relative to the place of meetings
provided for under Sec. 51 8. In amendment of the by-laws, appraisal right is
available?
3. The dissolved constituent corporation in a - False, it is available only if the amendment has
merger should necessarily liquidate its the effect of changing or restricting the rights of
corporate affairs? any stockholder or class of shares, or of
- False. Associated Bank v. CA, although there is a authorizing preferences in any respect superior to
liquidation of the absorbed corporations, there is those of outstanding shares of any class, or of
no winding up of their affairs or liquidation of extending or shortening the term of corporate
their assets because the surviving corporation existence (Sec. 81[1])
automatically acquires all their rights, privileges
and powers as well as liabilities. 9. No stockholder in a stock corporation can ever
demand if the principal office is amended,
4. Non-filing of by-laws within the period of time changing it from QC to Manila.
provided for by-law results to the automatic - False, a stockholder in a close corporation may
dissolution of the corporation? for any reason compel the close corporation that
- False. Loyola Grand Villas v. CA, it will result in he be paid the fair value of his shares (Sec. 105)
suspension or revocation of the corporate
franchise after proper notice and hearing. 10. All religious corporations commence to exist
and are vested with juridical personality upon
5. The appointment of a filing of AOI with SEC?
distributor/representative in the Philippines - False. Corporation Sole commences to exist and
made by a foreign corporation necessarily are vested with juridical personality upon filing of
results to doing/transacting business in the the AOI with the SEC. Religious societies
country? however acquire juridical personality upon
- False. In Communication Materials & Design, issuance of the Certificate of Registration with
Inc., vs. CA, the SC ruled that if the distributor or the SEC.
representative appointed by the foreign
corporation has maintained an independent 11. Cumulative voting is generally not allowed in a
status during the existence of their contract, the Non-stock corporation?
mere appointment of such distributor or - True, members are only entitled to only one vote,
representative will not constitute doing business unless allowed by the articles of incorporation or
in the Philippines. Such independent status may by-laws (Sec. 89)
be determined by the provisions of the
contractual agreement entered into by the 12. In a corporate controversy, service of summons
foreign corporation and its representative. upon a corporation is valid if made upon any of
its directors/trustee?
- False. Under the Rules of Court, service of
summons may be made only upon the President,
Managing Partner, General Partner, Corporate
Secretary, Treasurer, or in-house counsel.
Service of summons upon persons other than 17. A corporation sole is possessed with the same
those named is without force and effect. power, rights and privileges, to own, acquire
and hold or convey properties like any other
13. There is no distinction between a purchase sale corporation.
and subscription of the unissued stocks of a - False, they have the same power rights and
corporation privileges, but when it comes to alienation and
- True. Sec. 60, any contract for the acquisition of acquisition, it must possess a court order,
unissued stock in an existing corporation or a however when there is a regulated method, a
corporation still be formed shall be deemed a court order may be dispensed with.
subscription within the meaning of this title,
notwithstanding the fact that the parties refer to 18. All educational corporations must have a
it as a purchase or some other contract. governing board of only either 5, 10 or 15
members.
14. All corporations dissolved necessarily - False, only educational institutions organized as
undertake liquidation and winding up of their non-stock corporations must have such number
corporate affairs. of governing board. Those organized as Stock
- False. In mergers, although there is a liquidation Corporation may be within 5 to 15.
of the absorbed corporations, there is no winding
up of their affairs or liquidation of their assets 19. An educational institution can have 9 members.
because the surviving corporation automatically - True, in case of educational institution organized
acquires all their rights, privileges and powers as as Stock Corporation whose number may be
well as liabilities (Associated Bank v. CA) within 5 to 15.
15. In a case of merger, the employees of the 20. A corporation sole may validly sell/transfer its
absorbed corporation/dissolved corporation old van for purposes of acquiring a new one
are automatically absorbed by the without court order?
absorbing/surviving corporation? - True. In case of personal property, intervention
- Employees of the absorbed or dissolved of courts shall not be necessary.
corporation are automatically absorbed by the
surviving corporation even in the absence of a 21. The winning bidder in a delinquency sale is the
resolution to that effect because it is more in highest bidder?
keeping with social justice and full protection to - False. The winning bidder is the lowest bidder
labor. Nevertheless, the surviving corporation has from the wordings of the statute. The bidder who
the right to terminate the employment of the tenders to pay the full amount of the delinquency
absorbed employees for a lawful or authorized plus cost and expenses, if any for the least
cause. In the same way, the absorbed employees number of shares.
have the right to resign, retire or otherwise sever
their employment with the surviving corporation 22. The beneficial owner of a voting trust
even before or after the merger or consolidation, agreement may validly transfer his shares by a
subject to existing contractual obligations. (BPI v. mere notarized deed?
BPI Employees Union) - True.
16. A transferee of a certificate of stock in a non- Two modes of transferring shares of stock:
stock corporation, if they are transferable by 1. When the corporation has already issued stock
virtue of a by-law provision, has the same certificates – transfer is done only through endorsement and
right, power and authority to compel the delivery of the certificate or certificates of stock indorsed by
corporation to register the said transfer in the the owner or his attorney-in-fact or other person legally
corporate books in his name, in order that he authorized to make the transfer.
may be considered as a shareholder, in the
same manner that the transferee of a 2. When the corporation has not yet issued certificates
certificate of stock in a stock corporation may of stock – by a duly notarized deed. If a certificate of stock
do so. has been issued a mere notarized deed will not suffice. It must
- True (Sec. 87, last par.), the provision governing be coupled with endorsement and delivery of the stock
stock corporation, when pertinent, shall be certificate.
applicable to non-stock corporations, except as
may be covered by specific provisions of this 24. A director whose shares are declared
Title. delinquent does not automatically cease to be a
director?
- True, Sec. 71.

25. Absent any rules and regulations of SEC - False. Appraisal right may be exercised on certain
regarding short sale, any person engaging instances, Sec. 81 of the Corporation Code does
thereto may be subjected to the penal not include amendment of by-laws in its
sanctions of Sec. 73 SRC enumeration of the instances when appraisal
- True. Any violation of the laws may result right may be exercised by a SH. Although said
toimposition of administrative sanction (Sec. enumeration is not exclusive, a by-law
54)and penal sanctions (Sec. 73). This is amendment may not still fall under these
withoutprejudice to civil liabilities provided for instances because it does not result in the
undersection 56. changing or restricting the rights of the SH, but
merely affects internal governance of the
26. A SH issued no par value shares below their corporation.
determined issued value as indicated in AOI is
solidarily liable with the responsible 32. Pre-emptive right is available to shares issued
directors/officers for the water in the stock in exchange for corporate property.
- True. Sec. 65, any director or officer of a - False. Sec. 39 of the Corporation Code expressly
corporation consenting to the issuance of stocks provides that pre-emptive right shall not extend
for a consideration less than its par shall be to shares to be issued in good faith with the
solidarily liable with SH concerned to the approval of the SH representing 2/3 of the
corporation and its creditors. Outstanding Capital Stock in exchange for
property needed for corporate purposes.
27. Pending issuance of the replacement - True. In case of a close corporations, pre-
certificate, the owner of a lost certificate of emptive right of SH is broader as it include all
stock may validly transfer his shares by a mere issues without exception.
notarized deed
- False.
Two modes of transferring shares of stock:
1. When the corporation has already issued stock

certificates – transfer is done only through endorsement and
delivery of the certificate or certificates of stock indorsed by
the owner or his attorney-in-fact or other person legally
authorized to make the transfer.
2. When the corporation has not yet issued certificates

of stock – by a duly notarized deed. If a certificate of stock
has been issued a mere notarized deed will not suffice. It must
be coupled with endorsement and delivery of the stock
certificate.
28. The averment of a Foreign Corporation’s

capacity to sue is not necessary for it to gain
access to our court if it is merely defending a
suit files against it
- True. Time v. Reyes
29. It is not the lack of the requisite license but the

doing business without a license that bars a
foreign corporation from access to our courts
- True. Universal Shipping v. IAC
30. Purchase of treasury shares is equivalent to

subscription.
- False. The basic distinction between the purchase
of treasury shares and subscription is that, while
the former refers to purchase of issued shares
which have been fully paid, the latter refers to
the acquisition of unissued stock of a corporation.
31. In the amendment in the by-laws, appraisal

right is available
OBJECTIVES b) A dissolved corporation is still liable for all its
debts, liabilities in an action filed against it, even if the case is
1. What is appraisal right? filed beyond the 3 yr. period. (It may be sued even beyond the
- Right to withdraw from the corporation and 3 yr. period)
demand payment of the fair value of his shares
after dissenting from certain corporate acts  By appointment of a receiver.
involving fundamental changes in corporate
structure (Sec. 81) - Effects:
a) 3 yr. period will not apply because the dissolved

2. Enumerate three (3) specific instances when corporation is substituted by the receiver who may
this right may be exercised? sue or be sued even after that period.
- (a) In case any amendment to the articles of
incorporation has the effect of changing or 5. The general requirements for a valid Stock Holders’
restricting the rights of any stockholder or class meeting.
of shares, or of authorizing preferences in any
respect superior to those of outstanding shares • Must be held on the date fixed in the by‐laws or
of any class, or of extending or shortening the inaccordance with law.
term of corporate existence; • Prior notice must be given.
- (b) In case of sale, lease, exchange, transfer, • It must be held in the proper place.
mortgage, pledge or other disposition of all or • It must be called by the proper party.
substantially all of the corporate property and • Voting and quorum requirements must be met.
assets as provided in the Code; and
6. Elements of a valid By –Laws
- (c) In case of merger or consolidation.
a) It must not be contrary to law, public policy or morals.
3. Effects of declaration of delinquency vis‐à‐vis,
the rights of the stockholder: b) It must not be inconsistent with the Articles of
Incorporation.
a.) To vote and be voted upon – No delinquent
c) It must be general and uniform in its effect.
stockholder shall be voted for or be entitled to vote or
to representation at any stockholders’ meeting, nor d) It must not impair obligations and contracts or vested
shall the holder thereof be entitled to any of the rights.
rights of a stock holder except the right to receive
dividends. e) It must be reasonable.
7. Explain “The right of a stockholder to compel the

b.) To receive cash and stock dividends – Any cash
corporation to pay the value of his shares is broader in
dividends due on delinquent stock holder shall first be
a close corporation”.
applied to the unpaid balance on his subscription plus
cost and expenses, while stock dividends shall be a) Close Corporation – may withdraw and compel the
withheld until his unpaid subscription is paid in full. corporation to purchase his shares for any reason with the
limitation that the corporation has sufficient assets to cover its
4. Three methods of liquidation and their effects liabilities exclusive of capital stocks.
on the 3 year period to liquidate the corporate
affairs. b) Ordinary Corporation – unless he sells his shares, a
stock holder cannot get back his investment nor compel the
 By the corporation it through the Board of corporation to buy his shares except in the exercise of his
Directors or the governing boards. appraisal right.
- Effects: 8. Distinguish between voting rights of stock holders in

a stock corporation and members in a non-stock
a) Claims for/against the corporation not filed within 3 corporation.
yrs. will become unenforceable.
- Except as provided for in the Code, the voting right of
b) Actions pending for or against the corporation stockholders is inherent and they may vote the way they
when the 3 yr. period expires are abated. please. Thus, stockholders may vote personally, or by
representative or proxy or by voting trust agreement,
 By a trustee or by an assignee appointed by the
executor, administrator, receiver or other legal representative
corporation.
appointed by the court (Secs. 55, 58 and 59).
- Effects:
- On the other hand, in Non-stock Corporation, the voting
a) The 3 yr. period will not apply provided that the rights of members may be limited, broadened, or denied by
designation of the trustee is made within that period. the by-laws (Sec. 89, first par.)
9. Explain “in cases of deadlocks in a close corporation, 1. Failure to file its annual report or pay any fees as required
the courts can interfere in the management of the by the Code;
corporate affairs”.
2. Failure to appoint and maintain a resident agent in the Phils;
The court has a wide discretion in the management of the
corporation in cases of deadlocks. The court can interfere 3. Failure, after change its resident agent or if his address, to
because the directors/stockholders areso divided respecting submit to the SEC a statement of such change;
the management of the corporations business and affairs. The 4. Failure to submit to the SEC an authenticated copy of any
votes required for any corporate action cannot be obtained. As amendment to its articles of incorporation or by‐laws or if any
a consequence, the business and affairs of the corporation can articles of merger or consolidation within the time prescribe by
no longer be conducted to the advantage of the stockholders. the code.
The “business judgment rule” cannot be applied here.
5. Misrepresentation of any material matter in any application,
10. Remedies of a stockholder who is denied inspection report, affidavit or other document submitted;
of corporate books:
6. Failure to pay any and all taxes, impost, assessment or
1) Mandamus penalties, if any, lawful due to the Phil Government or any of
2) Damages either against the corporate or the responsible its agencies or political subdivisions;
officer, or 7. Transacting business in the Phils. outside of the purpose for
3) Criminal complaint based on Sec 144 of the Code. which such corporation is authorize under its license;
11. Distribution of assets upon dissolution of non-stock 8. Transacting business in the Phils. as agent of or acting for
corporations and in behalf of any foreign corporation or entity not duly
licensed to do business in the Phils;
In case dissolution of a non-stock corporation in accordance
with the provisions of this Code, its assets shall be applied and 9. Any other grounds as would render it unfit to transact
distributed as follows: business in the Phils.
1. All liabilities and obligations of the corporation shall 13. Requirements and procedure for the withdrawal of
be paid, satisfied and discharged, or adequate provision shall Foreign Corporations:
be made therefore;
1. Filing of a petition for withdrawal of license;
2. Assets held by the corporation upon a condition
requiring return, transfer or conveyance, and which condition 2. All claims which accrued in the Phils. have been paid,
occurs by reason of the dissolution, shall be returned, compromise or settled;
transferred or conveyed in accordance with such requirements;
3. All taxes, imposts, assessment and penalties, if any, lawfully
3. Assets received and held by the corporation subject to due to the Philippine Government or any of its agencies or
limitations permitting their use only for charitable, religious, political subdivisions have been paid;
benevolent, educational or similar purposes, but not held upon
a condition requiring return, transfer or conveyance by reason 4. Publication of the petition for withdrawal once a week for 3
of the dissolution, shall be transferred or conveyed to one or consecutive weeks in a newspaper of general circulation in the
more corporations, societies or organizations engaged in Philippines; and
activities in the Philippines substantially similar to those of the
5. Issuance of certificate of withdrawal by the SEC.
dissolving corporation according to a plan of distribution
adopted pursuant to this Chapter; 14. Instances when a Foreign Corporation w/ no
license to do business in the Philippines can sue:
4. Assets other than those mentioned in the preceding
paragraphs, if any, shall be distributed in accordance with the a) The act or transaction involved is an “isolated transaction;”
provisions of the articles of incorporation or the by-laws, to the (Bulakhidas vs. Navarro);
extent that the articles of incorporation or the by-laws,
determine the distributive rights of members, or any class or b) The foreign corporation is not seeking to enforce any legal
classes of members, or provide for distribution; and or contractual rights arising from, or growing out of any
business which it has transacted in the Philippines;
5. In any other case, assets may be distributed to such
persons, societies, organizations or corporations, whether or c) The purpose of the suit is to protect its trademark,
not organized for profit, as may be specified in a plan of tradename, reputation or good will. (Western Equipment and
distribution adopted pursuant to this Chapter. (Sec. 94) Supply Co. vs. Reyes);
12. Grounds for revocation of license (Foreign d) The suit is based on violation of the RPC; (Lechemise
Corporation) Lacoste vs. Fernandez);
e) The foreign corporation is merely defending a suit filed

against it. (Time, Inc. vs. Reyes);
f) The party is estopped to challenge the personality of the 2. Termination of the corporate existence of the constituent
corporation by entering into a contract with it. (Communication corporations, except that of the surviving or consolidated
Materials and Design, Inc vs.CA) corporation.
15. What is dissolution? 3. The surviving or the consolidated corporation will possess all
the rights, privileges, immunities and powers and shall be
- It is the extinguishment of the corporate franchise and the subject to all the duties and liabilities of a corporation
termination of corporate existence. organized under this Code.
General Rule: When a corporation is dissolved, it ceases to be 4. The surviving or the consolidated corporation shall possess
a juridical entity and can no longer pursue the business for all the rights, privileges, immunities and franchise of the
which it is incorporated. constituent corporation, and all property and all receivables
Exception: The Corporation will continue as a body corporate due on whatever account, including the interest of, or
for another period of 3 years from the time it is dissolved for belonging to, or due to its constituents corporation shall be
the purpose of winding up its affairs and the liquidation of its deemed transferred to and vested in such surviving or
assets. consolidated corporation without further act or deed; and
16. Three modes of dissolution: 5. The surviving or consolidated corporation shall be

responsible and liable for all the liabilities and obligations of
1. By the expiration of the corporate term; each of the constituent corporations. The rights of creditors or
liens upon the property of any such constituent corporations
2. By voluntary surrender of its primary franchise (voluntary shall not be impaired by such merger or consolidation.
dissolution); or
20. The three methods of liquidation and their effects
3. By the revocation of its corporate franchise (involuntary on the 3-year period to liquidate the corporate affairs:
dissolution).
1. By the Corporation itself through the BOD- the Board
17. Three ways in w/c a person may become a will only have 3 years to finish its task of liquidation, claims for
stockholder: or against the corporation not filed within 3 year period will
become unenforceable as there exist no corporate entity
1. By a contract of subscription with the corporation;
against which they can be enforced.
2. By the purchase of treasury shares from the corporation;
2. By Trustee appointed by the corporation- 3 year
and
period will not apply provided the designation of a trustee is
3. By purchase or acquisition of shares from existing made within the 3-year period.
stockholders (includes purchase from the stock exchange).
3. By appointment of a receiver on petition or
18. Consideration for the issuance of stock may be any motuproprio upon the dissolution of the corporation-
or a combination of any two or more of the ff: the 3-year period will not apply because the dissolved
corporation is substituted by the receiver who may sue or be
1. Actual cash paid to the corporation; sued beyond the 3-year period.
2. Property, tangible or intangible, actually received by the 21. “Subscription for shares of stock of a corporation is
corporation and necessary or convenient for its use and lawful indivisible”.
purposes at a fair valuation equal to the par or issued value of
the stock issued; - Sec. 64. No certificate of stocks shall be issued to a
subscriber until the full amount of his subscription together
3. Labor performed or services actually rendered to the with interest and expenses (in case of delinquent shares), if
corporation (stocks shall not be issued in exchange of any is due, has been paid.
promissory notes or future services. Their realization is
uncertain); 22. “Certificate of stock is merely quasi‐negotiable and
is non‐negotiable”.
4. Previously incurred indebtedness by the corporation;
- While it may be transferred by endorsement coupled with
5. Amounts transferred from unrestricted retained earnings to delivery thereof, and therefore merely quasi-negotiable, it is
stated capital; and nonetheless non‐negotiable in that the transferee takes it w/o
prejudice to all the rights and defenses w/c the true and lawful
6. Outstanding shares in exchange of stocks in the event of
owner may have except in so far as the principles governing
reclassification or conversion.
estoppel may apply. (Delos Santos vs. McGrath).
19. Effects of merger and consolidation:
23. Voting Trust Agreement
1. There will be a single corporation. In case of merger, the
- Is one created by an agreement between a group of
surviving corporation, or in case of consolidation, the
stockholders of a corporation and a trustee, whereby it is
consolidated corporation.
provided that for a term of years, or for a period of contingent
upon a certain event, or until the agreement is terminated, whether for money, property, or personal services, or in
control over the stock owned by such stockholders, shall be payment of corporate debts, unless AOI provide otherwise.
lodged in the trustee.
29. A Director/SH whose shares are declared
It is a device of binding stockholders to vote as a unitand thus delinquent is not automatically disqualified to be and
assuring a desirable stability and continuity inmanagement in act as a director.
situations where it is needed.
- The only qualification to be a director is that he must
24. Highest Bidder own at least 1 share standing in his own name in the books of
the corporation. And since the shares of a director although
- Is such bidder who shall offer to pay the full amount of the declared delinquent, still standing his name pending the sale,
balance on the subscription together with accrued interest, he remains to be and act as a director. And even if there is
cost of advertisement and expenses of sale, for the smallest sale, he may still be a director because the winning bidder may
number of shares or fraction of sale. not bid or pay for all the shares or there might be remaining
Grounds to question the delinquency sale: shares, which would be credited in favor of the delinquent
stockholder.
1. Irregularities or defect on the notice of sale; or
DEFINITION: SRC
2. Irregularities or defect in the sale itself.
1. Wash Sale – any transaction in a security which
25. 3 qualifying conditions required to be indicated in involves no change in the beneficial ownership
AOI in order that the corporation may be considered as thereof
a close one: 2. Matched Order – refers to an order/s for the
purchase or sale of security with the knowledge that a
1. All the corporation’s issued stock of all classes, exclusive of simultaneous order/s of substantially the same:
treasury shares shall be held of record by not more than 20; a) Time
b) Size and
2. All the issued stock of all classes shall be subject to one or
c) Prize for the sale or purchase of such security has,
more specified restrictions on transfer;
or will be entered by or for the same or different
3. The corporation shall not list in any stock exchange or make parties.
any public offering of any of its stock of any class.
3.Wash Sale and Match Oder – When they may
26. Twin requirement in order that the Special become illegal:
Commercial Court may be justified in appointing a
- They must be used as means “to create a false or misleading
management committee, board or body in a
appearance of active trading” in the security concerned.
corporation:
4.Short Sale
1. Dissipation, loss, wastage or destruction of assets or other
properties; and - Selling security w/c the vendor does not own.
2. Paralyzation of its business operations which may be - Illegal per se, unless done in accordance w/ the rules and
prejudicial to the interest of the minority stockholders, party’s regulations of the SEC.
litigants or the general public. (SyChimvs. SySiy Ho & Sons,
Inc.) 5.Insider Trading
27. The three-year period of liquidation will not apply if General Rule: An insider may not sell or buy a security of the
a trustee/assignee/receiver is appointed to undertake issuer while in possession of material information with respect
the same to the issuer or the security that is not generally available to
the public.
- It will not apply, under Sec. 122 of the Code (2) from and
after any such conveyance by the corporation of its property in Exceptions:
trust for the benefit of its stockholders, members, creditors,
and others in interest, all interest which the corporation had in 1. The insider proves that the information was not gained from
the property terminates, the legal interest vests in the such relationship; or
trustees, and the beneficial interest in the SH, members, 2. The insider disclosed the information to a party reasonably
creditors, or other persons in interest. believed by the insider to possess the information.
28. If not denied by a provision in AOI, the pre-emptive 6.Who is an insider?
right of a corporation is absolute.
a) The issuer;
- The statement is correct, why? Because under Sec. 102, the
pre-emptive right of a close corporation shall extend to all b) A director or officer (or person performing a similar
stock to be issued, including reissuance of treasury shares, functions) of, or a person controlling the issuer;
c) A person whose relationship or former relationship to the
issuer gives or gave him access to material information about
the issuer or the security that is not generally available to the
public;
d) A government employee, or director, or officer of an

exchange, clearing agency and/or self-regulating organization
who has access to material information about an issuer or a
security that is not generally available to the public; or
e) A person who learns as such information by communication

from any of the foregoing insiders.
7.Marking the close – the placing of purchase/sale order, at

or near the close of the trading period.
Note: Marking the close, painting the tape, squeezing the float,
hype and dump, and boiler room operations are illegal when
they are effected to
1. Raise the price or induce the purchase of a security or

controlling, controlled or commonly controlled company by
others;
2. Depress their price to induce the sale of asecurity, whether

of the same or of a differentclass, of the same issuer or of a
controlling,controlled company, or common controlledcompany
of others; and
3. Creates active trading to induce such purchase or sale

through said devises or schemes.
ESSAY: No, the contention of A is incorrect, citing the decision in the
Union Bank case, that if a corporation secures a loan, and one
PROBLEM 1. A is the president of X co, Inc. who used of its key officers uses his private properties to guarantee the
his own properties to secure and guaranty a loan for loan, corporation files for suspension, the bank may foreclose
the corporations operational needs from Z Financial, the property because it is not an action for a claim against the
Inc. corporation.
When the funds were released, B, the chairman of the Note: The reason for suspension of payments for claims
Board misappropriated 10M for his personal use. The against a distressed corporation is to enable the management
minority stockholders later charge B for estafa under committee to effectively exercise its powers free from judicial
the RPC and by virtue of the misappropriation, the or extrajudicial interference that might unduly hinder or
minority of the board and stockholders filed a petition prevent the “recue” of the debtor company. (PAL vs.Sps. Sadic
for suspension of payments for all claims against the and Kurangkingking)
corporation w/c was granted by the proper forum.
Equality and Equity – during suspension the assets are held
a) B files a motion to dismiss the estafa cases alleging in trust for the equal benefit of all creditors to preclude one
that since the matter involves an intracorporate controversy, from obtaining an advantage or preference over another by
the case falls w/in the exclusive jurisdiction of the Special the expediency of an attachment, execution or otherwise. The
Commercial Court. Rule and explain. creditors should stand on equal footing. Not anyone of them
ANSWER: should be given any preference by paying one of them ahead
of the others. (AlemarsSibal and Son, Inc. vs. Elibenas)
General Rule: The Special Commercial Courts shall have
original and exclusive jurisdiction to hear and decide cases PROBLEM 2. X is the owner of 1M shares are being
involving devices or schemes employed by or any acts of the traded at P1.00 per share. He has an account in two
board of directors, business associates, its officers or partners, broker firms, B1 and B2. He directs B1 to sell 250T
amounting to fraud and misrepresentation w/c may be shares at 10.30 at P1.25 per share and at 10.32, he
detrimental to the interest of the public and/or of the directs B2 to buy the same number of shares at the
stockholder, partners, members of associations or organization same price.
registered with the SEC. a. Can X be held liable for wash sale and matched
Exception: The complaint is based on the violation of the order? Explain.
Revised Penal Code (Ex. Estafa). Criminal case is personal in b. If he sells shares of stock which he does not own,
nature and not against the corporation. what unlawful act will be committing?
In order that there be an intra‐corporate controversy. The ANSWER:
following must occur:
a. Yes. There is wash sale because there is no change in
1. An intra‐corporate relationship: beneficial ownership of the security involved. In this case, a
series of buy and sale transaction is placed by one and same
a) Between and among the stockholders, members, associates
beneficial owner who is X in the exchange which would not
of a corporation, partnership or association;
affect any change of ownership of the shares transacted.
b) Between them and the corporation, partnership or
There is matched order because there is knowledge of
association; or
simultaneous order of substantially the same size, time and
c) Between the corporation, partnership or association and the price for the sale and purchase of the security.
State.
b. He committed short sale because it is defined as
2. The controversy must arise out of said relationship. selling security which the vendor does not own which is illegal
per se under Sec. 24.2 of the SRC.
Note: If the petitioner does not have a “prima facie” title to the
shares sought to be recorded in his name, the dispute is not PROBLEM 3. Z corp. was registered in 1978 or before
intra‐corporate and the ordinary or regular court can assume the effectivity of the Corporation Code. The by –laws of
jurisdiction over the case. (Rivera vs. Florendo; Tay vs. CA) the corporation allow it to issue certificate of stock
covering the corresponding number of shares w/c the
The dispute among the parties must be intrinsically connected subscriber may have already paid.
with the regulation of the corporation. If the nature of the
controversy involves matters that are purely civil in character A subscribed to 1M shares w/a PV of 1.00/share and
necessarily the case does not involve an intra‐corporate have paid 500K on his subscription. He now compels
controversy (Speed Distributing Corp. vs. CA) the Corporation to issue a stock certificate covering
500K shares.
b) After the grant of suspension of payments order, z Financial
Inc. proceeds to extra‐judicially foreclose on the properties of a) The corporation seeks your advice as counsel. What advice
“A” who moves for exception x xxIs the contention of A will you give? Explain.
correct?
ANSWER: No, A cannot be deprived of his right by virtue of an
unauthorized transfer. He can go to the corporation and ask
Sec. 64. Issuance of stock certificates – No certificate of stock for the cancellation of the stock certificate due to fraud or
shall be issued to a subscriber until the full amount of his forgery. D may compel the corporation to recognize him as a
subscription together with interest and expenses (in case of stockholder or claim reimbursement and damages against the
delinquent shares), if any is due, has been paid. Thus, A latter.
should comply with the Corporation Code.
e) Assume that the corporation has unissued and unsubscribed
A stockholder whose subscription is not fully paid may not be shares worth 20M and the corporation want to issue them at
issued a stock certificate for that portion already paid. (Fua the PV of P1.00/share instead of its FMV of P2.00/share. They
Chan vs. Summers and China Banking Corporation) seek your advice as counsel if they can do so issued at P1.00.
General Rule: Holders of subscribed shares not fully paid are What advice will you give? Explain.
entitled to all the rights of a stockholder. ANSWER:
Exception: That the shares have been declared delinquent; or Yes, they can issue it at the PV of P1.00/share, because it is
the stockholder exercises his appraisal right. not below the par value. There is no watered stock because
b) Assume that A is now the owner of the stock certificate No. the basis of watered stock is the par value and not the fair
008. B, his brother stole the certificate, forged the signature of market value.
A and sold the same to C, who is a purchaser in good faith and Ways in which watered stock may be issued:
for value. Who has a better right over the shares covered by
stock certificate No. 008? A or B? Explain. 1. For monetary consideration less than its par or issued value;
ANSWER: 2. For a consideration in property, tangible or intangible,

valued in excess of its fair market value;
A still has a better right over the shares under the doctrine of
non‐negotiability of certificate of stock. 3. Gratuitously or under agreement that nothing shall be paid
at all; or
General Rule: In forged or unauthorized transfer of stock the
purchaser acquires no title as against the lawful owner and will 4. In the guise of stock dividends when there are no surplus
have no right or remedy against the corporation profits of the corporation.
(non‐negotiability of stock certificates).
g) Further, assume that the corporation enters into a contract
b) Assume that C transfers the said stock certificate to of sale/purchase of some of its remaining unsubscribed shares
D. Who is also a bona fide purchaser, will D acquire title? w/ X who pays a down payment of 50% w/ a condition that he
Explain. (X) will not be considered as a stockholder until the full
payment of the acquisition cost and that then and only then
ANSWER: shall be issued a stock certificate. Pending payment of the
No, same basis to the previous answer.
balance, the properties, inventories and all assets of the
corporation was razed in fire. The corporation now wants to
c) Assume that before C transferred the shares, he collect the unpaid portion of the acquisition cost of the shares.
surrendered the said stock certificate to the corporate
secretary for the registration/cancellation and for issuance of a X seeks exception in that the contract is one of sale, and the
new stock cert in his (C’s favor). The corporation cancelled the obligation of the parties is reciprocal and dependent on one
said stock certificate and issued stock certificate No. 010 in the another. Rule and Explain.
name of C, who thereafter transferred the latter certificate by ANSWER:
endorsing and delivering it to D. Will D acquire title? Explain.
- YES, no matter how the party refer to it, it is considered
ANSWER: subscription
Yes, D will acquire title to the stock certificate No. 010 as this - Once you subscribe, you become a stockholder which is
would be the exception to the general rule. entitled to all the liabilities of a stockholder.
Exception: The Corporation will be estopped to deny the - The acquiring stockholder is much bound to pay the debt
validity thereof. The subsequent purchaser in good faith took owing to the corporation. Unpaid subscriptions will be a debt
the shares by virtue of the genuiness of the certificates issued owing to the corporation.
by the corporation or of the representation made by the
corporation that the same is valid and subsisting and that the PROBLEM 4: A subscribed 100,000 shares valued ar
person named therein is a stockholder of the corporation. 1M. He paid 500,000, so he has a balance of 500,000.
The Corporation is in dire need of money for the
d) Will A be deprived of his title? Explain. operation of its business so the BOD decided to make a
call for the unpaid portion of the subscription of A. The
ANSWER:
Corporation has debts amounting to 10M, and in order
to raise funds to pay the indebtedness, they made a
call for the unpaid portion of the subscription of SH The issuer, director or officer or any person performing similar
including A. It specified the date when it should be functions or a person controlling the issuer. A person whose
paid. A did not pay, A's 100,000 shares are now relationship or former relationship to the issuer gives or gave
delinquent and the BOD can now sell these shares at a him access to material information about the issuer or the
Public Auction subject to publication. There is an security that is not generally available to the public.
additional cost of 5,000. So you now have 505,000.
There are no bidders, no bidder appeared. May the The printer in this case was able to gain access to material
Corporation bid? information about the issuer that is not generally available to
the public. He’s a person whose relationship or former
ANSWER: relationship with respect to the issuer gave him access to the
information. He is also an insider.
No, the corporation may bid subject to the provisions of this
Code. This is acquisition of its own shares and as a rule, a Even government employees, directors or officers of an
corporation cannot generally reacquire its own shares if it has exchange or clearing agencies or any person who learns such
no Unrestricted Retained Earnings. The corporation cannot bid. information by communication from any of these persons
It must have unrestricted retained earnings as a General Rule. would be considered insiders.
a.) IF THE CORPORATION CANNOT BID BECAUSE IT

HAS NO UNRESTRICTED RETAINED EARNINGS, IS
THE CORPORATION NOW LEFT WITHOUT RECOURSE
TO ENFORCE PAYMENT OF THE UNPAID
SUBSCRIPTION OF A?
ANSWER:
No. It can go for a Direct Action in Court.
PROBLEM 5:A's shares are delinquent, he is a director

of the corporation. Pending the sale of his shares, is he
still qualified to be a director?
Ownership of shares of stocks standing in his name in

the books of the corporation is the qualification in
order that one may be a director. Will he lose his right
to be a director?
ANSWER:
No, until and unless all his shares are bidded out and sold to
the winning bidder, he remains the owner of the shares of
stock. It is still registered in his name in the books of the
corporation. Therefore, he remains as a stockholder, and even
if it may be sold at public auction, he can still continue acting
as the director.
PROBLEM 6: Manila Gas Corporation is engaged in the

search and drilling of natural gas. It was able to drill a
natural gas of commercial quantity. They did not
disclose the same to the general public. What they did,
was the directors and officers bought the shares in the
stock exchange of Manila gas itself. They did never
disclose to the public. On the following day, knowing
that it is illegal for them to trade in the particular
security, they went to a printer in order to disseminate
the information that in fact they were able to drill a
natural gas of commercial quantity. The printer,
looking at the data, instead of printing it immediately,
also bought the shares of manila gas before he printed
the material. What is the offense committed by the
officer of the Corporation and/or the printer if any? Is
he liable? Who is an insider?
ANSWER:
Insider Trading. Yes, he is liable. Sec. 3.8, Section 3.8

RE: CORPORATION LAW: FINALS 2020
ARELLANO UNIVERSITY SCHOOL OF LAW
CORPOATION LAW SAMPLE EXAMINATION b) l owest bidder 11. Which of the following is not correct in a voting trust preceding year for the services rendered by him as
I DO NOT CLAIM TO OWN ANY OF THE FOLLOWING. c) bidder who pays or tenders to pay the amount of agreement? corporate secretary by a mere Board resolution is
NO OTHER MATERIAL CAN REPLACE THE BIBLES OF LAW delinquency plus costs, expense and interest, if a) Trus tee votes as owner of shares. a) Valid since he is acting in a capacity other than as
WHICH HAVE BEEN TESTED AND PRESCRIBED BY THE any, for the least number of shares. (Sec. 67) b) Trustee may vote in person but not by proxy. (Sec. such director. (Western Institute of Technology,
PROFESSOR. THE READER HAS BEEN WARNED AND MAY d) hi ghest bidder who pays or tenders to pay the 58) Inc. vs. Salas, GR No. 113032; 278 SCRA 216; Aug.
PROCEED ACCORDINGLY. GOOD LUCK. a mount of delinquency c) Beneficial owner of the s hares ceases to be 21, 1997)
s tockholder of record. b) Inva lid since only 10% of the net income before tax
6. Right of a shareholder in a regular/ordinary d) Trus tee may vote at any meeting during duration i s allowed by law
corporation to demand/compel the latter that he be paid of the trust. c) Inva lid because it requires stockholders’ approval
the fair market value of his shares may be exercised in or a by-law provision authorizing i t
I. MCQ cases of: NOTE: The voting trustee or trustees may vote by proxy or d) Va l id because all corporate powers, all businesses
a) entering i nto ma nagement contra ct of a ll or i n a ny ma nner a uthorized under the bylaws unless the a re conducted a nd all properties are controlled by
1. A stockholder whose shares are declared delinquent s ubstantially all business of corporation. a greement provides otherwise. (Sec. 58) the Board of Directors
will have… b) a ny a mendment of articles of i ncorporation.
a) no voti ng and dividend rights. c) a ny a mendment of by-laws. 12. Which of the following general statements is not 16. The declaration of stock dividends will generally have
b) no voting rights at any meeting. (Sec. 70) d) investment of the corp. funds in any business or correct? a) the effect of decreasing the total assets of the
c) voti ng and dividend rights. purpose other than the primary purpose. (Sec. 80) a) Foreign corporation doi ng bus iness in the corporation
d) voti ng rights but no dividend ri ghts. Phi lippines with license ca n sue before our courts. b) the effect of a n i ncrease i n the proportionate
7. Close corporations may validly provide in its articles of b) Foreign corporation not doi ng business in the i nterest of the stockholders
2. “A” subscribed 20,000 shares of X Co. Inc. paid 25% incorporation or by-laws that: Phi lippines and without license can sue before our c) no effect i n the proportionate i nterest of the
thereof. At the annual stockholders’ meeting, how many a) cumulative voti ng s hall be denied to any courts . s tockholders
shares can he vote on? s tockholder c) Foreign corporation doing business in the d) the effect of increasing the authorized capital stock
a) 5,000 beca use he is a stockholder to the extent of b) quorum and voting requirements in stockholder’s Philippines and without license can sue. (Sec. 150) notwithstanding the fact that the corporation has
the number of s hares paid meeting imposed by the Code shall be more than d) Foreign corporation not doi ng business in the a free portion of i ts ca pital s tock to cover the
b) 20,000 because the Corporation Code does not that required by law. (Sec. 96) Phi lippines and without license cannot be sued in declaration/distribution
require full payment of the shares and provided c) proxy voti ng shall be denied to the stockholder the Philippine courts.
that he is not a delinquent stockholder (Sec. 71) d) meetings of s tockholder may be held anywhere in 17. A contract between a corporation and its president is
c) 5,000 whi ch constitutes his paid-up shares the Philippines NOTE: Nei ther i s a l i cense required before a foreign a) va l id i f not tainted with fraud a nd the contract is
d) None because he i s not yet a s tockholder pending corporation may sue before the forum i f the purpose of fa i r and reasonable
ful l payment of his subscribed shares 8. Transaction of sale/purchase of security that does not the s uit is to protect i ts trademark, trade name, corporate b) va l id i f previ ously a pproved by the Board of
involve change in the beneficial ownership thereof: na me, reputation or goodwill (Western Equipment Supply Di rectors
3. “B” subscribed to 5,000 shares in the same company a) Ma tch Order vs . Reyes, G.R. No. L-27897 December 2, 1927) c) voi dable a s the president holds a substantial
with a par value of Php 1.00 each. He paid Php 2,500.00 b) Squeezing the Float i nterest in the corporation
and promised to pay the full amount thereof on or before c) Wash Sale (Rules 24.1.1 to 24.1.1.3, 2015 SRC-IRR) 13. The fair market value of shares of the shareholder d) voidable at the option of the corporation. (Sec.
the end of June 2018. The company declared cash d) Pa i nting the Tape exercising his appraisal right shall be determined on the 31)
dividends on June 15, 2018 payable to stockholders of date:
record as of June 30, 2018. How many shares is he 9. Which of the following meetings is not generally valid? a) Duri ng the meeting where he i nterposed his 18. It is common practice in X CO., INC. for the general
entitled to be paid cash dividends? a) Members’ meeting held in Tagaytay where the objection manager to enter into contracts for and in behalf of the
a) None because the law requires full payment of the principal office is located in Makati, but by-laws b) After the meeting where he i nterposed his corporation without prior approval of the Board of
s ubscribed shares before a stockholder is entitled provide that members’ meeting may be held objection Directors. Said contracts are
to di vidends. anywhere in the Philippines. () c) Duri ng or a fter the meeting where he interposed a) i nvalid since the power and authority is lodged to
b) 2.500 s hares which represents his paid-up shares. b) Di rector’s meeting held i n Si ngapore where the hi s objection tha t of the Board of Directors
c) 5,000 s hares s ince i t represents the outstanding pri ncipal office is in Makati. d) Prior to the meeting where he interposed his b) va l id because approval of the Board is not required
s tock held by him. c) Trus tees’ meeting held i n Ta gaytay where the objection (Sec. 81) for i ts validity
d) 5,000 shares since he is not a delinquent pri ncipal office is in Makati. c) i nvalid because the general ma nager i s not
stockholder. (sec 71) sec 42 will apply if declared d) Stockholders’ meeting held in Ta gaytay where the 14. A, B, C, D and E organized/formed X CO., INC. and was a uthorized by law to enter into contracts for and in
delinquent. pri ncipal office i s i n Ma kati, but by-laws provide issued a certificate of registration by the appropriate behalf of the corporation
tha t s tockholder’s meeting may be held anywhere government agency. It turned out, however, that C, D, d) valid because similar acts were approved and
4. A fraudulent transaction involving the sale of securities i n the Philippines. and E are not residents of the Philippines. What allowed by the Board as a matter of practice,
that involves an activity of increasing or lowering the type/kind of corporation is X CP., INC.? custom and policy and thus binding on the
price during regular trading hours is called 10. A subscriber to shares of stock who has paid 50% of a) De Fa cto corporation even without formal Board
a) Ma tch Order subscription is: b) De Jure (Sec. 10) resolution (The Board of Liquidators vs. Kalaw,
b) Squeezing the Float a) Not entitled to vote c) Corporation by Estoppel G.R. No. L-18805 August 14, 1967)
c) Wa s h Sale b) Not entitled to dividends d) It does not exist as a Corporation a t all.
d) Painting the Tape (Rule 24.1.5.1, 2015 SRC-IRR) c) Not entitled to exercise appraisal right 19. Non-voting shares are not included in determining
d) Not entitled to the issuance of certificate of stock. 15. A director who was compensated and paid 15% of the the voting requirements imposed by the code in cases of
5. Winning bidder in a delinquency sale is: (Sec. 63) net income before tax of the corporation for the a) removal of a member of the Board of Directors
a) hi ghest bidder
E.Я.RE: SAMPLE EXAMINATION ON CORPORATION LAW. READ AT YOUR OWN RISK. ARRANGED BY ELLIS LAGASCA. Νεχ ποσσυμ τεχυμ ωιωερε νεχ σινε τε. Page 1
b) provi ding for a dditional di squalifications of b) to pa y di ssenting s tockholders i n the exercise of c) a s l imited pa rtners for a l l debts, liabilities and b) conti nue to serve in a hold-over capacity until his
di rectors i n the by-laws thei r appraisal ri ghts da mages a rising therefrom. s uccessor has been duly elected and qualified
c) s hortening of the corporate terms c) to pay a stockholder in a close corporation who d) as general partners for all debts, liabilities and c) conti nue to serve as such until the expiration of his
d) cha nging the principal office of the corporation compels the latter that he be paid the value of his damages arising therefrom. (Vda. de Salvatierra term.
shares vs. Garlitos 103 Phil. 757, 763; 18 CJs 1311-2 as d) conti nue to serve as such until the expiration of his
NOTE: Al l others contitute a s a mendments which are d) to col lect/compromise a n i ndebtedness to the cited in Aquino, 2018) term i f authorized by the Board of Directors
under Section 6. corporation arising out of unpaid s ubscription in a
delinquency sale 26. A, B, C, D and E are the 5-man member of the Board 31. X CO., INC. is engaged in the realty business with no
20. X CO., INC. declared cash dividends of P1.00 per share of Directors of X CO., INC. On January 15, 2011, the other purpose indicated in the article of incorporation. It
on January 18, 2011 to be paid to the stockholders of 22. Only the stockholders/members can fill up a vacancy remaining members of the Board of Directors consisting entered into a catering service with Y CO., INC. for the
record on January 31, 2011. Said declaration was duly created in the office of a director if the said vacancy of A, B and C conducted a meeting to fill up two (2) retirement of the latter’s president for a consideration of
announced to the stockholders. occurs vacancies in the Board cause by the removal of D by the Php150,000. X CO. fully complied with its obligation but
a) by virtue of the resignation of a hold-over director stockholders and by the death of E. D was unanimously Y CO., later refused to pay the agreed amount claiming
On January 20, 2011, “A”, one of the stockholders holding (Valle Verde Country Club, Inc. vs. Africa, GR No. replaced by F, and E by G. The election of F and G is that X CO., is not empowered/authorized to engage in
100,000 shares valued at P100,000 sold his shares for the 151969, Sept. 4, 2009) a) va l id for both the food catering business. In an action brought before
same amount to “B”, who is not a stockholder of the b) by vi rtue of the death of a director b) not va lid for both the Court, may Y CO., INC. be compelled to pay?
same corporation, and on January 25, 2011 the transfer c) i f the director ceases to be a s tockholder c) not va lid for G but va lid for F a) No, because the actuation of X CO., INC. is beyond
in favor of “B” was duly recorded in the books of the d) i f the director is subsequently disqualified by a by- d) valid for G but not valid for F i ts corporate powers a nd a uthority. (Doctrine of
corporation. Absent any agreement to the contrary, as l a w provision Li mi ted Ca pacity)
between “A” and “B” who has better right to the 27. X CO., INC. filed/submitted an amendment of its b) Yes, because the party who has received the
dividends? NOTE: B i s also possible due to Section 28. Articles of Incorporation with the SEC. If the latter does benefits of the contract is estopped to set up that
a) “A” beca use the tra nsfer of hi s s hare was in not act on it within 6 months without fault attributable contract is beyond the corporate powers of X CO.,
vi olation of a by-law provision gra nting existing 23. The Articles of Incorporation of X CO., INC. provides to the corporation, the amendment takes effect on the to defeat an action on the same.
s tockholders the preferential ri ght to buy the for a nine (9) man member Board of Directors. Two of date of its filing except c) Yes , because the contract is valid per se
s hares of a selling stockholders them died. On January 15, 2011, the corporate secretary a) when the amendment consists of a decrease in d) No, because the court cannot i nterfere with the
b) “A” because he was the owner of the shares at the of the company resigned such that at a Director’s the capital stock (Sec. 37) business judgment of the Board of Directors
ti me of the declaration of the dividend meeting was held and conducted to elect another b) when the amendment consists of a decrease in the
c) “B” because he was the recorded owner of the corporate secretary. Five (5) of the directors attended number of directors 32. A provision in the by-laws of a regulatory/ordinary
share even before payment of the dividend. the meeting and four (4) of them elected “A” to replace c) when the a mendment cons ists of including stock corporation may validly provide
(Nautica Canning vs. Yumul, G.R. No. 164588 the resigned corporate secretary. Is the election valid? rea sonable restrictions on tra nsfer of shares a) for a greater quorum and voting requirement in
October 19, 2005) a) Yes , because there a re onl y s even (7) living d) when the amendment consists of a change in the stockholders’ meeting. (Sec. 46 & 51)
d) “B” beca use he was the owner of the s hare at the members of the Board a nd the vote of four (4) pri ncipal office of the corporation b) for a denial of cumulative voti ng of the
ti me/date of payment cons titutes a majority s tockholders
b) No, because the vote required is majority of the 28. The Board of Directors cannot, without stockholders’ c) for a greater quorum and voting requirements in
NOTE: [A] tra nsfer of shares of stock not recorded in the Boa rd as fixed in the Articles of Incorporation approval, pass a valid corporate act di rectors’ meeting
s tock and tra nsfer book of the corporation is non-existent c) No, beca use the quorum requirement was not a) to s ell/dispose of i ts only property i n the usual d) for the holding of stockholders’ meeting anywhere
a s fa r as the corporation is concerned. As between the complied with cours e of its business i n the Philippines
corporation on one hand, and its shareholders and third d) Yes, because the vote required is only a majority b) to invest its corporate funds necessary to carry
pers ons on the other, the corporation l ooks only to its of those present at which there is a quorum. out the secondary purpose indicated in the 33. “A”, the President of X CO., INC. which is engaged in
books for the purpose of determining who its shareholders articles of incorporation (Sec. 41) the realty business, bought (in his personal and individual
a re. It i s only when the tra nsfer has been recorded in the 24. X CO., INC. paid A CO., INC. 10% of the property c) to declare property dividends capacity) from his friend a parcel of land for Php5M and
s tock and transfer book that a corporation may rightfully dividend declared by the Board of Directors of the former d) to rea cquire its own shares later sold it at Php5.5M thereby making a profit of
rega rd the transferee as one of its stockholders. From this pursuant and in consideration of messenger services Php.5M. May his act be validly ratified by the
ti me, the consequent obl igation on the pa rt of the actually rendered by the later. Is the payment valid? 29. A contract between corporations with interlocking stockholders at the objection of any one single
corporation to recognize such rights as it is mandated by a) Yes , because it is a valid contractual arrangement directors will be subject to the provisions of section 32 of stockholder?
l a w to recognize a rises. Hence, wi thout s uch recording, between the parties the Code (voidable) when: a) Yes , because he acted as a natural person separate
the tra nsferee may not be regarded by the corporation as b) No, because stockholders’ approval is required a) the i nterlocking di rector owns 20% of the a nd distinct of the corporation which he is the
one a mong i ts s tockholders a nd the corporation may for its validity. (Sec. 43) outs tanding capital stock in one corporation while Pres ident
l egally refuse the issuance of stock certificates[.] (Ponce v. c) No, because i t would res ult to a dilution of 18% i n the other b) No, because he a cquired a personal i nterest in
Al s ons Cement Corp., G.R. No. 139802, December 10, di vi dend rights of the stockholder b) the i nterlocking di rector owns 22% in one conflict with his duty a s a director
2002 a s ci ted i n Na utica Ca nning vs . Yumul, G.R. No. d) Yes , because l abor or s ervices a ctually rendered corporation while 25% in the other c) No, because he serves in a fiduciary position and
164588 October 19, 2005) ma y be paid by way of property c) the interlocking director owns 20% in one s hould not a dvance hi s s elfish motives to the
corporation while 22% in the other da mage and prejudice of the corporation
21. A stock corporation shall have the power to reacquire 25. All persons who assume to act as a corporation d) the i nterlocking di rector owns 22% i n both d) Yes, because he merely acquired a business
its own shares irrespective of the existence of knowing it without authority to do so shall be liable corporation opportunity rightfully belonging to the
unrestricted retained earnings: a) onl y to the extent of their s ubscription to the corporation (because it is not received in a
a) to el iminate fractional s hares arising out of stock ca pital s tock of the corporation. 30. A director who ceases to be a stockholder shall fiduciary capacity?)
di vi dends. b) onl y to the extent of the corporate assets. a) automatically cease to be a director (Sec. 22)
II. TRUE OR FALSE i ts elf, this mode of transfer is available only if no certificate provision, has the same right, power and authority to Rul e I, Sec. 1 (g) of the rules and regulations of Omnibus
of s tock has been issued. By a nalogy of the decision of the compel the corporation to register the transfer in the Investment Code defines "doing business" as one" which
1. Contracts between corporations with interlocking Hi gh Court in the said case, if a certificate of stock has been corporate books, in the same manner that the transferee i ncludes, inter alia:
directors are generally valid. – True i s sued a mere notarized deed will not suffice. It must be of a certificate of stock in a stock corporation may do so. 1. ... A foreign fi rm which does business through
coupled wi th endorsement a nd delivery of the s tock – True. mi ddlemen a cting on their own names, such as
“The preva iling vi ew i s tha t these contracts a re not certi ficate.” (P. 350, Ladia 2015) i ndentors, commercial brokers or commission
voi dable merely by reason of conflicting duties or interest Sa i d Section (Sec. 35 of Act 1459 now Sec. 62[now 62 of merchants, s hall not be deemed doing business in
a s to corporations represented, even when a majority or We ha ve uniformly held that for a valid transfer of stocks, the Revised Corporation Code]) of the Corporation Code) the Phi lippines. But s uch i ndentors, commercial
a l l of the directors a re common to both corporations. It is there must be strict compliance with the mode of transfer contemplates no restriction as to whom the stocks may be brokers or commission merchants s hall be the
recognized that such a contract will be upheld if there is pres cribed by law. The requirements are: (a) There must tra nsferred. It does not s uggest that a ny discrimination ones deemed to be doi ng bus iness in the
no ba d faith or unfairness or col lusion. Without such a be delivery of the stock certificate: (b) The certificate must ma y be created by the corporation in favor of, or against a Phi lippines.
rul e, contracts between a corporation and its subsidiaries be endorsed by the owner or his attorney-in-fact or other certa in purchaser. The owner of s hares, a s owner of 2. Appointing a representative or distributor who is
would usually be impossible.” (P. 207, Ladia 2015) pers ons legally authorized to make the transfer; and (c) To pers onal property, i s a t l i berty, under s aid s ection to domiciled i n the Phi lippines, unless said
be va l id a gainst thi rd pa rties, the tra nsfer must be di spose them i n favor of whomever he pleases, without representative or distributor has a n independent
2. In case of merger, the employees of the recorded i n the books of the corporation. As it is, l i mitation in this respect, than the general provisions of s ta tus, i.e., it transacts business in its name and for
absorbed/dissolved corporation are automatically compliance wi th a ny of these requisites has not been law x x x i ts account, and not in the name or for the account
absorbed by the absorbing/surviving corporation. – True cl early and sufficiently shown. (Rural Bank of Lipa City, Inc. of a pri ncipal. Thus, where a forei gn firm is
vs . CA, G.R. No. 124535 September 28, 2001) The only l imitation i mposed by Section 63(Now 62) of the represented by a person or l ocal company which
“It i s more in keeping with the dictates of social justice and Corporation Code i s when the corporation holds any does not a ct in its name but i n the name of the
the s tate policy of a ccording full protection to labor to 5. Absent any by-law provision authorizing the holding of unpaid cl a im a ga inst the s hares i ntended to be foreign fi rm the l atter i s doing business in the
deem employment contracts as automatically assumed by meetings of members in a nonstock corporation, tra nsferred, which is a bsent here. Phi lippines.
the s urviving corporation in a merger, even in the absence members’ meeting may nonetheless be held anywhere in
of express stipulation in the Articles of merger or merger the Philippines. – Fa lse. A corporation, either by i ts board, its by-laws, or the act of NOTE: Ca s e a pplicable i s Le Chemise La coste vs.
pl an” x x x However, nothing in the resolution shall impair i ts officers, cannot create restrictions in stock transfers, Fernandez, G.R. No. L-63796-97, May 2, 1984
the ri ght of the employer to terminate the employment of Stockholders’ or members’ meetings, whether regular or because:
the a bsorbed employees for a lawful or authorized cause s pecial, s hall be hel d i n the pri ncipal office of the . . . Res trictions in the traffic of stock must have their 10. All educational corporations can have a governing
or the ri ght of s uch employee to res ign, reti re, or corporation as set forth in the articles of incorporation, or, s ource in legislative enactment, as the corporation itself board consisting of not less than five but not more than
otherwise s ever his employment, whether before or after i f not pra cticable, i n the ci ty or municipality where the ca nnot create such impediment. By-laws are intended fifteen members. – Fa lse
the merger, s ubject to existing contractual obligations.” pri ncipal office of the corporation is located (Sec. 50) merely for the protection of the corporation, and
(P. 429, La dia 2015) pres cribe regulation, not restriction; they a re always The BOD/T or the governing board by a ny name of an
6. A corporation sole may dispose/sell its old van for s ubject to the cha rter of the corporation. The educational corporation i s s imilar i n number a s to any
3. A stockholder who issued no par value of shares below purposes of acquiring a new one without court corporation, i n the absence of s uch power, cannot other corporation except that in case i t is non-stock, the
their determined issue price as indicated in the articles of intervention. – Fa l se. ordi narily i nquire into or pass upon the l egality of the number must be i n multiples of 5. As compared to stock
incorporation is solidarily liable with the responsible tra nsactions by which its stock passes from one person corporations, their number may be within the vicinity of 5-
directors/officers for the water in the stocks. – True A corpora tion s ole may purchase and hold real estate and to a nother, nor can it question the consideration upon 15. (Educational Corporations, P. 469, La dia 2015)
pers onal property for its church, charitable, benevolent, or whi ch a sale is based. . . .
Sha res of capital s tock issued without par value shall be educational purposes, and may receive bequests or gifts Secti on 106. Board of trustees. – Trustees of educational
deemed fully paid a nd nonassessable a nd the holder of for s uch purposes. The ri ght of a tra nsferee/assignee to ha ve s tocks i nstitutions organized as nonstock corporations shall not
s uch shares s hall not be l iable to the corporation or to its tra nsferred to his name is an inherent right flowing from be l ess than fi ve (5) nor more than fi fteen (15): Provided,
credi tors i n respect thereto. (Sec. 6) Such corporation may s ell or mortgage real property held hi s ownership of the stocks. Thus: Tha t the number of trustees s hall be i n multiples of five
by i t by obtaining an order for tha t purpose from the Whenever a corporation refuses to transfer and register (5).
4. Pending issuance of a replacement certificate, the Regional Trial Court of the province where the property is s tock i n ca ses l ike the present, mandamus will lie to
owner of a lost or destroyed stock certificate may validly s i tuated upon proof that the notice of the application for compel the officers of the corporation to transfer said 11. As correctly ruled by the Supreme Court in Loyola
transfer his shares covered by the lost/destroyed one by l eave to s ell or mortga ge ha s been ma de through s tock i n the books of the corporation" (Rural Bank of Grand Villas v. CA, the Corporation Code does not
a mere notarized deed. – Fa lse. publication or as directed by the Court, and that it is in the Sa linas v CA, G.R. No. 96674, June 26, 1992) provide for the consequences of non-filing of by-laws
i nterest of the corporation that leave to sell or mortgage within the period provided thereat. – Fa lse.
“The SEC has, however, ruled that when a corporation has be gra nted. (Sec. 111) 9. The appointment of a distributor or representative in
a l ready issued stock certificates, any transfer of the shares the Philippines made by a foreign corporation necessarily Adoption of By-l aws i s part a nd parcel of organization.
ca n only be effectively made by endorsement and delivery 7. A contract of a self-dealing director is generally results to doing/transacting business in the country. – Fa ilure to organize and commence a transaction upon its
of the s tock certi ficate. A deed of tra nsfer, s a le or voidable at the option of the corporation. – True. Fa lse. exi stence (because a corporation, once issued a Certificate
a s signment alone would not suffice (as affirmed by the SC of Incorporation, has to do certa in overt a cts including
i n Rural Ba nk of Li pa Ci ty, Inc. vs . CA, G.R. No. 124535 A contra ct of the corporation with one (1) or more of its Under the Foreign Investment Act doing business would orga nization a nd commencement of tra nsaction), will
September 28, 2001) for to rule otherwise would open the di rectors, trustees, officers or their spouses and relatives i nclude a ppointing representatives or di stributor res ult to the a pplication section 21, a nd the COI of the
door to fra udulent or fi cti tious tra nsfer whi ch the SEC wi thin the fourth civil degree of consanguinity or affinity is domiciled i n the Phi lippines; Thus, the representative Corporation is automatically revoked the day a fter the 5
s eeks to avoid. voi dable, a t the option of such corporation x x x (Sec. 31) mus t be domiciled in the Philippines to be considered as yea r period provided by the law. Hence, it must adopt by-
doi ng business. (Sec. 3(d), RA 7042, a s a mended by RA l a ws within 5 years of i ncorporation.
In effect, while a formal contract of s ale i n a notarized 8. A transferee of shares of stock in a non-stock 8179)
document is equivalent to actual delivery of the certificate corporation, if they are transferable by virtue of a by-law
12. Foreigners, by constitutional provision, can never be Under the code the registered owner may file a bond or 21. Power and authority of corporation sole to own, Appa rent from the foregoing(Section 116, now 114 of the
allowed to sit and act as directors in any education other security as may be required, effective for a period of dispose, alienate real property is the same as in any other Revi sed Corporation Code) is that a religious society is not
corporation issuing certificate of completion in the one (1) year, for such amount and in such form and with corporation. – Fa l se. ma ndated by law to register as a corporation but may do
academic field. – Fa lse. s uch s ureties a s ma y be s a tisfactory to the boa rd of s o to acquire juridical personality a nd for the purpose of
di rectors, in which case a new certificate may be issued, Wi th regard to the right to own or a cquire it is the same, a dministration of i ts temporalities a nd properties and
Under the constitution it provides for the exception where pending issuance, the owner can then transfer such new but wi th regard to the ri ght to alienate and dispose real even to a cquire properties of i ts own. Thus, it has been
foreigners may s it a nd a ct as directors, that is i n case the certi ficate. property the corporation sole must ask an order from the hel d that an unincorporated religious association cannot
l earning institution is established by religious groups and court. a cquire pri va te a gricultural l a nds i n the Philippines.
mi ssion boards. 17. A dissolved corporation within three (3) year period (Register of Deeds vs . Ung Siu Temple, G.R. No. L-6776,
of liquidation, cannot transfer its remaining assets or 22. Trustee in a voting trust agreement can vote by proxy. Ma y 21, 1955 a s ci ted i n Ladia 2015)
13. Cumulative voting cannot in any way be exercised by property to a new corporation which will continue the – True
a member in a non-stock corporation. – Fa lse. business of the dissolved one. – Fa lse. 27. Appointment of exclusive dealer domiciled in the
The voting trustee or trustees may vote by proxy or in any Philippines by a foreign corporation does not necessarily
The code provides that i n nonstock each member shall be Juri sprudence provides that it is not unlawful for the old ma nner a uthorized under the byl aws unless the imply doing business. – Fa lse.
enti tled to one vote per member., meaning, as a general BOD to i ncorporate a nd tra nsfer the assets of a dissolved a greement provides otherwise. (Sec. 58.)
rul e, cumulative voting is not allowed, however the AoI or corporation to the new corporation i ntended to be Under the Foreign Investment Act (Sec. 3, d), “doing
by-l aws may l imit, broaden or deny voting ri ghts of the crea ted a s l ong a s the s tockholders ha ve gi ven their 23. All educational corporations must have a governing business” would i nclude: Appointing representatives or
members, s o if there is a provision in the by-law or AoI cons ent (Chung Ka Bio vs. IAC) board of only either five (5), ten (10, or fifteen (15) di stributor domiciled i n the Philippines. Thus, an exclusive
a l lowing the same they may a lso cumulate their votes. members. – Fa lse. dealer domiciled in the Philippine implies doing business.
18. Security/surety used by shareholders or corporation
The provi sions governing s tock corporations, when officer for corporation debts cannot be foreclosed by the Under the code, the rule is only applied in case of a non- 28. The dissolved constituent corporation in a merger
perti nent, shall be a pplicable to non-stock corporations, creditor since suspension of payment order is issued by s tock educational corporation, i n ca s e of a s tock should necessarily liquidate its corporate affairs. – False.
except as ma y be covered by s pecific provisions of this the proper forum. – True educational corporation the rule does not apply, it is only
Ti tl e. (Sec. 86) required that it be not more than 15, in the absence of a Beca use the di ssolved corporation ha s no assets,
19. A stockholder who has not paid his subscription in full provi sion governing non-stock corporation, the general properties, and rights to distribute; (2) it has no debts and
The s aid s tockholder may: (a) vote s uch number of shares cannot exercise appraisal right because he does not have provi sions s hall govern. l i abilities to pa y, s i nce a ll these a re tra nsferred to the
for a s many persons as there are directors to be elected; a stock certificate to surrender for notation that they are s urvi ving or consolidated corporation. So, there is nothing
(b) cumulate s aid s hares a nd give one (1) candidate as dissenting shares. – Fa l se. Trus tees of educational institutions organized as nonstock to l i quidate.
ma ny votes a s the number of di rectors to be elected corporations shall not be less than five (5) nor more than
mul tiplied by the number of the shares owned; or (c) Under the code holders of subscribed shares not fully paid fi fteen (15): Provided, That the number of trustees shall be 29. Non-filing of by-laws within the period of time
di stribute them on the s ame pri nciple a mong as many whi ch a re not delinquent s hall have a ll the ri ghts of a i n multiples of five (5). (Sec. 106) provided for by law results to the automatic dissolution
ca ndidates as may be seen fit x x x (Sec. 23) s tockholder. (Sec. 71) Also he is only derived the right to of corporation. – True.
be i ssued a certificate of s tock. 24. A director whose shares are declared delinquent does
14. Short sale is illegal if SEC has no rules and regulations not automatically cease to be a director. – True. Adoption of By-l aws i s part a nd parcel of organization.
relative thereto. – True 20. The averment of a foreign corporation’s capacity to Fa ilure to organize and commence a transaction upon its
sue is not necessary for it to gain access to our court if it No delinquent stock shall be voted for, be entitled to vote, exi stence (because a corporation, once issued a Certificate
No broker or dealer s hall use a ny fa cility of a securities is merely defending a suit filed against it. – True or be represented a t any s tockholder’s meeting, nor shall of Incorporation, has to do certa in overt a cts including
exchange to effect a short sale of any security unless (1) at the holder thereof be entitled to a ny of the rights of a orga nization a nd commencement of tra nsaction), will
a pri ce higher than the last sale or (2) at the price of the They a lso i nvoke the ruling i n Ma rshall-Wells Co. vs. Elser s tockholder except the ri ght to di vidends i n a ccordance res ult to the a pplication section 21, a nd the COI of the
s a le if and only i f that price is above the next preceding & Co., Inc. that no foreign corporation may be permitted wi th the provisions of this Code, until a nd unless payment Corporation is automatically revoked the day a fter the 5
di fferent sale price on such day. (Rule 24.2, SRC-IRR) to ma intain any s uit in the local courts unless it shall have i s ma de by the holder of s uch delinquent s tock for the yea r period provided by the law. Hence, it must adopt by-
the license required by the law, and the ruling in Atlantic a mount due on the subscription with accrued interest, and l a ws within 5 years of i ncorporation.
15. Appointment of local representative or distributor Mutual Ins. Co., Inc. vs . Cebu Stevedoring Co., Inc. that the costs and expenses of advertisement, i f any. (Sec. 70)
made by a foreign corporation does not necessarily imply "where ... the law denies to a foreign corporation the right 30. An educational institution can have nine (9)
doing business. – True to ma intain suit unless it has previously complied with a 25. By-laws of stock corporations may provide that members. – True.
certa in requirement, then such compliance or the fact that stockholder’s meeting may be held anywhere within the
Under the Foreign Investment Act doing business would the s uing corporation i s exempt therefrom, becomes a Philippines. – Fa l se. The mandates the number of trustees not the members of
i nclude a ppointing representatives or di stributor necessary a verment i n the complaint." We fail to see how a non-stock education i nstitution. Trustees of educational
domiciled i n the Phi lippines; Thus, the representative these doctrines can be a propos in the case at bar, since Stockholders’ or members’ meetings, whether regular or i nstitutions organized as nonstock corporations shall not
mus t be domiciled in the Philippines to be considered as the petitioner is not "maintaining any suit" but is merely s pecial, s hall be hel d i n the pri ncipal office of the be l ess than fi ve (5) nor more than fi fteen (15): Provided,
doi ng business. (Sec. 3(d), RA 7042, a s a mended by RA defending one against itself; i t did not file any complaint corporation as set forth in the articles of incorporation, or, Tha t the number of trustees s hall be i n multiples of five
8179) but onl y a corollary defensive petition to prohibit the i f not pra cticable, i n the ci ty or municipality where the (5). (Sec. 106)
l ower court from further proceeding with a suit that it had pri ncipal office of the corporation is located x x x (Sec. 50)
16. Pending issuance of replacement of lost or destroyed no jurisdiction to entertain. (Time, Inc. vs . Reyes, G.R. No. 31. In all cases, dissolution is followed by liquidation and
certificate, the owner or stockholder cannot transfer his L-28882 Ma y 31, 1971) 26. A religious society does not commence to have a winding up. – Fa lse.
shares covered by the lost or destroyed certificate. – juridical personality until the issuance of certificate of
Fa lse. registration/incorporation by the SEC. – True. Secti on 11 corporation whose term has expired may apply
for a revi val of i ts corporate existence, together with all
the ri ghts a nd pri vi leges under i ts certi ficate of rea son, compel the corporation to purchase shares held at Whi le adoption of the by-laws is a part and parcel of the
i ncorporation a nd s ubject to a ll of i ts duties, debts and 38. Any meeting of stockholders/members irregularly fa i r value, which shall not be less than the par or issued forma tion a nd organization of a corporation, a s SEC 18
l i abilities existing prior to i ts revival. held or called is necessarily without va l ue, when the corporation has s ufficient a ssets in its provi des “after the name of the corporation has been
force and effect. – Fa lse. books to cover its debts and liabilities exclusive of capital res erved i n favor of the incorporators, the incorporators
Upon approval by the Commission, the corporation shall s tock. s hall then submit their articles of incorporation and bylaws
be deemed revived and a certificate of revival of corporate Under the code as a general rule i t is i neffective. to the Commission.”
exi stence s hall be i ssued, gi ving i t perpetual existence, d. A dissolved corporation, and within the three-
unl ess its application for revival provides otherwise. EXCEPTION: upon concurrence of the following, then the year period of liquidation, may transfer all its In rel ation to SEC 21 whi ch provides that a corporation
res olution or act shall be valid per se because any defect properties/assets to a new corporation which will whi ch does not formally orga nize a nd commence its
NOTE: Al though there i s a l i quidation of the absorbed ha s been ratified: continue the business of the dissolved one. business wi thin fi ve (5) yea rs from the da te of its
corporations, there i s no wi nding up of their a ffairs or 1. Al l s tockholders or members a re present or duly i ncorporation, i ts certi ficate of i ncorporation s hall be
l i quidation of thei r a ssets beca use the s urviving represented; a nd Thi s i s beca use there i s nothing to prevent the deemed revoked as of the day following the end of the five
corporation a utomatically a cquires all their ri ghts, 2. Not one of them expressly s tates at the beginning s tockholders from conveying their res pective (5)-year period. Thus, there i s nothing i n the code that
pri vileges a nd powers a s well as l iabilities. (Associated of the meeting tha t the purpose of their s hareholdings toward the creation of a new corporation to s ta tes that i t automatically dissolves if not filed within the
Ba nk vs . Court of Appeals, G.R. No. 123793 June 29, 1998 a ttendance is to object to the tra nsaction of any conti nue the business of the old. ti me frame.
a s cited i n Ladia 2015 p. 427) business because the meeting is not lawfully called
or convened. Thus i t is not necessarily without Thi s is because winding up is the sole activity of a dissolved i. Labor performed or services rendered can be a
32. A corporation is close corporation if 2/3 of the voting force a nd effects. corporation that does not intend to incorporate a new. If consideration for stocks
rights is owned by another corporation. – Fa lse. i t does, however, i t i s not unlawful for the old BOD to
III. All of the following statements are correct. Explain: i ncorporate a nd tra nsfer the a ssets of a dissolved Beca use the code provides tha t consideration for the
Under the code a corporation shall not be deemed a close corporation to the new corporation i s suance of stock may be labor performed for or services
corporation when a t l east two-thirds (2/3) of i ts voting a. The instances when a stockholder cannot exercise a ctually rendered to the corporation.
s tock or voting ri ghts is owned or controlled by another his pre-emptive right in Sec. 39, even if it is not e. The Business Judgment Rule may not apply in
corporation which is not a cl ose corporation within the denied by a provision in the articles of cases of deadlocks in a close corporation. j. Minors can be corporators.
mea ning of this Code. incorporation, will not apply to a stock holder of
a close corporation. The business judgement rule does not a pply i n case of Beca use under the code i t is only the incorporators that is
33. Purchase of treasury shares is equivalent to dea dlocks, because i n the ca ses thereof the court can required to be of l egal age.
subscription. – Fa lse. Beca use i n the preemptive right of s tockholders in close i ntervene.
corporations shall extend to all stock to be issued, whether k. Members of the executive committee must be a
Under the code a Subscription Contract is any contract for for money, property or personal services, or in payment of Bus iness judgement rule says as l ong as the board acts in member of a board
the a cquisition of unissued stock in an existing corporation corporate debts, unless the a rticles of i ncorporation good faith the courts cannot intervene, but here thatis not
or a corporation still to be formed notwithstanding the provi de otherwise. the ca se, it ca n appoint a provisional director who is an Beca use if the bylaws so provide, the board may create an
fa ct that the parties refer to it as a purchase or some other extension of the court and he can cast the deciding vote to executive commi ttee composed of a t l east three (3)
contra ct. Treasury s hares are already issued stocks. Unl ike in ordinary stock corporation such preemptive right brea k the deadlock. That is a direct interference with the di rectors. Said committee may act, by majority vote of all
s hall not extend to shares issued in compliance with laws ma nagement of the corporation. i ts members, on s uch s pecific ma tters wi thin the
34. In amendment in by-laws, appraisal right is available. requiring stock offerings or minimum stock ownership by competence of the board, as may be delegated to it in the
– Fa l se. the public; or to s hares i ssued i n good faith wi th the f. Wash sale and match order are not illegal per se. byl a ws or by majority vote of the board.
a pproval of the s tockholders, i n exchange for property
Amendment of by-laws is not one of the instances when a needed for corporate purposes or i n pa yment of a Beca use wash s ale a nd matched order a re illegal only The phrase “within the competence of the board” implies
s tockholder can exercise his a ppraisal right. previ ously contracted debt. when us ed a s a means to crea te a fa lse or misleading tha t the member of the executive committee members
a ppearance of active trading in the security concerned. a re also member of the board.
35. Pre-emptive right is available to shares issued in b. Treasury shares have no voting and dividend
exchange for corporation property. – Fa lse. rights. g. If not denied by a provision in the articles of l. Adoption of By Laws prior incorporation is more
incorporation, the pre-emptive right of a convenient than after incorporation.
Under the code it provides that such preemptive right shall Beca use equal di stribution of voti ng powers among stockholder in a close corporation is absolute.
not extend to shares issued in good faith with the approval s tockholders will be effectively lost and the directors will Beca use the code only requires the signature only of the
of the s tockholders representing two-thirds (2/3) of the be a ble to perpetuate their control of the corporation, Beca use section 101 provides that the preemptive right of INCORPORATORS, on the other hand of i t is filed AFTER
outs tanding ca pital s tock, i n excha nge for property though it still represents a paid-for interest in the property s tockholders i n close corporations shall extend to all stock i ncorporation you need the signature and assent of all the
needed for corporate purposes or i n pa yment of a of the corporation. to be i s sued, i ncluding rei ssuance of trea sury shares, s tockholder, the latter is much
previ ously contracted debt. whether for money, property or personal s ervices, or in ha rder to do.
c. A stockholder of a close corporation may be paid pa yment of corporate debts, unl ess the a rti cles of
36. It is not the lack of the requisite license but doing the fair value of his shares for any reason even if i ncorporation provide otherwise. m. Service of summons against a corporation must
business without a license that bars a foreign corporation the corporation has no unrestricted retained not be made upon Branch Manager
from access to ours courts. – True. earnings. h. Failure of a corporation to adopt/file its by-laws
within the time frame provided for by law does Under the rules of court then, a branch manager are
37. In a corporate controversy, service of summons upon Beca use SEC. 104 provi des that i n addition and without not result to the automatic dissolution of the considered a gent whi ch a re competent to receive
a corporation is valid if made upon any of its prejudice to other rights and remedies available under this corporation. s ummons, but as the revised rules of court now provides,
directors/trustees. – True Ti tl e, any stockholder of a close corporation may, for any when the defendant is a corporation, service may be made
on the president, managing partner, general manager, s. Directors or Officers can be liable with the twothirds (2/3) of the entire membership of the bb. There is no distinction between subscription
corporate secretary, treasurer, or i n house counsel, this corporation. boa rd, with at l east a majority of the independent contract and contract of sale in so far as the
l i st is exclusive. di rectors voting to approve the material contract; “unissued stocks” of a corporation is concerned.
Beca use boa rd of di rectors exercises the corporate a nd
n. Treasury shares may be issued lower than par powers, conduct all business, and control all properties of (e) In ca s e of a n offi cer, the contract has been Beca use Subscription Contract is defined as Any contract
value the corporation. previ ously a uthorized by the board of directors. for the a cquisition of unissued s tock i n a n existing
corporation or a corporation s ti ll to be formed
The code provides that Treasury shares are shares of stock t. Cumulative voting is not allowed in a Non-Stock x. Acts of Interlocking directors are valid notwithstanding the fact that the parties refer to it as a
whi ch ha ve been i s sued a nd ful ly pa i d for, but Corporation purchase or some other contract.
s ubsequently rea cquired by the i s suing corporation Under the code, except in cases of fraud, and provided the
through purchase, redemption, donation, or some other Beca use in nonstock, each member shall be entitled to one contra ct is fair and reasonable under the circumstances, a Thus even i f they call it a contract of sale as long as the
l a wful means. Such shares may a gain be disposed of for a vote per member, meaning, as a general rule, cumulative contra ct between two (2) or more corporations having s ubject of the sale is unissued s tock i t i s a s ubscription
rea sonable price fixed by the board of directors. voti ng is not a llowed, however the AoI or by-laws may i nterlocking di rectors s hall not be i nvalidated on that contra ct.
l i mit, broaden or deny voting ri ghts of the members, so if ground alone.
o. Corporate extension may be made earlier than 5 there is a by-law or AoI allowing the same they may also cc. Being a member and a shareholder in a non-stock
years prior expiration cumulate their votes. y. Incorporators are not subject of any corporation are two different matters.
amendments.
Under the code a corporate term for a specific period may u. A corporation may acquire its own shares. Beca use as member one must comply wi th the requisites
be extended or s hortened by a mending the a rticles of Beca use matters which a re fait a ccompli or a re already provi ded for by the by-laws as determined by the board or
i ncorporation: Provided, That no extension may be made SEC. 40. Power to Acquire Own Shares. – Provided that the es tablished facts can no l onger be changed. trus tees, like for example financial ca pacity, while being a
ea rlier tha n three (3) yea rs pri or to the ori ginal or corporation has unrestricted retained earnings in its books s hareholder requires it only that the person must hold at
s ubsequent expiry da te(s) unl ess there a re justifiable to cover the shares to be purchased or acquired, a stock Incorporators a re those s tockholders or members l east one share in the corporation.
rea sons for a n earlier extension as may be determined by corporation shall have the power to purchase or acquire mentioned i n the a rticles of i ncorporation a s originally
the Commission. Thus, in the exercise of the discretion of i ts own s hares for a l egitimate corporate purpose or formi ng a nd composing the corporation a nd who are dd. The right of stockholders to compel the
the commission i t may a llow a nd earlier extension of 5 purposes. s i gnatories thereof. Thus, they a re established facts. corporation to pay the value of his shares is
yea rs prior to expiration. broader in a close corporation than in an ordinary
v. Disloyal act of a director may be subject to z. A corporation sole does not have the same right, stock corporation.
p. Demand may be waived in a Derivative Suit. ratification by a vote of stockholders owning or power, or authority to own, hold, convey, or
representing at least 2/3 of the outstanding transfer its property like any other corporation. Beca use the code s a ys a ny s tockholder of a close
Demand i s not required i f the company i s under the capital stock. corporation may, for any reason, compel the corporation
complete control of the directors who are the very ones to Sec 111, when it comes to acquisition or owning or buying to purchase shares held at fair value. While i n an ordinary
be s ued (or where it becomes obvious that a demand upon Under the code where a director, by vi rtue of such office, properties, YES, they have same right, power or privilege. s tock corporation a stockholder it can only be exercised on
them would have been futile a nd useless) s ince the law a cquires a business opportunity which should belong to But when i t comes to disposition or a lienation of real the grounds of the exercise of appraisal ri ghts.
does not require a litigant to perform useless acts. the corporation, thereby obtaining profits to the prejudice properties, i t requires a pri or court order, i t goes on
of s uch corporation, the director must a ccount for and s a ying, unless the rules, regulations, and discipline provide ee. In cases of dead lock in a close corporation, the
q. Corporations persists to exist despite death, refund to the latter all such profits, unless the act has been or regulate the mode or ma nner for the disposition or courts can interfere in the management of
incapacity, civil interdiction or withdrawal of ra ti fied by a vote of the s tockholders owning or a l ienation, if there is such rules, regulations and discipline, corporate affairs.
stockholders or members representing at least two-thirds (2/3) of the outstanding the i ntervention of the courts s hall not be necessary.
ca pital s tock. Beca use the court ca n a ppoint a provisional director who
A corporation is an artificial being created by operation of Note tha t this court orders a re only required for the i s an extension of the court and he can cast the deciding
l a w, ha ving the ri ght of s uccession a nd the powers, w. Acts of self-dealing director is merely voidable di sposition or alienation, meaning it i ncludes mortgaged vote to break the deadlock. That is a direct interference
a ttri butes, and properties expressly authorized by law or of REAL properties. wi th the management of the corporation.
i ncidental to i ts existence. Beca use under the code a contract of the corporation with
(1) one or more of its directors, trustees, officers or their aa. Stockholder who executed a Voting Trust ff. Subscriptions to shares of stock of a corporation
Thus, it has the attribute of succession it persists to exist s pouses a nd relatives wi thin the fourth ci vil degree of Agreement cannot transfer his beneficial are indivisible.
despite the death, ci vil i nterdiction or i ncapacity of the consanguinity or a ffinity is voidable, at the option of such ownership of the shares covered by the
i ndividuals or persons composing it. corporation, unl ess a l l the fol lowing conditions are agreement by a mere notarized deed. Beca use when a subscriber pays the shares he subscribed
present: to, the payment is applied to the whole of the subscribed
r. Third-person can be bound by the By Laws of a (a) The presence of s uch di rector or trus tee in the The trustee or trustees s hall execute a nd deliver to the s hares, such that if he subscribed to 1M shares at 1 peso
Corporation. boa rd meeting in which the contract was approved tra nsferors, voti ng trus t certi ficates, whi ch s hall be per s hare a nd only paid 500T, the 500T wi ll paid to the
wa s not necessary to constitute a quorum for such tra nsferable in the same manner and with the same effect whole 1M shares, in which case, it is as if he has not yet
Juri sprudence has held that being a third person, acting in meeting; a s certi ficates of s tock. Thus , a s a general rule owned a s i ngle s hares beca use the s ubscription is
good fa i th a nd wi thout a ny a ctual or constructive (b) The vote of s uch di rector or trus tee was not endorsement and delivery of the voting trust certificate is i ndivisible.
knowledge of the by law provision is therefore not bound necessary for the approval of the contract; necessary to tra nsfer the beneficial owner ship.
by i t. On the reverse if Third persons who have actual or (c) The contra ct i s fa ir a nd reasonable under the gg. Certificate of Stocks are merely quasi-negotiable
cons tructive knowledge of the byl aw exi stence and ci rcumstances; Juri sprudence provides that transfer by a notarized deed and non-negotiable.
contents. They will be bound by it. (d) In ca se of corporations vested with public interest, ca n only be done if the certificate of stock is not yet issued.
ma terial contra cts a re a pproved by at least
Qua si-negotiable i n tha t they ma y be tra nsferred by 3. By a ppointment of a receiver. If a receiver is H. Three (3) requisites before a foreign corporation
endorsement coupled by delivery, but non-negotiable, in VI. Enumeration a ppointed, the 3-year period fixed by law within licensed to do business in the Philippines may validly
the s ense, tha t the holder thereof ta kes i t without whi ch to complete the task of liquidation will not withdraw its license.
prejudice to a ll the ri ghts or defenses which the true or A. Instances when a director/officer may be held l i kewise apply because the dissolved corporation is a. Al l cl aims which have a ccrued i n the Philippines
l a wful owner may have, except in s o far as the rules on personally and/or solidarily liable even if they may have s ubstituted by the receiver who ma y sue or be ha ve been paid, compromised or settled;
es toppel may apply. acted for and in behalf of the corporation s ued even after that period. b. Al l ta xes, i mposts, assessments, a nd penalties, if
a ny, l awfully due to the Philippine Government or
hh. Director/stockholder whose shares are declared Under the code Directors or trustees who: D. General requisites for valid stockholder’s meeting. a ny of i ts a gencies or political subdivisions, have
delinquent is not automatically disqualified as a 1. wi llfully a nd knowingly vote for or assent to been paid; and
director. pa tently unlawful acts of the corporation; or 1. It must be held on the date fixed in the bylaws or c. The petition for wi thdrawal of l icense has been
2. who a re guilty of gross negligence or bad faith in i n a ccordance with law; published once a week for three (3) consecutive
NO, hi s shares shall still remain in his name in the books of di recting the affairs of the corporation; or 2. Pri or notice must be given; weeks in a newspaper of general circulation in the
corporation and until and unless all his shares are taken by 3. a cquire a ny pers onal or pecuniary i nterest in 3. It must be held a t a proper place; Phi lippines.
a wi nning bidder, he is still a stockholder of his shares. conflict wi th their duty a s s uch di rectors or 4. It must be called by the proper party; a nd
trus tees shall be liable jointly and severally for all 5. Quorum and voting requirement must be met. I. Three (3) methods of dissolution.
And even if his shares are bidded out in a delinquency sale, da mages res ulting therefrom s uffered by the 1. Expi ration of i ts corporate term;
s ome s hares will remain i n his name. Unless of course, in corporation, i ts s tockholders or members and E. Instances when a foreign corporation with no license 2. Vol untary s urrender of i ts pri mary franchise
the next s ubsequent election he is not elected. other persons. to do business in the Philippines can sue. (vol untary dissolution); and
3. The revoca tion of i ts corpora te franchise
IV. Define the following and state whether they are B. Effects of a merger/consolidation. a. If the a ct or tra nsaction i nvolved is an “isolated (i nvoluntary dissolution)
illegal per se or when they become illegal. tra nsaction” or the corporation is not seeking to
1. There wi ll only be one s ingle corporation. In a enforce any legal or contractual rights arising from, J. Three (3) methods of voluntary dissolution.
a. Wash Sale – a ny tra nsaction i n a s ecurity which merger, the absorbing or surviving corporation and or growi ng out of, a ny bus iness which it has 1. Vol untary Di ssolution where no credi tors are
i nvolves no change i n the beneficial ownership i n consolidation, the consolidated corporation. tra nsacted in the Philippines (Western Equipment a ffected (Sec. 134);
thereof. 2. There wi l l be a termi nation of the corporate Supply vs . Reyes) 2. Vol untary Dissolution where creditors are affected
exi stence of a constituent corporation, except the b. If the purpose of the s ui t i s to protect its (Sec. 135);
b. Matched Order – a n order or orders for the s urvi ving and the consolidated corporation. tra demark, tra de na me, corpora te name, 3. Shortening of corporate term (Sec. 136).
purchase or s ale of s ecurity wi th the knowledge 3. The s urviving or the consolidated corporation shall reputation or goodwill; (Western Equipment
tha t a s i multaneous order or orders of possess a ll the ri ghts, privileges, immunities, and Supply vs . Reyes) K. Three (3) tests in order to distinguish a voting trust
s ubstantially the same size, time a nd price for the powers and shall be subjected to all the duties and c. Or where it is based on a violation of the Revised agreement from proxies and other voting pools and
s a le or purchase of s uch s ecurity has, or will be l i abilities of a corporation organized under the Penal Code (Le Chemise La coste, SA vs. agreements.
entered by or for the same or different parties. provi sion of the Code; Fernandez);
4. The s urviving or the consolidated corporation shall d. Or merely defending a s uit filed a gainst it (Time, L. Defenses available to directors for their failure or
c. Short Sale – s a le of s ecurities which the vendor possess a ll the ri ghts, privileges, immunities and Inc. vs . Reyes) refusal to declare dividends.
does not own fra nchises of each constituent corporation; and all e. Or where a party i s estopped to challenge the
properties, receivables a nd every i nterests pers onality of the corporation by entering into a Stock corporations are prohibited from retaining surplus
V. Determine whether the following statements are bel onging to, or due to the constituents shall be contra ct wi th i t (Communications Ma terials and profi ts in excess of one hundred percent (100%) of their
correct/incorrect. tra nsferred to a nd vested i n s uch s urviving or Design, Inc. vs . CA a nd ITEC) pa id-in capital stock, except: (a) when justified by definite
cons olidated corporation “without further act or corporate expansion projects or programs a pproved by
Shares of stock may be validly and effectively transferred deed” F. Four (4) instances when the purchaser of all or the boa rd of di rectors; or (b) when the corporation is
by: 5. The s urviving or consolidated corporation shall be substantially all of the corporate assets or properties prohibited under a ny l oan a greement wi th financial
a. A dul y nota rized deed of tra nsfer wi thout res ponsible for a ll the liabilities and obligations of may be held liable for the debts and liabilities of the i nstitutions or credi tors, whether l ocal or foreign, from
endorsement and delivery of the stock certificate ea ch cons tituent corporation a s though such selling corporation. declaring di vi dends wi thout their consent, a nd such
whi ch had earlier been issued. INCORRECT s urvi ving or cons olidated corporation had itself cons ent has not yet been secured; or (c) when it can be
b. Endorsement of the s tock certificate coupled with i ncurred such liabilities or obligations; 1. Where the purchaser expressly or impliedly agrees cl early s hown that s uch retention i s necessary under
delivery to the transferee. CORRECT to a ssume such debts; s pecial circumstances obtaining in the corporation, such as
c. A mere notarized deed if no certificate of stock has C. Three (3) methods of liquidation and their effects on 2. Where the transaction amounts to a consolidation when there i s need for s pecial res erve for probable
been issued. CORRECT the three (3) year period to liquidate the corporate or merger of the corporations; conti ngencies. (Sec. 42)
d. A dul y notarized deed coupled with the delivery of affairs. 3. Where the purchasing corporation i s merely a
the a lready issued stock certificate. INCORRECT conti nuation of the selling corporation; and M. Exceptions to the inherent right to vote.
e. Endorsement coupled wi th the delivery of the 1. By the corporation itself through the BOD. If this 4. Where the transaction is entered into fraudulently
s tock certificate even wi thout a notarized deed. method is resorted to, the board will only have a i n order to escape liability for such debts. 1. Sha res of stocks declared delinquent
CORRECT peri od of 3 years to finish its task of liquidation. 2. Preferred shares or redeemable shares deprived of
f. Even i f wi thout endorsement a nd/or delivery of 2. By a trus tee appointed by the corporation. If this G. Three (3) possible remedies available to a cash voti ng right
the i ssued stock certificate if the person sought to method i s used, the three-year period limitation strapped corporation seeking to suspend payment of its
be a s tockholder is a n officer of the corporation i mposed by the code will not apply provided the obligation. N. Considerations for the issuance of stock.
a nd has custody of the books of the corporation. designation of the trus tee i s ma de within that
CORRECT. peri od. 1. Actua l cash paid to the corporation;
2. Property, tangible or i ntangible, actually received 5. When he fails to submit the stock certificate within for whi ch the s ame was s old, with i nterest from
by the corporation and necessary or convenient for T. Elements of a valid by-laws. ten (10) da ys from demand to the corporation for the date of the sale at the legal ra te; a nd
i ts use and lawful purposesat a fair valuation equal nota tion that s uch s hares a re dissenting shares, 2. The a ction shall be commenced by the filing of a
to the par or issued value of the stock issued; 1. It mus t not be contrary to l aw, public policy, or note: a t the option of the corporation (sec 85); complaint within six months from the date of the
3. La bor performed for or services actually rendered mora ls; a nd, s a le.
to the corporation; 2. It mus t not be i nconsistent with the a rticles of 6. If the s ha res a re tra nsferred a nd the certificate
4. Previ ously i ncurred i ndebtedness of the i ncorporation; s ubsequently cancelled. (sec 85) BB. Requisites for a valid transfer of stocks.
corporation; 3. It mus t be general a nd uniform i n i ts effect or
5. Amounts tra nsferred from unrestricted retained a pplicable to all alike or those similarly situated; X. Cases covered by the original and exclusive jurisdiction 1. Endorsement; and
ea rnings to stated capital; 4. It mus t not i mpair obligations and contracts or of the Special Commercial Courts. 2. Delivery
6. Outs tanding s hares exchanged for s tocks in the ves ted ri ghts; and
event of reclassification or conversion; 5. It must be reasonable. 1. ca s es involving devices or schemes employed by or CC. Requirements for the amendment of the Articles of
7. Sha res of stock i n another corporation; and/or a ny a cts of the boa rd of di rectors, business Incorporation.
8. Other generally a ccepted form of consideration. U. Persons who may call for a corporate meeting. a s sociates, i ts officers or pa rtners, a mounting to
fra ud a nd mi s representation whi ch may be 1. Res olution by at l east a majority of the board of
O. Reasons why registration of a corporation is a. The person or persons a uthorized under the by- detri mental to the interest of the public and/or of di rectors or trustees.
necessary. l a ws; the s tockholder, pa rtners, members of 2. Vote or wri tten a ssent of the s tockholders
b. Abs ent a ny provision i n the by-laws, it may be a s sociations or orga nizations registered with the representing at least 2/3 of the outstanding capital
P. Instances when watered stock may be issued. ca l led by the President; SEC 53 SEC. s tock or 2/3 of the members in case of non-stock
c. By the s ecretary on order of the president or on 2. Intra -corporate controversies i nclude those of corporation.
1. For a monetary consideration l ess than its par or wri tten demand of the s tockholders representing corporations, partnerships and associations. 3. Submission and filing of the amendments with the
i s sued value; a t l east a majority of the outstanding capital stock 3. To hear and decide cases involving controversies in SEC
2. For a consideration i n property, ta ngible or or ma jority of the members entitled to vote, or the the election or a ppointment of directors, trustees,
i ntangible, valued in excess of its fair market value; s tockholder or member ma king the demand if offi cers or managers of corporations, partnerships DD. Requirements for the amendment of the By Laws.
3. Gra tuitously or under an agreement that nothing there is no secretary or he refuses to do so, under or a s sociations.
s hall be paid a t all; or SEC. 27; a nd 4. Peti tions for s uspension of pa yments of 1. If there i s no delegation to the BoD for the
4. In the guise of stock dividends when there are no d. A s tockholder as empowered by the proper forum corporations, pa rtnerships or a ssociations, and a mendment. By a majority vote of:
s urplus profits of the corporation. purs uant to SEC. 49. a ppointment of recei vership, management a. the board of directors or trustees, AND (not
committee, board or body. OR)
Q. Instances when a stockholder cannot avail of its voting V. Instances when appraisal right may be exercised. b. the owners of a t l east a ma jority of the
rights. Y. Requisites for intra-corporate disputes to exist. outs tanding ca pi tal s tock, or a t l east a
a. In ca s e a n a mendment to the a rti cles of ma jority of the members of a nonstock
1. Sha res of stocks declared delinquent i ncorporation ha s the effect of cha nging or 1. An i ntra-corporate relationship: corporation a t a regular or s pecial meeting
2. Preferred shares or redeemable shares deprived of res tricting the ri ghts of a ny stockholder or class of a. Between a nd a mong the s tockholders, dul y called for the purpose.
voti ng right s hares, or of a uthorizing preferences i n any members, a s sociates of a corporation, 2. If there i s del egation to the BOD for the
res pect s uperior to those of outstanding shares of pa rtnership or association; a mendment By the board of directors or trustees,
R. Reasons for the prohibition on the issuance of a a ny class, or of extending or shortening the term of b. Between them a nd the corporation, when the power to amend or repeal the bylaws or
watered stock. corporate existence; pa rtnership or association; or a dopt new bylaws are delegated to them by a vote
b. In ca s e of s a le, l ease, exchange, tra nsfer, c. Between the corporation, pa rtnership or of the owners of two-thirds (2/3) of the
1. The corporation is deprived of i ts ca pital thereby mortga ge, pledge or other disposition of all or a s sociation and the State. outs tanding capital stock or two-thirds (2/3) of the
hurti ng its business prospects, financial capability s ubstantially a ll of the corporate property and 2. The controversy must arise out of said relationship members in a nonstock corporation.
a nd a s sets as provided in this Code;
1. res ponsibility; c. In ca se of merger or consolidation; a nd Z. Requisites before a management committee, board, or EE. Relationships pertained in an intra-corporate
2. Stockholders who paid their subscriptionsin full, or d. In ca se of investment of corporate funds for any body may be appointed. controversy.
promised to pa y the s a me, a re i njured and purpose other than the pri mary purpose of the
prejudiced corporation. 1. The bylaws provide the creation of a comittee a. Between and among the stockholders, members,
3. by the reduction of their proportionate interest in 2. composed of at least three (3) directors a s sociates of a corporation, pa rtnership or
the corporation; a nd W. Instances when the right of a dissenting stockholder 3. Sa i d committee a cts on s uch s pecific ma tters a s sociation;
4. Pres ent a nd future creditors a re deprived of to be paid the fair market value of his shares ceases. wi thin the competence of the board, as may be b. Between them and the corporation, partnership or
corporate a s sets for the protection of their delegated to it in the bylaws or by majority vote of a s sociation; or
i nterest. 1. When he withdraws his demand for payment and the board c. Between the corporation, pa rtnership or
the corporation consents thereto; a s sociation and the State
S. Instances when call/demand on the payment of the 2. When the proposed a cti on i s a ba ndoned or AA. Requisites before a stockholder may validly institute
unpaid subscription is unnecessary. res cinded by the corporation; an action to question the validity of the sale of his FF. Remedies available to the corporation to enforce
3. When the proposed action is disapproved by the delinquent stocks. payment of unpaid subscription.
1. The contract of s ubscription provides for a date or SEC where such a pproval is necessary;
da tes when payment is due; or 4. When the SEC determines that he is not entitled to 1. The party seeking to maintain such action first pays 1. By boa rd action (in accordance with SEC. 66 to 68);
2. The corporation has become insolvent. exercise his appraisal ri ght; or tenders to the party holding the stock the sum 2. By a col lection case in court (SEC. 69).
1. Wa s created for the purpose of committing, b. Adoption and a mendment of bylaws; RR. What constitutes “doing business” under the foreign
GG. Remedies of a stockholder who is denied inspection concealing or a i ding the commission of c. Sa le, lease, exchange, mortgage, pledge, or other investment act?
of corporate books. s ecurities vi olations, smuggling, tax evasion, di sposition of a l l or s ubstantially a l l of the
money l a undering, or gra ft a nd corrupt corporate property; 1. Sol iciting orders, service contracts;
1. Fi ling of Ma ndamus pra ctices; d. Incurring, crea ting, or i ncreasing bonded 2. Opening offices, whether called “liason offices” or
2. Da mages either a gainst the corporation or the 2. Commi tted or a i ded i n the commission of i ndebtedness; bra nches;
res ponsible officer who refused the i nspection s ecurities vi olations, smuggling, tax evasion, e. Increase or decrease of a uthorized capital stock; 3. Appointing representatives or di stributor
3. Cri mi nal complaint for vi olation of his ri ght to money l a undering, or gra ft a nd corrupt f. Merger or consolidation of the corporation with domiciled in the Philippines or who in any calendar
i nspect a nd copy excerpts of a ll business pra ctices, a nd its stockholders knew; and a nother corporation or other corporations; yea r s tay i n the country for a period or periods
tra nsactions and minutes of meetings. 3. Repeatedly a nd knowingly tol erated the g. Investment of corporate funds i n another tota lling 180 days or more;
commission of graft and corrupt practices or corporation or bus iness i n a ccordance wi th this 4. Pa rti cipating i n the ma nagement, s upervision or
HH. Grounds for the revocation of license to do business other fra udulent or i l legal a cts by its Code; a nd control of a ny domestic business, fi rm, entity or
of a foreign corporation. di rectors, trustees, officers, or employees. h. Di ssolution of the corporation. corporation in the Philippines;
5. Any other a ct tha t i mply a conti nuity of
a. Fa ilure to file its annual report or pay any fees as JJ. Distribution of assets upon dissolution. PP. What are the advantages of a corporate form of commercial dealings or a rra ngements, and
required by this Code; business? contemplate to that extent the performance of
b. Fa ilure to appoint and maintain a resident agent in 1. Di stributed to the said stockholders in a ccordance a cts or works, or the exercise of functions normally
the Philippines as required by this Title; wi th thei r proportionate i nterest in the 1. Ca pa city to act as a single unit; i ncident to a nd in progressive pros ecution of
c. Fa ilure, a fter cha nge of i ts res ident a gent or corporation or their contracts of subscription. 2. Li mi ted s hareholder’s liability; commercial gain or of the purpose and object of
a ddress, to submit to the Commission a statement 2. It mus t herein be remembered that holders of 3. Conti nuity i n existence; the business organization.
of s uch change as required by this Title; preferred shares may be granted certain rights or 4. Feasibility of greater undertaking;
d. Fa ilure to s ubmit to the Commission an pri vileges upon dissolution of the corporation. 5. Tra nsferability of shares; V. ESSAY
a uthenticated copy of a ny a mendment to its 6. Centralized management; a nd
a rti cles of incorporation or bylaws or of any articles KK. Instrumentality Test 7. Sta ndardized method of organization, 1. When is a corporation required to have at least two
of merger or cons olidation wi thin the time ma nagement and finance independent directors?
pres cribed by this Title; LL. Modes of increasing capital stock.
e. A mi srepresentation of a ny material matter in any QQ. What are the disadvantages of a corporate form of Under the code Corporations vested with public interest
a pplication, report, a ffidavit or other document 1. Increase the par va lue of the existing number of business? s hall ha ve i ndependent di rectors constituting at least
s ubmitted by s uch corporation pursuant to this s hares without increasing the number of shares; twenty percent (20%) of s uch board; i .e. corporations
Ti tl e; 2. Increase the number of existing s hares without 1. To ha ve va lid a nd binding corporate a ct, formal l i sted wi th a n exchange or wi th a ssets of a t l east Fifty
f. Fa ilure to pa y a ny a nd a l l ta xes, i mposts, i ncreasing the par value thereof; proceedings, such as board meetings are required. mi llion pesos (P50,000,000.00) a nd having two hundred
a s sessments or penalties, i f a ny, l awfully due to 3. Increasing the number of shares and at the same 2. The business tra nsactions of a corporation is (200) or more holders of s hares, each holding at least one
the Philippine Government or any of its agencies or ti me increasing the par value of the shares l i mited to the State of i ts i ncorporation and may hundred (100) shares of a class of its equity shares; or in
pol itical s ubdivisions; not a ct a s s uch corporation i n other jurisdiction ba nks and quasi-banks, NSSLAs, pawnshops, corporations
g. Tra nsacting business in the Philippines outside of MM. Reasons for decreasing capital stock unl ess it has obtained a license or authority from engaged in money s ervice business, pre-need, trust and
the purpose or purposes for whi ch such the foreign s tate. i nsurance companies, and other financial intermediaries
corporation is authorized under i ts license; 1. To reduce or wi pe out existing deficit where no 3. The shareholders’ limited liability tends to limit the
h. Tra nsacting business i n the Philippines as agent of credi tors would thereby by affected; credi t available to the corporation as a separate 2. When will the Grandfather Rule be applied for
or a cti ng on behalf of a ny foreign corporation or 2. When the capital is more than what is necessary to l egal entity. purposes of determining compliance with our
enti ty not dul y l i censed to do bus iness in the procreate the bus iness or re duction of capital 4. By the very na ture of s hares of s tock which are nationalization laws instead of the Control Test?
Phi lippines; or s urplus; pers onal properties, tra nsferable a t will by the
i. Any other ground a s would render i t unfit to 3. To wri te down the value of its fixed assets to reflect owners thereof, transfers of s hare may result to Juri sprudence provides that the grand fa ther rule will
tra nsact business in the Philippines. thei r present a ctual value i n case where there is a uni ting incompatible and conflicting i nterests. a pply as an exception to the exception that in case of war
decline i n the va lue of the fi xed a ssets of the 5. The minority shareholders have practically no say the control test will apply, in case of war and there is doubt
II. Grounds for involuntary dissolution. corporation. i n the conduct of corporate affairs. a s to who controls the corporation, the grandfather rule
6. In l a rge s cale enterprises, s tockholders‟ voting wi ll be applied.
a. Non-use of corporate charter a s provided under NN. Types of dividends. ri ghts ma y become merely fi cti tious and
Secti on 21 of this Code; theoretical because of disinterest in management, 3. What is “material non-public info” so as to bar the
b. Conti nuous i n-operation of a corporation as a. Ca s h wi de-scale ownership a nd i naccessible place of possessor thereof from trading in a particular security.
provi ded under Section 21 of this Code; b. Property, a nd meeting.
c. Upon receipt of a lawful court order dissolving the c. Stock 7. Double ta xation may be i mposed on corporate Ma terial non-public i nformation those that has not been
corporation; i ncome. generally disclosed to the public and:
d. Upon fi nding by fi nal judgment that the OO. When can holders of non-voting shares participate in 8. Corporations a re s ubject to governmental 1. would likely a ffect the market price of the security
corporation procured i ts i ncorporation through voting? regulations s upervision a nd control including a fter being disseminated to the public and the
fra ud; s ubmission of reportorial requirements not l a pse of a reasonable time for the market to absorb
e. Upon fi nding by fi nal judgment that the Holders of nonvoting shares shall nevertheless be otherwise i mposed in other business form. the i nformation; or
corporation: entitled to vote on the following matters: 2. would be considered by a rea sonable person
a. Amendment of the articles of i ncorporation; i mportant under the circumstances in determining
hi s course of a ction whether to buy, s ell or hold a formed or orga nized for pol itical or governmental there is a by-law or AoI allowing the same they may also
s ecurity. purposes wi th political powers to be exercised for However, the TRUE TEST seems to be whether the foreign cumulate their votes.
purposes connected wi th the public good i n the corporation i s continuing the body or s ubstance of the
4. What is the test in determining whether or not a a dministration of the ci vil government. business or enterprise for whi ch i t wa s organized or Li kewise, proxy voting is a matter of right granted by law
corporation has the implied power to do a certain act? whether it has substantially retired from i t and turned it to s tock corporation, whereas proxy voting may be denied
9. What constitutes “not doing business” under the over to a nother. by the Arti cles or by l aws, because a gain of that provision
Whether the a ct i n question is i n direct a nd immediate foreign investments act? M- the ri ght to vote of a member maybe broaden, denied or
furtherance of the corporation’s business, fairly incidental The term implies a continuity of commercial dealings and l i mited by a provision in the article of incorporation or the
to the express powers and reasonably necessary to their a. Mere i nvestment a s s hareholder a nd exercise of a rra ngements a nd contemplates, to the extent, the by-l aws.
exercise, then the corporation may do i t, otherwise it is ri ghts as investor; performance of a cts or works or the exercise of some
beyond the scope of their authority. b. Ha vi ng a nominee director or officer to represent functions normally i nci dent to a nd i n progressive If not denied, however, they can also vote by proxy. And
i ts interest in the corporation; pros ecution of, the purpose and objects of its organization jus t l i ke a s tock corporation the by-laws of a nonstock
5. What is the limitation imposed by law on the right of a c. Appointing a representative or di stributor which corporation, ma y a uthorize voti ng through remote
corporation to decrease its capital stock? tra nsacts business i n its own name a nd for its own 12. What is appraisal rights? communication or in a bsentia.
a ccount;
TRUST FUND DOCTRINE, the subscriptions to capital stock d. The publication of a general a dvertisement Appraisal ri ght is a ri ght granted to dissenting stockholder 15. Distinguish a close corporation from an ordinary
of the corporation constitute a fund which the creditors through any print or broadcast media; to a certain corporate act and demand the payment of the stock corporation.
ha ve a ri ght to l ook up for the satisfaction of their claims. e. Ma i ntaining a s tock of goods in the PH solely for fa i r market value of the s hare.
Accordi ngly, i f the decrease would a ffect the rights of the purpose of ha ving the s ame processed by CLOSE CORPORATION
STOCK CORPORATION
credi tors, the same would not be approved by the SEC. a nother entity in the PH; NOTE: Appra isal Right is the ri ght to withdraw from the ORDINARY
f. Cons ignment by a foreign entity of equipment with corporation and demand payment of the fair va lue of the As to # of SH
6. What is a close corporation? a l ocal company to be used i n the processing of s hares a fter di ssenting from certa in corporate acts The number of
products for export; i nvolving fundamental cha nges i n corporate s tructure s tockholders cannot No l i mitation
A cl ose corporation is one whose articles of i ncorporation g. Col l ecting information in the Philippines; (Sec. 81). exceed 20
provi des that: h. Performing services auxiliary to an existing isolated As to #of directors
a. a l l the corporation’s issued s tock of all classes, contra ct of sale which a re not on a continuing The a mount paid to the stockholder is the fair value of his To the extent that all
excl usive of treasury shares, shall be held of record ba sis, s uch a s i nstalling i n the Philippines s hares as of the day prior to the date on which the vote s tockholders can be
by not more than a s pecified number of persons, ma chinery it has manufactured or exported to the wa s ta ken, excluding any appreciation or depreciation in deemed di rectors, the Ma xi mum number of
not exceeding twenty (20); Phi lippines, servicing the same, training domestic a nticipation of the corporate action (Sec. 82). number of directors can di rectors is 15
b. a l l the issued stock of all classes shall be subject to workers to operate i t, a nd s i milar i ncidental effectively be more than
one or more s pe cified restrictions on transfer s ervices. 13. Explain the effects of delinquency vis-à-vis the right 15
permitted by this Title; and of stockholder. As to restriction in stocks
c. the corporation shall not list in any stock exchange 10. What is the business judgment rule? Sha res of s tock are
or ma ke a ny public offering of i ts s tocks of any General Rule: where shares are declared delinquent, the Generally, no restriction
s ubject to s pecified
cl a ss. The business judgment rule s tates tha t i f the board of s tockholder loses the following ri ghts: on tra nsfer of shares
res trictions
di rectors of a corporation ha s a cted i n good fa ith, the 1. To vote or be voted upon;
As to l isting in stockexchange or sale in public
7. What is the true test in determining whether a foreign courts will not intervene with the management or affairs 2. Representation at any s tockholder's meeting; or
Sha res of s tock are
corporation is doing business in the Philippines? of the corporation. 3. Any other rights of a stockholder.
prohibited from being
Juri sprudence provides that the true test is whether the NOTE: Questions of policy or management are left solely EXCEPTION: Delinquent s tocks are entitled to the right to l i sted i n the s tock No prohibition
exchange or offered for
foreign corporation is continuing the body or substance of to the honest decision of offi cers a nd di rectors of a di vi dends as provided for in the code.
s a le to the public
the business or enterprise for which it was organized or corporation a nd the courts a re wi thout a uthority to
As to ma nagement of the corporation
whether it has substantially retired from i t and turned it s ubstitute their judgment for the judgment of the board of 14. Distinguish between the voting rights of stockholders
over to a nother. di rectors; the board i s the business ma nager of the in a stock corporation and the voting rights of members Stockholders ma y take
corporation a nd s o long as i t a cts i n good faith, i ts orders in a non-stock corporation. a n a cti ve pa rt in
The term implies a continuity of commercial dealings and a re not reviewable by the courts or the SEC. (Montelibano corporate management Ma nagement is lodged in
a rra ngements a nd contemplates, to the extent, the v. Ba colod-Murica Milling Co., G.R. No. L-15092, May 18, In nonstock, each member shall be entitled to one vote per by ves ting management the Board of Directors
performance of a cts or works or the exercise of some 1962; Phi l . Stock Exchange, Inc. v. Ca , G.R. No. 125469, member., meaning, as a general rule, cumulative voting is to them ra ther than a
functions normally i nci dent to a nd i n progressive October 27, 1997) not a l lowed, whereas cumulative voti ng a s a ma tter of Boa rd of Director
pros ecution of, the purpose a nd objects of its ri ght is granted by l aw to a SH, the voting ri ght where the As to l iability for torts committed
orga nization. 11. What constitutes doing or transacting business so as number of shares is multiplied by the number of director Those a cti ve in
to bar a foreign corporation from access to our courts if the s um of which will be his total number of votes, it is not ma nagement are
Di rectors a re l i able for
8. What is the test in determining whether a corporation it does so without the requisite license? generally a llowed i n a nonstock corporation because of pers onally l i able for
torts onl y i f they have
is private or public? tha t provision. corporate torts unless
a cted negligently or
Juri sprudence provides that there i s no general rule or the corporation has
fra udulently
The TRUE TEST to determine the nature of a corporation is governing principle ca n be laid down. Indeed, such case However, title XI also provides that the AoI or by-laws may obtained a n a dequate
found i n the rel ation of the body to the Sta te. Strictly mus t be judged i n the light of its peculiar environmental l i mit, broaden or deny voting ri ghts of the members, so if l i ability i nsurance
s peaking, a public corporation i s one tha t i s created, ci rcumstance. As to the va lidity of acts of directors
Di rectors must, as a rule, s ufficient assets to cover In thi s ca s e. G took the certi ficate by vi rtue of
Di rectors ca n va lidly act
a ct a s a body a t a duly i ts l iabilities exclusive of “F” sought to acquire Php 1M of the unissued stocks. The representation ma de by the corporation tha t s tock
even without a meeting
cons tituted meeting ca pital s tock corporation agreed on the condition that he shall pay a certi ficate no. 6 is valid, subsisting and owned by F, thus
As to s tockholder’s agreement As the application of business judgement down payment of Php 500T, the balance to be paid on or there is a va lid indorsement a nd delivery made by an
Agreements between Not va l id a nd binding The proper forum may before the end of the year and provided that he shall not owner who is F.
s tockholders regarding s i nce s tockholders’ i nterfere in the be considered as a stockholder until and unless he pays
the operations of the a greement ca nnot limit ma nagement of a close Courts ca nnot i nterfere in full the agreed full consideration. d. Will “A” be deprive of his title? Why or why not?
business ca n validly be the di scretion of the corporation i n ca s e of i n the business judgment
ma de Boa rd to manage dea dlocks under Section of the di rectors or a. Is the stipulation valid? Why or why not? NO, A wi l l not be deprived of his ti tle. Jurisprudence
corporate affairs 103, even i f the directors s tockholders. provi des that to have a valid tra nsfer of shares of stock
As to cl assification of directors and cumulative voting or s tockholders are NO, the s tipulation is not va lid. Under the code SEC. 71 there must endorsement and delivery, endorsement alone
To the extent that a cti ng in good faith provi des that holders of subscribed s hares not fully paid i s not s ufficient beca use certi ficate of s tock i s non-
di rectors may be As to dissolution whi ch a re not delinquent s hall have a ll the ri ghts of a negotiable i n the sense that it is always be subject to all
cl a ssified i nto one or Ordi narily, no such Any s tockholder may Di ssolution may be had s tockholder. the ri ghts and defenses which the true and lawful owner
more cl asses and to be cl a ssification a nd no peti tion the SEC for onl y on the grounds ma y possess. Thus, A may interpose the defense that he
voted s olely by a res trictions on corporate dissolution on provi ded by the From the moment then that a person subscribed to a share di d not endorse and deliver the certificate to F.
pa rticular class of s tock, cumulative voting grounds a mong others, provi sions of the Code on he is automatically a stockholder possessing all the right of
cumulative voti ng may, provi des for i n s ection di ssolution and P.D. 902- the l atter. Hence, The s tipulation it is contrary to law and Disregarding the above, and assume that the corporation
i n effect, be restricted 104. A, a s a mended therefore i nvalid. amends the articles of incorporation to provide for
As to a ppointment of officers preferred voting and preferred non-voting shares. He
The a rti cles of 16. Distinguish the right of a stockholder in a close Assume that “A” has paid in full his subscription and was objected but was out-voted. He exercises his appraisal
corporation to compel the corporation that he be paid issued Stock Certificate No. 1. He endorsed the stock right and submitted his stock certificate for notation that
i ncorporation may
the value of his shares from the same right of a certificate kept in his safety deposit box. His brother “B” they are dissenting shares. Two days later, he transferred
provi de that a ll officers Offi cers a re el ected by
stockholder in an ordinary stock corporation. stole the stock certificate and transferred it to “F”, his shares to “Z” to whom a new certificate of stock was
s hall be el ected or the Board of Directors
a ppointed by the purchaser for value and in good faith. issued.
s tockholders In a Cl os e Corporation, a ny s tockholder of a close
corporation may, for any reason, compel the corporation b. Will “F” acquire title? Why or why not? e. May “Z” demand payment of the fair value of the
As to quorum and voting requirements
to purchase shares held at fair value, which shall not be shares? Why or why not?
Al though the a rticles of
l ess than the par or issued value, when the corporation has NO, F wi ll not acquire title. Under the code it provides that
i ncorporation or by-laws
s ufficient a ssets i n i ts books to cover i ts debts and s hares of stock s o issued are personal property and may NO, Z ma y not demand the payment of his shares. Under
ma y provi de for greater
It ma y provi de for l i abilities exclusive of capital stock (Sec. 104) be tra nsferred by delivery of the certificate or certificates the code the right of a dissenting stockholder to be paid
quorum a nd voting
grea ter quorum and i ndorsed by the owner, his a ttorney-infact, or any other the fa i r va lue of hi s s hares ceases, If the s hares are
requirements in
voti ng requirements in Whi le in a Stock Corporation, unless he sells his shares, a pers on legally a uthorized to make the transfer. (Sec. 62) tra nsferred and the certificate subsequently cancelled. In
di rectors’ meeting under
meetings of stockholders s tockholder ca nnot get back his i nvestment nor compel thi s case A’s certificate of stock was transferred to Z and
s ection 52, thos e for
a nd directors the corporation to buy his shares except in the exercise of In this case, B is neither the owner, nor A’s atty-infact, nor A’s certificate was cancelled and a new certificate of stock
s tockholders’ meeting a ny other person l egally a uthorized to make transfer. B wa s issued to Z.
ca nnot generally be hi s a ppraisal right
s tole it form a, thus the transfer is not valid.
a l tered
17. Distinguish the extent of the right of stockholders to Disregarding the above and assume further that H, I and
As to requirements for restrictions on tra nsfer
examine/inspect corporate books and records as against Assume that “F” armed with certificate of stock no. 1 J are the owners in an and/or capacity of 1M shares. At
Res triction on transfer of goes to the corporation to have the transfer registered in an annual stockholders’ meeting where they were all
Va l id a nd bi nding if those of the directors.
s hares s hould be its book and for the issuance of a new stock certificate in present, they cannot agree on whom to cast their vote
i ndicated i n the articles
i ndicated i n the articles his name. The corporation, upon verification of its among the candidates for the Board of Directors and the
of i ncorporation and The ri ght of directors or trustees to inspect the books and
of i ncorporation, by-laws signature cards found that the signature of “A” in the corporate secretary disqualified them from casting their
s tock certificates records of the corporation i s a bsolute and unqualified,
a nd stock certificates endorsement form are the same, cancelled stock votes.
As to pre-emptive rights because di rectors/trustees di rects a nd ma nages the
corporate business and is therefore necessary that they be certificate no. 1 and issued stock certificate no. 6 in favor
Pre-emptive ri ghts of of “F”. He later endorsed and delivered the stock f. Is the corporate secretary correct? Why or why not?
Pre-emptive ri ghts may well equipped wi th a ll the i nformation a nd d a ta with
s tockholders i s broader certificate in favor of “G”, purchaser for value and in
be denied a s provided rega rd to the affairs of the company in order that he may
a s i t i nclude a ll issues good faith. No, the s ecretary i s not correct. The code is silent as to
for i n section 38 ma nage a nd di rect i ts operations i ntelligently and
wi thout exception wha t wi ll ha ppen i f there i s disagreement a mong joint
a ccording to this best judgment in the interest of all the
As to SH’s right to compel the corporation to buy his c. Will “G” acquire title? Why or why not? owners. Thus, i n case the owners cannot agree as to who
s hare s tockholders he represents. Whi le the ri ght of a
s tockholder is subject to the provision of the code. they will vote for, the rules on co-ownership under the civil
A s tockholder may Unless he sells his shares, Yes , G will a cquire title. Under the code i t provides that code s hall a pply, whi ch presumes tha t the owners are
wi thdraw a nd compel a s tockholder cannot get s hares of stock s o issued are personal property and may hol ds equal proportion to the thi ng undivided, in the
VI. CASE ANALYSIS
the corporation to ba ck his i nvestment nor be tra nsferred by delivery of the certificate or certificates a bsence of contrary agreement.
purchase his s hares for compel the corporation i ndorsed by the owner, his a ttorney-infact, or any other
1. X Co. Inc. has an authorized capital stock of Php 10M,
a ny rea son wi th the to buy hi s shares except pers on legally a uthorized to make the transfer. (Sec. 62) Thus, i n this case the secretary s hould divide the shares
Php 5M of which were subscribed and fully paid up by A,
l i mitation only that the i n the exercise of his equally among H, I, and J.
B, C, D and E at Php 1M each. Thus, Php 5M were left
corporation has a ppraisal right
unissued.
Assume further that the by-laws of the corporation the i nterest of the public a nd/or of the c. ha vi ng knowledge of the i nsufficient
provide for a 10-day notice for regular stockholders’ s tockholder, partners, members of associations or l. If the shares of the delinquent stockholders are sold consideration, does not fi le a wri tten objection
meeting. One of the stockholders questions the validity orga nizations registered with the Commission. and he is a director, will he automatically lose his right to wi th the corporate s ecretary, s hall be liable to the
thereof in that it violates the two (2) weeks notice rule b. Controversies a ri sing out of i ntra-corporate or be and act as such director? Why or why not? corporation or i ts creditors, s olidarily wi th the
under the Code. pa rtnership rel ations, between a nd among s tockholder concerned for the difference between
s tockholders, members, or a s sociates; between NO, he is does not automatically lose his right to be and the va lue received a t the ti me of issuance of the
g. Rule and explain. a ny or all of them and the corporation, partnership a cts as s uch director. Because his s hares s hall still remain s tock and the par or issued value of the same.
or a s sociation of whi ch they a re s tockholders, i n hi s na me i n the books of corporation a nd until and
The gi ven provision i s va lid. Under the code a private members or associates, respectively; and between unl ess all his shares are taken by a winning bidder, he is Assume “B” one of the stockholders of X Co., who has
corporation can provide in its by-law the time and manner s uch corporation, partnership or a ssociation and s ti ll a stockholder of his shares. Unless of course, in the been issued stock certificate, transferred his certificate of
of ca lling and conducting regular or special meetings and the s tate i nsofar a s i t concerns their individual next s ubsequent election he is not elected. stock by endorsement and delivery to “Y”. “Y” goes to the
mode of notifying the stockholders or members thereof. fra nchise or ri ght to exist as such entity; corporation secretary to have the transfer registered in
Thus, the corporation may va lidly provide for an earlier c. Controversies i n the election or a ppointments of 2. X Co. has authorized capital stock of Php 100M divided his name and for issuance of a new one in his favor. The
noti ce. di rectors, trus tees, officers or ma nagers of such into Php 50M par value shares at Php 1.00 per share and corporation refused. “Y” seeks your counsel whether he
corporations, partnerships or associations. Php 50M no par value shares with issue price of Php should file a mandamus before regular court or special
NOTE: [W]ri tten notice of regular meetings shall be sent 10.00 per share as provided for in the Articles of commercial court.
to a l l s tockholders or members of record at l east twenty- Assume that prior to his (K) removal, “D”, one of the Incorporation. Among the subscribers is “A” who
one (21) days prior to the meeting, unless a different stockholders brought an action against the corporation subscribed to 1M par value shares and who paid Php c. What advice will you give? Explain.
peri od is required in the bylaws, law, or regulation x x x for its failure to allow him to inspect the books and 500,000.00 thereof.
(Sec. 49) records where service of summons is made to the I wi ll advise to file the mandamus before the regular court.
secretary of “K”. Corporation incurred losses of Php 2,000,000.00, to raise Under PD 902-A, as amended (Sec. 5 [b]) Intra-corporate
Disregarding the above and assume that “K”, a non- funds to pay off its liabilities, the Board of Directors controversies a re wi th i n i ts ori ginal a nd exclusive
stockholder of the corporation, was appointed by the i. Is service valid? Why or why not? decided to call for payment of unpaid subscriptions to be juri sdiction of the s pecial commercial court, the case falls
then Board of Directors as the Finance Manager, a paid on or before October 15. 2014. “A” did not pay and under i ntra-corporate controversies whi ch ha s the
position required by the by-laws. Three (3) years later, he NO, the service is invalid. Under the rules of court when his shares are subjected to a delinquency sale. No fol lowing elements:
was removed from office by the new set of directors. He the defendant is a corporation, service may be made on bidders. 1. An i ntra -corporate rel ationship: Between and
questions the propriety or legality of his removal by filing the president, ma naging pa rtner, general manager, a mong the stockholders, members, associates of a
a case before the Special Commercial Court. The Board corporate secretary, treasurer, or i n-house counsel, this a. May the corporation bid? Why or why not? corporation a nd the corporation, pa rtnership or
questions its jurisdiction in that it is the NLRC that is l i st is exclusive. K i s neither of those enumerated. a s sociation; or
possessed with jurisdiction in that there is no-intra- NO, the corporation ca nnot bid. Under the code Should 2. The controversy mus t a ri se out of said
corporate relationship between “K” and the corporation. Disregarding the above, and assume that the corporation there be no bidder a t the public auction who offers to pay rel ationship.
incurred losses in the past year, made no profits and the ful l a mount of the ba lance on the s ubscription
h. Rule and explain. incurred liabilities to pay. The Board, in order to raise together wi th a ccrued i nterest, costs of a dvertisement, In the case Y is not yet a stockholder thus he does note yet
funds to pay its debts decided to call for the unpaid a nd expenses of sale, for the smallest number of shares or ha ve a relation with the corporation.
The contention of the BOD is wrong. Under PD 902-A, as subscriptions of the stockholders, and sell at public fra cti on of a share, the corporation may, s ubject to the
a mended, Special Commercial Courts ha ve original and auction the shares of delinquent stockholders. provi sions of this Code, bid for the same. Assume “C” is also a stockholder of 1M par value shares
excl usive jurisdiction to hear a nd decide cases involving and has been issued Certificate No. 3. His stock certificate
controversies in the election or appointments of directors, j. Who will be the winning bidder in the delinquency sale? And the code provides that a corporation can only buy its was stolen by S who forged the signature of “C” and later
trus tees, officers or ma nagers of s uch corporations, Explain. own shares when the have unrestricted retained earnings. transferred to “D”, purchaser for value and in good faith.
pa rtnerships or associations. In the case the corporation is incurring losses, thus, it does
Under the code the winning bidder in a delinquency sale is not ha ve unrestricted retained earnings. d. Will “D” acquire title? Why or why not?
NOTE: The Commission’s juri s diction over a ll cases the bidder who shall offer to pay the full amount of the
enumerated under s ection 5 of Pres idential Decree No. ba lance on the s ubscription together wi th a ccrued Assume that only 50% of both par value and no par value NO, D will not acquire title, a stock certificate is only quasi-
902-A i s hereby tra nsferred to the Courts of general i nterest, costs of advertisement and expenses of sale, for shares were subscribed “Y” a director entered into a negotiable i n the s ense that i t ma y be endorsed and
juri sdiction or the appropriate Regional Trial Court x x x the s mallest number of shares or fraction of a share. contract with “Z” for the corporation to issue 2M par delivered for i t to be va lidly tra nsferred but i t is non-
(Sec. 5.2, SRC) value shares at Php 0.80 per share and 10,000.00 no par negotiable because i t i s s ubject to a l l the ri ght and
k. If there are no bidders, may the corporation bid? Why value shares at Php 8.00 per share. defenses of the l a wful owner. Thus, C ma y raise the
Sec. 5, PD 902-A. In a ddition to the regulatory and or why not? defense that his stock certificate was stolen and that his
a djudicative functions of the Securities a nd Exchange b. What is the extent of liability of directors/officers s i gnature was forged.
Commission over corporations, partnerships a nd other Yes , the corporation may bid. Under the code Should there consenting to the issuance of the watered stock and the
forms of a s sociations registered wi th i t a s expressly be no bidder at the public a uction who offers to pay the stockholder to whom they are issued? Assume “D” goes to corporation armed with Stock
gra nted under existing l aws a nd decrees, i t shall have ful l a mount of the balance on the subscription together Certificate No. 3 for cancellation and issuance of new
ori ginal and exclusive jurisdiction to hear and decide cases wi th a ccrued i nterest, cos ts of a dvertisement, and A di rector or officer of a corporation who: certificate in his name. The corporation, after verification
i nvolving. expenses of s ale, for the s mallest number of s hares or a. cons ents to the i s suance of s tocks for a of signature card of “C”, was convinced. It cancelled the
a . Devi ces or s chemes employed by or a ny a cts, of fra cti on of a share, the corporation may, s ubject to the consideration less than its par or issued value; certificate and issued a new one in the name of “D”. “D”
the boa rd of di rectors, business a ssociates, its provi sions of this Code, bid for the same, a nd the total b. cons ents to the i s suance of s tocks for a then endorsed and deliver the newly issued certificate of
offi cers or pa rtnership, a mounting to fraud and a mount due s hall be credited as fully paid in the books of consideration other than cash, valued i n excess of stock to “E”.
mi s representation which ma y be detrimental to the corporation. i ts fair value; or
e. Will “E” acquire title? Why or why not? c. May the remaining stockholders validly do so? AAA, ha s the better ti tle. Certi ficate of s tock a re non- NO, AAA wi ll not be deprived of his ti tle. Jurisprudence
Why/Why not? negotiable they a re always s ubject to a ll the rights and provi des that to have a valid tra nsfer of shares of stock
Yes , E wi ll a cquire ti tle. See the ra tionale on a similar defenses of the true and lawful owner. (De los Santos vs. there must endorsement and delivery, endorsement alone
question on Q1 YES, they may do so. One of the instance when the right of McGra th, G.R. No. L-4818, February 28, 1955 96 Phil. 577) i s not s ufficient beca use certi ficate of s tock i s non-
a di ssenting s tockholder to be paid the fair value of his negotiable i n the sense that it is always be subject to all
f. Will “C” be deprived of his title covered by stock s hares ceases i s when he wi thdraws his demand for AAA, ha s the better title. Under the code it provides that the ri ghts and defenses which the true and lawful owner
certificate no. 3? Explain. pa yment and the corporation consents thereto. A, did not s hares of stock s o issued are personal property and may ma y possess. Thus, AAA may i nterpose the defense that
wi thdraw his a ppraisal right. Thus, he still had the right to be tra nsferred by delivery of the certificate or certificates he did not endorse and deliver the certificate to DDD.
No, C wi l l not be deprived of his ti tle. See above rationale be paid his shares. i ndorsed by the owner, his a ttorney-infact, or any other
to a s imilar question. pers on legally a uthorized to make the transfer. (Sec. 62) Assume that the Corporation has unissued and
4. “A”, the president of X Co. used his own properties to unsubscribed shares worth Php 20M and the corporation
3. X Co., a corporation organized for the purpose of secure and guaranty a loan for the corporation’s In thi s ca se, BBB i s neither the owner, nor AAA’s a tty- wants to issue them at the par value of Php 1.00/share
engaging in general construction business amends its operational needs from KKK Financial. B, the chairman of i nfact, nor a ny other person l egally a uthorized to make instead of its fair market value of Php 2.00/share.
Articles of Incorporation to change its purpose to realty. the board misappropriated the Php 10M for his personal tra nsfer. BBB stole it form a, thus the transfer is not valid.
“A” one of the five (5) stockholders/directors objected use. The minority stockholders later charged B of estafa f. Can the unissued and unsubscribed shares be issued at
but was out voted. penalized under the Revised Penal Code. Meanwhile, the Assume that CCC transfers the same stock certificate to Php 1.00/share? Advice.
majority of the board of stockholders filed a petition for DDD—a bona fide purchaser.
On the 30th day from date therefrom, he made written suspension of payment of all claims against the NO, they ca nnot be issued below their stated par value or
demand on the corporation that he be paid the fair corporation which was granted by proper forum. c. Will DDD acquire title? Why or why not? i s sued va lue. The code i s s pecific on this matter as it
market value of his shares. It appears, however, that the provi des that Stocks shall not be issued for a consideration
corporation already used up all funds to acquire real a. B files a motion to dismiss the estafa case alleging that NO, DDD will not acquire title. Certificate of stock are non- l ess than the par or issued price thereof.
property which it intends to resell to the contractor of the matter involves an intra-corporate controversy. Rule negotiable the y a re always s ubject to a ll the rights and
SCTEX. Thus, the corporation has no unrestricted on the motion. defenses of the true and lawful owner. (De los Santos vs. SEC. 64. Li a bility of Di rectors for Watered Stocks. – A
retained earnings. “A” was not paid the fair market value McGra th, G.R. No. L-4818, February 28, 1955 96 Phil. 577) di rector or officer of a corporation who:
of his shares within the period provided by the code. After the grant of the suspension of payment order, KKK (a ) cons ents to the i s suance of s tocks for a
Financial proceeds to extrajudicially foreclose the Under the code it provides that shares of stock so issued consideration less than its par or issued value;
a. What is the effect of the exercise of appraisal right in property of “A”. “A” contends that his property cannot a re personal property and may be transferred by delivery (b) cons ents to the i s suance of s tocks for a
relation to his rights as stockholder? be extrajudicially foreclosed because all actions or claim of the certificate or certificates indorsed by the owner, his consideration other than cash, valued i n excess of
against the corporation has been suspended. a ttorney-infact, or any other person legally authorized to i ts fair value; or
Under the code i t provides that from the time of demand ma ke the tra nsfer. (Sec. 62) (c) ha vi ng knowledge of the i nsufficient
for pa yment of the fair value of a stockholder’s shares until b. Is the contention of “A” correct? Why/Why not? consideration, does not fi le a wri tten objection
ei ther the a bandonment of the corporate action involved In thi s ca se, CCC i s neither the owner, nor AAA’s a tty- wi th the corporate secretary,
or the purchase of the said shares by the corporation, all 5. Z Corp. was registered in 1978 which was before the i nfact, nor a ny other person l egally a uthorized to make
ri ghts a ccruing to s uch s hares, i ncluding voting and effectivity of the Corporation Code. According to its by- tra nsfer. s hall be liable to the corporation or i ts creditors, solidarily
di vi dend rights, shall be suspended in accordance with the laws, it is allowed to issue certificate of stock covering wi th the s tockholder concerned for the di fference
provi sions of thi s Code, except the ri ght of such the corresponding number of shares which the Assume that before transferring the shares, CCC between the value received at the time of issuance of the
s tockholder to receive payment of the fair value thereof: subscriber may have already paid. AAA subscribed to 1M surrendered Stock Certificate No. 008 to the Corporate s tock and the par or issued value of the same.
Provi ded, That if the dissenting stockholder is not paid the shares with par value of Php 1.00/share and have paid Secretary for cancellation and issuance of a new Stock
va l ue of the said s hares within thirty (30) days after the Php 500K on his subscription. He now compels the Certificate under his (CCC) name. A new Stock Certificate The Corporation enters into a contract of sale/purchase
a wa rd, the voting and dividend rights shall immediately be corporation to issue a stock certificate covering 500,000 was issued in CCC’s name which was then transferred to of some of its remaining unsubscribed share with XXX
res tored. shares. DDD. who pays a down payment of 50% with a condition that
he will not be considered a stockholder until full payment
b. What is the effect of failure on the part of the a. The corporation seeks your advice as counsel. What d. Will DDD acquire title? Why or why not? of his subscription has been made and that only then
corporation to pay his shares from date of award within advice will you give? Explain. shall he be issued a stock certificate.
period provided by Code? Yes . DDD will acquire title. Under the code it provides that
The corporation may deny AAA of his request. Under the s hares of stock s o issued are personal property and may Pending the payment of the balance, properties and
Under the code i t provi des tha t i f the dissenting Corporation Code, no certificate of stock shall be issued to be tra nsferred by delivery of the certificate or certificates assets of the corporation were destroyed by fire. The
s tockholder is not paid the value of the said shares within a s ubscriber until the full a mount of the s ubscription i ndorsed by the owner, his a ttorney-infact, or any other corporation seeks to collect the unpaid portion of
thi rty (30) days after the a ward, the voting and dividend together with interest and expenses (in case of delinquent pers on legally a uthorized to make the transfer. (Sec. 62) acquisition cost. XXX seeks exception alleging that the
ri ghts shall immediately be restored. s hares), if any i s due, has been paid. (Sec. 63) entered into is a contract of sale wherein the obligation
In thi s ca se. DDD took the certi ficate by vi rtue of of the parties is reciprocal and dependent on one
After one (1) yea r, the corporation ma de Php 50M Assume that AAA is now the owner Stock Certificate No. representation ma de by the corporation tha t Stock another.
unrestricted retained earnings and the remaining four (4) 008, his brother, BBB, stole it, forged the former’s Certi ficate no. 008 is valid, subsisting and owned by CCC,
s tockholders/directors now want to pay the fair market signature and then sold it to CCC—a purchaser in good thus there is a valid indorsement a nd delivery made by an g. Is the contention of XXX correct? Why or why not?
va l ue of A’s s hares which i s Php 1M a nd tha t they will faith and for value. owner who is CCC.
thereafter declare the remainder as cash dividend to the NO, the contention of XXX is not correct. Under the code
excl usion of A. b. Who has a better right between AAA and CCC? Explain. e. Will AAA be deprived of his title? s ubscription contract has been defined as any contract for
the a cquisition of unissued stock in an existing corporation
or a corporation still to be formed, notwithstanding the 10. X Co., Inc. which is engaged in land transportation
fa ct that the parties refer to it as a purchase or some other business has an authorized capital stock of Php100M Yes the corporation MAY be compelled provided the i. May service of summons be validly served upon a
contra ct. (Sec. 59) divided into 100M shares with a par value of Php1.00 per corporation has a surplus profits i n excess of one hundred director who is neither the president, managing director,
share. 50M has been subscribed and 25M was duly paid percent (100%) of their paid-in capital stock, except: in house counsel, corporate secretary or treasurer?
Thus, no matter how the parties calls the contract as long up. The Board of Directors consist of 10 members as fixed a. when jus tified by definite corporate expansion Explain.
a s the s ubject of the contract i s unissued shares, it falls in the Articles of Incorporation. The by-laws are silent as projects or progra ms a pproved by the board of
wi thin subscription contract to which the corporation has to whether or not the company may create an Executive di rectors; or NO, i t ca nnot, under the rules of court if the defendant is
pa rties has the right to enforce. Committee. One of its stockholders, “A”, recently b. when the corporation is prohibited under any loan a domestic corporation summons s hall be served to the
graduated Magna Cum Laude in Business Administration a greement with financial institutions or creditors, president, managing director, in house counsel, corporate
6. X owns 1M shares of AAA Corp. traded at Php from Yale University and the Board firmly believes that whether l ocal or foreign, from declaring dividends s ecretary or treasurer.
1.00/share. He has an account in two (2) broker firms— he (A) will be able to help bring the company to its wi thout their consent, and s uch consent has not
B1 and B2. He directs B1 to sell 250T shares at 10:30 am highest level of competence. yet been secured; or Juri sprudence ha s cons trued the l ist to be exclusive,
at Php 1.25/share and then at 10:32 am, he directs B2 to c. when it can be clearly shown that such retention is because under the previous rule, there was the addition of
buy the same shares for the same price. a. The Company seeks your advice on whether he Board necessary under special circumstances obtaining in a n “agent” is broad enough o include any othere officers
of Directors may create an executive committee. If yes, the corporation, s uch a s when there is need for of the corporation, however this word is deleted in the
a. Can X be liable for wash sale and matched order? why and if not, why not? What should be done in order s pecial reserve for probable contingencies. RRoC, thus if it was the intention to broaden the scope it
Explain. that one may be created?’ coul d have not deleted it.
The non-existence of preferred s hares is not one of those
b. If he sells the shares of stock which he does not own, NO, they ca nnot create. Under the code it provides that If exception where dividend despite 100% surplus cannot be SSS, the president of X Co. Inc., issued a corporate check
what unlawful act will he commit? the bylaws so provide, the board may create a n executive compelled to declare it. to pa y corporate l iabilities a nd the check bounced for
committee composed of at l east three (3) directors. Thus, i nsufficiency of funds.
7. X subscribed to the shares of stock of AAA Corp. He i n the absence of a bylaw provision i t cannot be created. Assuming X Co., Inc. earlier entered into a contract with
paid his subscription but did not register the same. On Z Co., which represented itself as a corporation, for the j. May he successfully advance the Corporate Entity
February 14, 2000, he assigned the shares of stock to his b. Assuming the executive committee may be created, lease/rental of 5 of the buses of the former. X Co. Inc. is Theory in order to evade liability in an action filed against
girlfriend, Y, through a notarized deed. Y asked AAA Corp. may it be composed of five (5) members consisting of fully aware that Z Co. is not in fact registered as a him regarding the bouncing check? Why/why not?
to register the said shares of stock under her name but four (4) directors and “A” who is not a director? Explain. corporation. X Co., Inc., fully complied with its obligation
the corporation refused. Y filed for mandamus against while Z Co. did not. YES, he does not fall within sec 30 to be liable personally.
B—the Corporate Secretary, to compel him to register As to the number of board, YES it may be composed of 5
the shares. B filed a motion to dismiss on the ground that members, but as to appointment of A who is not a director f. On a suit brought to by X Co. Inc., directly against the OTHERS
Y has no cause of action since she is not the proper party NO, i t ca nnot. The code provides tha t If the bylaws so person/s who assumed to act as such corporation, may
to file the case. provi de, the board ma y create a n executive committee the latter interpose that X Co., Inc. has no cause of action Full Disclosure Rule – As l ong as there is full and complete
composed of at least three (3) directors. Said committee against them because he dealt with Z Co., Inc. as a di sclosure relative to the issue of securities the investing
a. Decide on the matter. ma y a ct, by ma jority vote of a l l i ts members, on such corporation and thus admitted its legal existence as a public should determine for themselves whether or not to
s pecific matters within the competence of the board, as corporate body? i nvest.
It ma y be transferred through notarized deed, no SC issued ma y be delegated to it in the bylaws or by majority vote of
yet. As s ume that X tra nsferred to Y the s hares of stock the board. g. Assuming in here that Z Co. is a de facto corporation, Securities – Are s hares, participation or i nterests in a
through a pledge instead. may the stockholder who made representation of the corporation or in a commercial enterprise or profitmaking
The phra se “on s uch s pecific ma tters wi thin the existence of the corporation be sued in their venture a nd evi denced by a certi ficate, contract,
b. Will mandamus lie? Explain. competence of the boa rd” disqualifies A, because it is personal/individual capacities? i nstrument, whether written or electronic i n character.
i mplied form this is that the committee must be compose
No, under the contract of pledge ownership remains with of member of the board. No. The due incorporation of any corporation claiming in Investment contract – A contra ct or s cheme whereby a
the pledgor. good faith to be a corporation under this Code, and its pers on i nvests his money i n a common venture premised
c. May the company validly engage into water ri ght to exercise corporate powers, shall not be inquired on a reasonable expectation of profits to be derived from
8. A, B, and C incorporated XYZ Corp. They all died in an transportation without amending the articles of i nto col laterally i n a ny pri va te s uit to whi ch such the entrepreneurial or managerial efforts of others.
accident. D, the creditor of XYZ Corp. also died. E, the son incorporation to include such activity in the purpose corporation may be a party. Such i nquiry may be made by
of D, is now claiming against the corporation, citing the clause? Explain. the Solicitor General i n a quo warranto proceeding (Sec. Tender Offers – A publicly a nnounced i ntention by the
case of Clemente v. CA. Rule on the claim of E. 19). purchaser to a cquire a certa in bl ock of equities of a
NO, they ma y not. It mus t a mend i ts a rti cles of company through open ma rket purchases or private
9. X is the vice president of MMM Corp. The Board of i ncorporation. Assume that a stockholder is denied to exercise his pre- negotiations. (Sec. 19, SRC)
Directors passed a resolution which terminated the emptive right by the board of directors and now intends
services of X for lack of confidence. X filed a case with the d. May the company put up a 12-storey building and to sue the latter. A tender offer i s required of a ny person or group of
NLRC for illegal dismissal with prayer for reinstatement occupy only three (3) stories for its offices and then rent pers ons a cting in concert who intend to acquire:
and back wages. As counsel of MMM Corp., what out the rest to the public? Why/why not? h. What type of suit may he bring against the Board of 1. At l east 15% of any class of any equity security of a
defenses may you present against the claim of X? Directors who denied the exercise of his right? l i sted corporation or of a ny cl a ss of a ny equity
e. Assume that the company made Php 30M surplus s ecurity of a corporation wi th a ssets of at least
Intra corporate controversy, NLRC ha s no jurisdiction, profits (URE), may the Board of Directors be compelled The s tockholder who was unlawfully denied his right may P50M a nd having 200 or more stockholders with at
s pecial court has jurisdiction. to declare dividends even if there are no preferred fi l e for a n i njunction s uit or a petition for mandamus l east 100 shares each; or
shareholders? a gainst the Board of Directors. (UP BOC, 2019)
2. Or who i ntend to a cquire a t least 30% of such (1) Where the purchaser expressly or impliedly agrees
s ecurity over a period of 12 months. to a ssumes such debts; 8. Whi ch of the following acts of a director is not subject 1. In a ny domestic corporation, the corporate
(2) Where the transaction amounts to a consolidation to ra ti fication at the instance of any one stockholder. president ca nnot l egally be the corporate
Proxy Solicitation – mea ns (1) a ny request for proxy or or merger of the corporations; a) If the director a cquire a ny personal or pecuniary s ecretary at the same time.
a uthorization; (2) any request to execute or not to execute (3) Where the purchasing corporation i s merely a i nterest in respect to any matter repose in him in 2. A corporation orga nized under Philippine law
or to revoke, a proxy a uthorization. (Sundiang-Aquino, conti nuation of the selling corporation; and confidence. ca nnot have a governing board consisting solely of
2019) (4) Where the transaction is entered into fraudulently b) If the director acquires any personal or pecuniary foreigners.
i n order to escape liability for such debts. (Edward i nterest in conflict with his duty as s uch director. 3. A s tockholder who entered i nto a Voting Trust
Independent Director Rule – Any corporation with a class J. Nel l Co. vs . Pa ci fic Fa rms, Inc., G.R. No. L- c) If the di rector a cquires for hi mself a business Agreement covering all his shares is still qualified
of equity s ecurities listed for trading on a n Exchange or 20850, November 29, 1965) opportunity ri ghtfully belonging to the to be elected as a director.
wi th a ssets i n excess of Fi fty million pesos corporation. 4. The tenure of a director may be of a s horter or
(P50,000,000.00) a nd having two hundred (200) or more Whether or not employees of the absored corporation d) If a di rector enters i nto a contract wi th his own l onger duration than his term. *
hol ders, at least of two hundred (200) of which are holding are absorbed by the survivng corporation – It is more in corporation. 5. Common s hares cannot validly be denied the right
a t l east one hundred (100) shares of a class of its equity keeping with the dictates of s ocial justice and the State to vote by a provi sion i n the a rti cles of
s ecurities or which has sold a class of equity securities to pol icy of a ccording ful l protection to l a bor to deem 9. Whi ch of the following meetings is not generally valid? i ncorporation.
the public pursuant to an effective registration statement employment contracts as a utomatically assumed by the * 6. Wa s h sale and matched order are not illegal per se.
i n compliance with Section 12 hereof shall have at least s urvi ving corporation i n a merger, even i n the absence of a) Members’ meeting held in Tagaytay City where the 7. There is no limited shareholders liability to persons
two (2) i ndependent di rectors or s uch independent a n express s tipulation in the articles of merger or the pri ncipal office is located in Makati but the by-laws a s suming to a ct a s a corporation knowing it
di rectors s hall constitute at least twenty percent (20%) of merger plan. x x x However, nothing in this Resolution shall provi de tha t members’ meetings ma y be held wi thout authority to do so.
the members of such board whichever is the lesser. i mpair the ri ght of a n employer to termi nate the a nywhere in the Philippines. 8. Contra cts between corporations with interlocking
employment of the a bsorbed employees for a lawful or b) Stockholders’ meeting held in Yagaytay City where di rectors a re generally voidable.
For this purpose, an "independent director" shall mean a a uthorized ca use or the ri ght of s uch a n employee to the principal off ice is located in Makati but the by- 9. A de fa cto corporation may exist, in so far as the
pers on other tha n a n offi cer or employee of the res ign, retire or otherwise sever his employment, whether l a ws provide that meetings of stockholders may be i ncorporators themselves a re concerned, even
corporation, i ts pa rent or s ubsidiaries, or a ny other before or a fter the merger, subject to existing contractual hel d anywhere i n the Philippines. wi thout the i s suance of the certi ficate of
i ndividual ha ving a rel ationship wi th the corporation, obl igations. (BPI vs . BPI Empl oyees Union, G.R. No. c) Di rectors meeting held i n Singapore where the i ncorporation. *
whi ch would interfere with the exercise of independent 164301, October 19, 2011, as cited in Ladia 2015, P. 429) pri ncipal office is located in Ma kati. 10. A proxy hol der has all legal rights to the shares.
judgement in carrying out the responsibilities of a director. d) Trus tees meeting held in Tagaytay Ci ty where the
(Sec. 38, SRC) pri ncipal office is located in Ma kati. III. ANALYSIS
2020 EXAM
Investment Contract – a contract or s cheme whereby a 10. A s ubscriber to shares of stock who has paid 50% of his X CO., INC. ha s a n a uthorized ca pital s tock of Php2M,
pers on i nvests his money i n a common venture premised s ubscription is --- * Ph1M of which were subscribed and fully paid up by the
on a reasonable expectation of profits to be derived from a) enti tled to the i ssuance of a certi ficate of stock fol lowing stockholders: A wi th 200Tshares, B 200Tshares,
I. MCQ
the entrepreneurial or managerial efforts of others. coveri ng the whole number of shares subscribed. C, 200Ts hares D 100Tshares, a nd E with
b) enti tled to the issuance of shares of stock covering 100Ts hares who are members of the same family and the
6. The wi nning bidder in a delinquency sale is --- *
Is suance of certificates of participation in a multi-level the porti on (number of s hares) he ma y have ma jority s tockholders. The other stockholders consist of F
ma rketing s cheme, solely on the management of others a) the bidder who bids for the highest price for the a l ready correspondingly paid for. wi th 100Ts hares, G 50Ts hares, H 25Ts hares, a nd I,
wi thout goods or s ervices is an investment contract and s hares of the delinquent stockholder. c) not entitled to the issuance of any stock certificate. 25Ts hares who a re not i n any way related to each other
thus a security. (Justee Terms Enterprises vs. SEC. Case not b) the bidder who pays or tenders to pay the amount d) enti tled to the i s suance of a s tock certificate nor those of the ma jority s tockholders a nd thus the
of delinquency plus cost, expenses and i nterest, if
found.) corres ponding to the number of shares already mi nority shareholders.
a ny, for the most number of shares. pa id for if agreed upon pursuant to a contract or
Pyra mi ding schemes partakes of a nature of an investing c) the bi dder who pa ys or tenders to pa y the full a l lowed by the bylaws. a ) If the corporation has a 5-man governing board, how
va l ue of the shares exclusive of the amount already
contra ct which cannot be s old to more than 19 persons ma y the mi nority ha ve a ri ghtful representation in the
pa id fo by the delinquent stockholder.
wi thout prior approval of the SEC. 11. Whi ch of the following general s tatements is not boa rd? Explain and/or illustrate. (5pts) *
d) the bidder to pays or tenders to pay the amount of
correct? *
When a n i nvestor is relatively uninformed a nd turns over delinquency plus cost, expenses a nd i nterest, if a) A foreign corporation doi ng business in the b) As sume that the 5-man governing board consist of A,
hi s money to others, essentially depending upon their a ny, for the least number of shares. Phi lippines wi th a l i cense ca n s ue before our who i s a t the s ame the President a nd Chairman of the
representations and their honesty and skill in managing it, courts . Boa rd, B, the Vice Chairman, C, the Corporate Secretary,
7. A, B, C, D a nd E are the five-man governing board of X
the tra nsaction generally is considered as an investment b) A foreign corporation not doing business in the D, the Treasurer, and F with no other position except as
contra ct. The touchstone is the presence of an investment Co., Inc. On March 10, 2020 the remaining members of the Phi lippines and without a license ca n sue before di rector. At a duly held a nd constituted meeting of the
Boa rd consisting of A, B a nd C hel d a nd conducted a
i n a common venture premised on a reasonable our courts. Boa rd, a Resolution was passed granting compensation in
expectation of profits to be deri ved from the meeting to fill up two (2) vacancies in the board caused by c) A foreign corporation not doing business in the fa vor of the Chairman, the Vice Chairman, Secretary and
the resignation of D six months before the expiration of his
entrepreneurial or managerial efforts of others. (People Phi lippines and without a license cannot be sued in Trea surer over the vehement objection of F in vi ew of the
term a nd by the removal of E by the stockholders. D was
vs . Petralba, GR No. 137512 : September 27, 2004) Phi lippine courts. fa ct that there is no by-law provision authorizing it nor any
replaced by F and E by G. The election of F and G
d) A foreign corporation doi ng business in the di rect grant from the stockholders. Rule on the objection
Exceptions to the Nell Doctrine – Generally where one a re --- * Phi lippines and without a license ca n sue before a nd explain. (5pts) *
a) va l id for both.
corporation sells or otherwise transfers all of its assets to our courts.
b) i nvalid for both.
a nother corporation, the latter is not liable for the debts c) As s uming that A, the President a nd D, the treasurer,
c) i nvalid for F but va lid for G.
a nd liabilities of the tra nsferor, except: II. T/F i s sued a check in payment of corporate obligations but the
d) va l id for F but invalid for G.
check covering the same bounced and the creditor sued a cquired the unissued s tocks the entire compound was conti ngencies. Ma y a s tockholder, for a ny reason, compel
them i n their personal ca pacities cri minally a nd civilly. ra va ged by fire turning everything into ashes rendering the the corporation that he be paid the fair value of his shares
They i nterpose the defense of the Corporate Entity Theory corporation insolvent. May the corporation or its creditors a nd be paid the same? Why or why not? (5pts) *
to eva de liability. Rule and explain.(3pts) * be a ble to collect the unpaid acquisition cost of the shares
a cquired by “Z”? Why or why not? (5pts) * IV. COMMENTARY
d) As sume l ikewise, tha t the corporation’s unrestricted
reta ined ea rnings reached more than 100% of i ts paid k) As s ume further tha t “K”, a non s tockholder was Gi ve your comment of the decision of the High Court in
up/in ca pital a nd the 3 mi nority s tockholders made a a ppointed by the Boa rd a s the Fi nance Ma nager, a Cl emente vs CA, regarding a juridical entity, long dissolved
demand on the Board to declare dividends but the Board pos ition required by the by-laws. One (1) yea r later, he (a bout 40 years) with no known s tockholders/creditors to
refused to do so. Is the actuation of the Board valid? Why wa s removed from office by the new set of directors. He the effect that: “The termination of the life of a juridical
or why not? (3pts) * questions the propriety/legality of his removal from office enti ty does not by i tself cause the extinction or diminution
by fi ling a case with the Special Commercial Court. The of the ri ghts and liabilities of such entity (Gonzales vs
e) As s ume further that due to i nsistent demand of the Boa rd questions its jurisdiction in that it is the NLRC that is Suga r Regulatory Administration) nor those of its owners
s tockholders, the Board goes to you for legal advise. What possessed wi th juri sdiction i n tha t there i s no i ntra- or credi tors. If the three yea r extended l i fe expired
a dvise will you give to absolve them from liability for not corporate relationship between “K” and the corporation. wi thout a trus tee or recei ver ha ving been expressly
declaring dividends? (6pts) * Rul e and explain. (5pts) * designated by the corporation wi thin that period, the
boa rd of di rectors i tself, following the ra tionale of the
f) If the corporation decides to a mend the Articles of l ) Di sregarding the foregoing, a nd a s sume tha t the Supreme Court’s decision i n Gelano vs C.A., may be
Incorporation to provi de for preferred voti ng and corporation i s engaged i n the general cons truction permitted to do so a s “trustees” by l egal i mplication to
preferred non-voting s hared and “G” dissented but was business and nothing more. A, B, C, D and E are the only complete the liquidation. Still i n the absence of of a board
out-voted. He thus s urrendered his s tock certificate for s tockholders/directors. The Arti cles of Incorporation is of di rectors or trus tees, those ha vi ng a ny pecuniary
nota tion that they a re dissenting s hares. The next day, a mended by changing the purpose clause to buying and i nterest in the assets including not only the stockholders
however, he tra nsferred his shares to “Z” to whom a new s elling of a ny type/s of real properties. “A” vehemently but l i kewise the creditors of the corporation, a cting for
s tock certificate was issued in his name. Twenty five (25) objected but was out-voted by the other 4 s tockholders a nd in i ts behalf, might make proper representations with
da ys a fter the res olution to a mend the Arti cles of s i nce they intend to use the funds of the corporation to the SEC, whi ch ha s pri mary a nd s ufficiently broad
Incorporation, “G” now, ma kes a demand on the a cquire real properties in La Union which will be traversed juri sdiction i n matters of this nature, for working out a
corporation to the payment of the fair market value of his by the TPLEX Extension Project. Thirty (30) days after the fi nal settlement of the corporate concern.” *
s hares. Can he do so? Why or why not. (3pts) meeting, “A” went to the corporate office, armed with a
demand letter that he be paid the fair value of his shares.
g) As sume further that “A” has unpaid s ubscriptions and Al l the stockholders/directors were present where it was
wa s a ppointed as the corporate president by the Board of una nimously a greed that the fi r va lue of his shares is
Di rectors. Subsequently, however, there was a change in Ph10M. The corporation, however has no more funds to
ma nagement a nd ha d a di sagreement wi th the new pa y the s hares of “A” s i nce the funds were used up to
ma nagement. He resigned and made a demand that he be a cquire real properties in La Union. Thus “A” was not paid
pa id his unpaid s alaries. The corporation refused and the va lue of his shares. A year later, the corporation sold
cl a imed that it a pplied the same to his unpaid balance on a l l the properties to the developer of the TPLEX Extension
hi s s ubscription. There wa s no ca l l or noti ce for the Project a nd the corporation ma de a hefty Ph110M
pa yment of unpaid s ubscription. Is the corporation unrestricted retained earnings. May the corporation now
correct? Why or why not? (3pts) * pa y the fair market value of the s hares of “A” and later
declare the remaining Ph100M unrestricted retained
h) As s ume further that the par va lue of the shares is at ea rnings as cash dividends to his exclusion? Why or why
Ph100.00. In Ja nuary 2020, “Z” a cquired 50 thousand of not? (5pts) *
the unissued shares of the corporation with a stipulation
tha t he s hall pay outright 50% of the va lue thereof, the m) Di s regarding the a bove a nd a s sume tha t the
ba lance to be paid on or before the end of August and that corporation is a listed company engaged in the drilling of
unti l and unless he pays the full acquisition cost he shall na tural gas. It discovered a long the coast of Palawan,
not be considered as a stockholder. Is the condition that na tural ga s of commercial quantity. For a month the
he will not be considered as a stockholder valid? Why or corporation did not disclose the same to the SEC and the
why not? (3pts) * Phi lippine Stock Exchange. In the i nterim, The directors
a nd officers bought shares of the corporation from the PSE
i ) Three (3) months l ater, “Z” not having paid his entire a t a very l ow price. After the disclosure the value of the
a cquisition cost, the corporation declared cash dividends. s hares increased five-folds and the directors/officers sold
Wi ll “Z” be entitled thereto. Why or why not? (3pts) * thei r shares earning huge profits. What provision of the
Securities Regulation Code was violated and why? (5pts) *
j) As s ume further tha t the corporation i s i nto the
ma nufacturing concern, it leased a 1.5 hectare land from n) If the corporation involved is a cl ose corporation and
a 3rd pa rty where i t built its plant/factory warehouse and ma de Ph10M in profits but has Ph5M in liabilities and the
corporate headquarters. Two (2) months a fter “Z” remaining Ph5M wa s us ed a s res erves for possible
I, MULTIPLE CHOICES
1. A stoc.kholder whose shares are de llnquent w111

A. Kaw no votlflg and dMdand rights.
B. Have no votin& rlghlJ at any meetin&.
C. Have voting and divided rights.
0, H.tvo voting nshts but no dividend rights.
2, The w lnnin.g bidder in;, delinqut.ncy salt is

~ The bldde_r who bids for the highest pr1ct for the shir~ of the dellnqve-nt stockholder,
8. The bJddcr who pays or 1e.nders to pay the 11mount of delln.quN,cy plus c.ost. ex~nses ind
in te,ens lf anv for the most numbe-,s of shares..
C. The b idder who pays or tenders to p.11y the amount of dtllnquen~ plus eon, upcmses and
nttre.su If any for the lea.st number of shar~.
o. The bidder who pays or 1endtrs to pay the full value of the share:s exdu.sive of the amount
.11fread'V paid for by the delinquent stotkho1der.
3. The rfaht of a stockholder In I regular/ ordinary corporHlon to demand/ compel the latter that he be
paid the f-air market value of his shares may bt exe.rdsed In casM of
A. £ntcring I nto a management contract of all or substanti.llty all of 1he of the bosincss of the
corporation.
8. In any amendment of the articles of Incorporation.
C. In any amendment of the bv·laws.
0, Investment of the corpo,-tc funds In ,1ny business or purpose other thiln the primary purpose.
4, A close corpor1tlon m~y validly provide rn Its articles of lncorpo,atlon or by-laws that
A. Cumubt,vc voting sh-Gll be denied to any .stockholders.
8. Quorum and voling requl,·e ments In stod,holders' meeting Imposed by the (ode shall be more
than I.hat required by law.
C. Proxy voting shall be denied to the stockholders.
O. Meetings of stockhotders mij·y be held inywhere in the Phlhppines..
S. A tranuctfon of the sale/ pure.has, of a security that doH not mt.an Involve a change In the
benendal owneuhlp thereof Is called
A. P.1ln1lng the t~pe
8. Short sale..
C. w a.sh sale
o. M atched order
6. Which of the following meetings Is not gcnually valid?

A. Members' meetJng held In Sl.ng,1pote where the principal ofnce Is loc-~ted In Makati but ,he by,
laws provide thou meetings of me-mbtts may be held anywhere ln the PhlllpplnM.
8. Directors· meetlna held In Sf"gapore where the principal ornce ls located In Makatl.
C. Ttune-e-s' meNJng heJd In Tasayt:ay O~ht!rc the principal office Is located In Makati.
0 . Stockholders' meetlna In Taaavtay C.lty where the principal o tfke b located In Makali but the
by•taws provide that meetJngs of st0<kholders m~y be held anywhere In the Phlllpplnes.
5. The ;,ppoln1men1 ot t loc,tl repreHnn:11lve/ dlJ1,rlbutor modo by a fotcl1n corpo,..1lon doe, not
n oct":»lltll'I Im ply d oina o, m1nsaulng b u siness.
FALSE- In Fodl1tlt.J Mana9emc11t Co1p vs ttonotdo Iulo Oso (G,R. No. t-38649, Mart.h 2G, l..919-
SC tuled dting RA f,lr,. 5455 (ll (1) the performance within the Phlllpplnts of any acr 01
combination of acu tn1Jmcrorcd In Section I (IJ of the Act (R.A, No S4SSJ 1holt constlrurt: ·doln11
buslneu.., therein, fn ponlcutor, doing budnen lncludts: (1) appointing o repttStntat~ OI
dlsulburor who ls domlcJted ,n the Ph1l,pp1('t('f, unte1s sold rcpr~cmarJ've or dlsult,utor has on
lnde~ndtnt .status. l,e., it uonsacu bu.sinus In hs name and/01 fu own oc<ount, and not In the
name or for 1hr occotmr of the princ.lpol,
6. l'he employeei af an nb:10,be-d carpa,.iitlan ate ,iu1am1tlully ao umed/ absorbed bv 1he

survivlnc corporation in a mQ.rger.
FALSE - Tht Corporation code d~s nor mandate Uw absorp.rlon of the c.mplO)ltCS of tht non•
su,vivinp t orpo,orion by tht: su,vivi,ig co,po,o:ion In 1J1t. cosr of o nklft:t .
In BPI vs BPI Emplortts Unlon•Dovoo Chopur (G.R. No. 16001, Au91Jn 10., 2010) ab-sorb«I
FEBrC Emplo~e.s or~ n('Jt.hu asst'ls nor liob1/irlu , In l,:gaf p,orlonc,:, howevtr, human beings au
never emb,acnl In Ille te,m-s •anetJ and liab(/Jtlt.s•. Moreovu, Bl't'J obsotpllon of/ormtr FEBTC
employte.1 wen elrher by 0Pfratlon oftow no, by lt r,ot co,,uqucnce. of conrtoc·r.
7, Pcmdin1 lhe i1-su.ince of lhc rciplxemel\l of lh• lost/ dcstroyi:d «.rdficatc. lhe own11/
stockholder c:onccrncd a nnot 1ransfct his sharn c:o\ltiltcd bv tho lost/ du uovt.d c:c.rtUkat c.
8. A dluolVed corporation, within th~ 3 yur period o1 Uquld.u lan, cannot ttansfer lu rem.n.lnlng
assets/ propertiu-lo a new co,poratlon w hkh wUI continue the businl!:Ss o f lhe db.solved one.
FAUE - (o ttonifng to Alfy, tod(a} nothlttg Int~ low rhot prrll'tnts a corporation 10 transfu Its
askr, ond Nob/lltks to anorMr torporarlon,
9. Th• security/ s uret·v u,ed by • ,:1ockholder/ corpo,rate officer for corporau~ dtbH u nnot bo
forcdascd by 1he credlto, once su.spc nsJon of paymtn1" order Is lnued by 1he proper for1.1 M,
10. A uockholde, who h:as no, paid his subwiplion in hill ca1mot eicercii.o his -appralf.ill risht
bccau.ic he doe1 not h:we a Hock co:r1lfka1e 10 s1.11T1:ndcr for nota tion that 1hcy are dlsstntln1
shares.
FAt.SE - See. 81, rc,m ·01 the option of rhr corporation· mcons surrender of rhcr Ccrrlflcarc of
.Stot.A: ,o(11 (t corpo1ot/orl IJ onJy OP1IONAL for lnsroncr, tht C0tPotot10,1 1101 nae 1er tssi.H!'d
c~n fft(,ot~ of Scock 10 rlle scoc.kh°'dtr,
7. A ,:ubi:uibtr co ih.1re, of node who has p.lld 5°" of his subw:ription 1,
A. Enlltlc<I to 1he Issuance o l • cet11flca1e ol $lode coverlna tht who~ nutnbet ot sharuiubscribcd
8. Enthlt-d to th«' lssu11nce- or I cer1rflc,ne of stodc covt,tna the portion (no, or shllres he m:iy
rec:e-ived cor,es,>of')d,ngly paid for,
C. Entitle-d to the Issuance of nod: cert.irote corre$pondln.g to the number of shares pald for or
J.,reed upan pursu.11n1 to" conu;m or 111towcd by the by•llliW$
.Not enHtled to the lnuante of any cerliflc.ate of \tO<:k.
a. Which of the foUowlnJ l.s not correct In a votln.1 trust acree.ment?

A lhc, tru•tee ..,0t6 M owner of the $.h3rcs
8. The trunee m.11y vote tn penon but not by proxy.
C. The bene.ndal owner of the shiHU ceases 10 be a stock'holder ol record
0. Thi? trustee mav vote .at any meetlfli during the duration of the- ttust.
9. Which of the followlnggenenl suuemff!U 11 not COrtffl?

A- A forela,n c.orpor:itlon doing bu,lness 1n 1he Phlllpplnes With .1 lkens.e c.an sue before our couru_
8. A foreign corporatfol'I not doing bus,ness: In che Philippines and without license can sue befor-t
ourcowu
A forelan '1>rpor.11lon doln1 buslncn In the PhlUp,plncs .and whho\11 .a llc•nte un J.Uc bdo,-
ou, c,oun..s.
0, A f0<eign corporattof' no1 doin,g bu1'.lneu in the Philippines and wrthout a lken,e canno1 be sue,d
In Philippine court.
10. the t•lr m.1rltet value of the shire, ot a nod.holder uercbln.1 his appr.1lsal r1aht ih.:111 be
determln.ed on the date
It of the meetln,g where he fntMposed his ob~c.tlon on 1he cotporate ift.t,
8, of hlidema.l'ld that ht b~ p.1ld 1he fatr v.1lu4r of h.ls share.
c. of ;1C1ulll Pll'(fflttH of hl.S Sh31C!S
prlo-r to 1he muting whtr• he interpo~d h is ob),t<Uon.L
II. TRUE OR FALSE. If your :ini:wer Is FALS£ explaln your reMon/s. (lOplsJ
1.. A.s con-ec1ty rul~ by the Hlah Coure In Loyola Gr.1nd Villas Vl C.A•• "the corpor.itlon <ode dots
not ptovlde 1he conM:qucnctt" of non,flllnJ of the b't•l11ws whhln the Pt!rlod provided thuea1.
FALSE -Ste. 144, Violo toM of tht C.Ode . (/lht violorion iuommirred byo <.0rpot0:lon, 1ht somt
may, oftu notlc~ ond hearing, be dissolvttl In opproprlote proceedlngJ. be/or~ tht SEC.
2.. Fore laner..\, by ConsdtutJon;al provhJo ns. an never be ,1Jlowed to s:lt .ind .act as directors In .any
education.al to.rpOr3tiOn Hsuln1 artifiQtes of completlon in th~ .atoldC!mic field.
FAtSE - A ForeJgner co11 ~ o member of ritt 9011emi110 board In tduco(io11ol il\,fr1rur,011s
estobb'sh~d by rrllgfovf order. mlJ.sJon boardJ., 011d diorltoblt' a,gonfl.otio.ru. (Section 4 of Articlt'
XIVof #tr Cott1titurion of rhr Phiffppfrie.1)
3. tumuJa1lve vo.tlng u nno~ In an., w• 't, be tJUtttlitd by• member In I non--noc• corpor:itlon.
FAtSE - UNLESS: ol/ow«J in tht AOI or rhe by-lows, cumuloriYe vorlng ls nor as o genera, rote
allowed. In non•stotk cO/porotion, occordln9ly, t'Y'f'.n if the mcmb(-rs may cost as many votf'_j art
therr ore ,111sre-e, to brrlcdtul, he may nor cost man rhon o n.: vott'for one condfdotc. Shorr safe
Is Jlfegot 1/ rht StC '10$ no rules ond rtouJatlons ttlorwt thtrtto.
4., Short wfci Is lllepl ii th• stC h.u no rules ;and rc1ul.atlon, relilld\lCI thereto.
Ill. OBJECTIVES
1. Explain the f0Jlowln1 statements
a. The. Gusine.s:s Judament Rule mav not apptv In usH ol deadlocks in a dose
corponitron CS pt,)
Yl'~ In case of CLOSE C0Rp01UWON, Suslness Judgm.t nt Ruic Is not oppUcable,
prope.r forum may intrrfert In rhe managemtnr of a dose co,poratlan in can of
deadlock under s«tion 104, cllffl if the dl1e(ror1/st«kholdcr1 ate ocrln9 In food
fa1rh.
In ordinary torporotlons. tht p.tfndpk of 8uslnusJudgmtu11 Rufe ft where quc.ufons

of policy and management are (efr $Olt/y ro the honat decision of tM Boa.rd of
DlttClOtS ortd tht COUil$ o,e wlthOII[ OllthorJry ro subJtlturt its Judgmt:nt OS ogoinJ.t
rht for~,. The Olf«ro1s ore rht buslnts.s monogtis of rhc corporotion ond os lollg
os they ott on oood faith., Its ottuotlons ote not subjttt to /udi'dol ,~n
(MoMalibono vs- Baro/ad MrJrcio Mltffng}.
b. A corporation solo doers not hav, the .ame ,faht., power or 1uth0fity to own~hold,
convey or ttantft:t iu proptrliM like: anv othtr corpo,'lltion. C3pu)
Yt"s,. IJke any oth6 corporolion, a c.orporotlon sole & olso t"mpaweud ro ocquJte and
otlMort pro~fits. There t1re. ho~r Cttto;n tdrriCtiOM nor otherwise. lmPostd
1.1pon o,dlno,v c01po1atlon. Stttlon JS9 o/ tht Codt eq,lalns ..,uc.h (cl~st COIP,)
c.o1p010tk)n mo'I morr9agr o, s-d rtol p,op,:rty htld by fr upon obta/nfng on 01dt1
for thot purpose form rhe CD11rt of Flrsr lnstonr.c of the pro1.•ince in whlrh the
propttty ii JJrvorl'd, Thctefo,c, u.n/1.t e ony othtt corpo1otlo,u, rhe p()Wer oJ
corparorion SQft ro purchote. t('QI prop,,:rry. i1 not resrri,rtd ofrhough thr: powtr to
sd Ot rnort9ag,: JOmtrlmts Is d,:pr.ndtng upon t~t rules; ltflUlotloru, and dfsclpllnt
of the <hutch C4tteerned 1e.p,esenred by the sold corporotfon .sole
c. A ,-,oc.kholdtr w'ho 1:wttuted • votlnt trus t airoement cannot 1n r\t,fer hb,

bene lld al ownerJl'lip of the s:hues cove,td b'( the said 111,eement by a mere
r\OUtfud deed.
Ye-s. under rhr: ruld, whift a formoJ (Ofltroct o/ Sak in a no1ari.1rd docurntnt.s ls
~ulvole.nr ta dcllw,y a/ the c~rtlflcatt' fr.sci/. rhls mode a/rrans/cr (s OYalluble oply I/
no urtlflcole of sroclt hos bttn Ju~. 5cdlon 59 of rhe Corpotatlon Code
e.num:lolt':S then ·The Ct!rtlf1<.au1 or urtl(,cotts of stock cow:rcd by r.he. voring uusr
ogrremenr shall be cone.riled and ntw ont"S shat/ be lssurd In the na~ of the
uu,,tt Ot WJSl tts.. ~. (hut in tsstnc.t. rhtrc hos bttn o ctrtlficott ptcvrov,l)f tssUfff
Oy the corpo,otlon and htnct t,0111/tr of short, r.mdtr VTA t,y o mt.r t noro,lt,:dd~
h obvious~ 1)01 otrtnablt.
d. Thcrr• l:s no db tlnctlon bC!tWHn ~ 1ub1<ripUon contr;act a nd ~ contra« of u te

Jn5ofur H the "unh sued stockJ"' of a corporation concerned. C3pt5}
Vcs.. Sec. 60 S.ubsulptlon coruroa - Any conuoct fa, rhe oqu(slrion of unissued stack
In o n txfstfr,g corpormion ot o corporation srlff ro ~ formttl shall be det1mtd o
subscription wlrhln rM meomng of th /J Tirle, notwithstondlnp the fact that 1hr
parllt-s rt/tt to It os o purtha1e or somt orhtr tol'lrtO(t.
The d&tir,ctfon ~ twttn a purtha~ and ,ubsc1iptlon of ·unJswc.d 1rott1• of o

torporotion hos bttn tliminattd. So Jong as the shores ro be' ocouirtd from rhc-
cotpOIYltlon o~ •unbsued stod.s'".
e. Beln1 a. me.mbe:t and a shueholder fn a non-stock corpo,atlon are 1Wo 12)
different m.a uers.
NO??? See Section S of the C«porollon Code.
l. Wh1111 t, ·mau,rl.:il non-public lnfo,m.:i1ion" so :11$ 10 bar th• poHuk)r thereot from m 1dtn1
In a putkular security C4pts,)
tr is In rc/t:rMU to Jc/ling, bllying or holding of .Jtcurltln whkh Information U not gc,nrrolly
knawn to publk ond Is rcosonobfy ap«tcd ro o//c.ct the prier o/ the s«urlty. The- possuior
tituttJ/ i ho/J be gultr; oJ iJlegol t,i1ldtr rrodin~ wh fch 9rru:,ol!y bl.l)'t or JellJ" itcutlty, In
brt:Dch ofo fiduciary du ry or other relorlon.shfp of r,un and confidenc~, white In pauess.fon of
more.riot nonpubllc Information about rht s«urlry.
IV. CASE ANALYSIS

l, X CO. 1 Inc. has an authoriied capital sto,k of 100m divided Into S0m par value shares at
Pl,00 pe, share a nd SM no par vafue shares with 11n b.sue price. of Pl0,00 pe.r shares as
provided in the articles of lncorporalion. 1'mon• 1ho subsc,rfbtrs to tho c-ipl~I i:tod1 b "A"
who subsulbcd lo lM p.;1r value i~are, and who h.u paid PS0OT 1h-cretor, Tho corpor.lllon
lnc.urrt'd loses 10 the 1une of PlM and to nke funds 10 pa,y off hs Uabll11le-s, 1he- Board
dttcided to ull for llw pllymenl of th• unpakt Jubs'1ip1lon of lhe .11odlholdl'r1 to bt patd
on or before October 15, 2014 .•,.,.. did not piy hk sh1u1tS Ire subjec1ed 10 • dellnquen(V
,alt. The,, were no bidders in the dcltnqui:ncy J.Jlo.
a. MAY the corpor1ulon bid? Why or why f'!Ot1 CSput
Y,es,. SK, 68 Iott par of the Corporation Code provides '"Should tM,t bt' no bidder at
ltit public auction who olfe.rs to pay th~ fut/ amount o/ tht balance on tht
wbs<.riptlon to,eth-tt with the occ,ued IMt.rtit. cosr oj odwrtisemrnt and eJtpMsd
of sole<. for lhe smofl~sr numbt.r of shor~ or fraction of a sho~ the co,po1arlon
mo'I, subject to the ptoYlslons of the Corpororlon Codt, bid for rhe samf'~ and the
rorol amount due shalt bt t.r~it~ as paid In /111I In the boO.U of rhc co,Pororlon.
Anume tha:t only fifty CS°"} perceru of both par and no p,>r value shares were subsaibed
;and •z• 1 entered Into 1 ~ontrut with "'Z" for tht corpor.iUon 10 issue 1he 2M p-u value
sham at PO.so per sM-re a.nd the lOl' no pat v,l!ue s.hlllres ,1.1 PS.OD per s ha,e. (••• gonlto
talar.ai vung ques1lon u questionnaire)
b. What b the utent ot the llablllty of the dJrertors-/offlceri consentln.c to the
Issuance of tht watered stoclc and tho nodtholdcr to whome •h~ 1sst.1ed Ex:plain
(SPISI
Tht Corporotlort Codt p,ovides {Stttlon 65. Lloblllty of d,'ttcto,s for wotered stocks)
-Any dir«tor or officu of o corpOfl)r;ofl CO" Stflfi110 ro rh e luuonct of srod:s for o
comldtrorJon k :u than lt.J por or lnued volvc o, for o consfdtrotJon fr, any {Olm
orhtr thon cosh, -..olu~ fn tMU.SS of {rs fair w,luc-1 or who, having knowkdoe rhereof,
does not fotthWllh uprt.$$ his obJtclfon In wt(tlng ond f1lt the .some wlrh tht
corporate secnro,y, sholl bt s.ollda1lly liable with the .Jtod(hofdu concerned to tht'
corpororlon ond its cnditors for the dlf/ereMe between the fair wilue received ot
tht time of luuoncc- of r.he Jtock ond tht po, or 1$sued voluc o/ lhc so mt.
AJ..sumt funhe-r 1h.u "B*, on of the S1odtholdet'I of ,c co•• who h:.,- bnn luued a mxlc
ceniflc.ate~ 1.r.arufcrre-d his sto<k certlfic.;1te by endorseme.nt .;1nd delivery to ~v-. Armed
with the duly endorsed and de.llvercd.,ta<k c.er1ifki1'e, "'Y" soc.s to tll• corpo~t e H<ret~rv
ro hive the- trans-hi, registered In hl:i name ond tor the- lssuance of" new one In hk favor.
The- corpo1a1.t0n ,efuse-d. •y-" seeks your counsel whe1her he should mean action for•
writ af mandamus bt!Jore the tel',llat trial c.oun or the Spedal Commerdal Court.
c. Wtlat adlvie! will you 1ive? &plain (SpU)
111 th~ COk ot bor, I w/JI OdviU ·r to /Ht: ,u:tiriotl for mo11dom11S OS rite PIOPtl
tC'mcdy, 1hot Is to com~J lhc Corp0rolt: s«rf'tory 10 ,cg&ur th<' u,ld tram/er in th<'
boots of rh c ,o,porodon bcco1J5<" such duty /J n,lfllJrt:1ial and (hoJ -r~ tltlt to s"ld
sha,~s is vofid and u rrain from thr gfwn case Vlhrnewr o corpororion rf'/u.ses ro
uonsfet ond ,~&rf', stork In tostJ ,Jkt: thf' ptt:Un4 mondomu, wJII J~ to com{>tl tht:
off,c.ers of the co1po1ot1on to rrofls/tr sofd stock in the books of the <Otf>0101Jon
(Fleishtr VI Nolos.co, 41 Ph/I. 583,594}
Assume further, ttt.:ai .., . IS 111$0 a siodtholdtr at lM i»r vitue sha1n 11nd i,..,.
betn l.u ued
$tock C-ertlficate No, 03. Hls stoc.k omificale was stolen by • s", his- sltter, who forged the
slpailufl! ot •c" .ii the baQ thereof and l.iter lnlnsfened s.ald stock cenlfkue In f-avor of
•o", a p.urchase-r fornlue and In aood faith .
d. Will "D• ac.quift thlt? Whv or w'hy not? (SPHt
No, thts U o cosf' of o fotgtd or unauttwtlud tronsftr In which, It Is se.ttlM that tht
purchaser o r putchosus, no morur hew Jnnoctnr thty may hove. bte11, will ocqu1re
no rirle. as against tht fowflJ! ownu thtteof by vllliM of th~ 'doc.rrfM of non•
negr,tlobllfry of ttrrl/lcort of srods'". '"O", In rhe given co.ft., will hove no dght or
remedy ogolmt tht corporation because he. took tha sho1es nor by Vlttue of
n1Jsre.pre.st11tatlon of tN c01pororlon b.ut on the. faith of o forgrd tndor~~nt or
lJflOll thariud transfer.
Auume fin.a.Uy, that • o• goes to the c.ocpontlon, irmed with the su,dt ec-nnlutt No.3 fat
hs can~llallon and luuance of • new ,e,1ifiute In hi, (d's} na,ne.. The c:o,po,atlon, a he-r
verlnatlon or the slcn.nu,e urd or •c", wu convlnttd that It Is the sl1nuu,e or "C".
Thus, 1t c.oncelled node. ctr1iticato No.03 and issued i:IO<k «.rtificalt no, 15 In tho name of
"O", "O*, lau:r tl'illntferrcd his sharei bv endoric:mcnt ;ind dtUVcry of uo(.k nrdffca1t no.
lS In favor of "E'".
e, Wilt "E·" acquire tltJU Why or why not? C5pu)
Yts, from rlle. gf'l<'n fnstOJ1ce., Cotporatlon wW be.- estoppal to deny t/le. vo/ldlty of the
n
sr«k ce.nl{kott It newly issued by (cofpoto rionJ rn ft,v(/( of •o"" n,a Is bccavst
subSC"quCrll pur,:hoStt In Oood /ollh took lht shorts, nor by vltlut of o /0t0td OI
t1na11th o1iud tranS/tt but on rtlkmce of 1hr 0•11uinrnc.n of the r.r,tificottt fssvtd by
tht'. corporation Of bv virtue of rhe tCJmlf.t'.ntotfon made by rhe cofparotion thot thr
1omt lJ volld and $Ub.J{Jtln11 and chor the JJ<•.,son numt.$ tht.1dn (5 o .stockholdet oj
,he corpo,auon.
f, Wtll "C'" be deprived of his tlUe cove«?d by Stock CertJfia,te No.031 bp1aln, {lptst
Na, such ls b«ousr, ·c· is th t true and lawful ownv of ,tic shares whcrefr, It If w,:I/.
Strtlt.d thtH OCtlll/l(Olt of Stotlt Js nor O 11(9Qtloblt lnsvumcnt_, b«ausc lht holdtt
thtrt:af taka it witha111 pttJudlce to Juch r,ghr.s Of df!/errsa as th,: f<'g{sWcd
own,:r/S 1rons/trot"1 <rnlltor may hove undC!r the low, ac~t Insofar as J uth rirJhU
or dt/cnst:s o,r: subi«t ro rht limTtotiOnJ fmpostd by thr. Prine/pits gove.rnlng
CJtopptl. (lkl'" SantoJ v:sMtG101ti, 96 Ph/I, 577}
2. )( Co •• Inc., a corponillon orpnlud for the purpose of enpaJna In the 1eneral c.onstn.1<1Jon
bullness .:imend• lt.J ArtlclcJ of 1·nc-orporailon to ctian10 lt:s: prlm;i,y purpose to u::ilty, ot
the buylnc and sclU~I ot any ind ,11 type, ot real ptopertlt1-. "'A•, one fl) ot the five (SJ
UO(;kholdru/ directors obJe<td but was out vot,d. On the 30,. day from thtm!ftom, he
mada .a wrht• n dcn,•nd on the '°rporatlon that he be paid the fllir v~lue of hb share.s. It
;ippu,;, however, th1u the corponitlon alrc:-adv uk d tip :.II hi fund.J to ac.quht tell
propeniu, w'hkh it 1end1, to res:tll to the cont~ctor of the SCTEX ex1ensfon. lhUI h hH no
unrenrlcud re1alned Hmlnai-. Thi.I$, w;n not p.akl the fai r va11.1e of hi, i-arts within the
period ptovldcd for ln the Code.
a, Wh-11 It the effect of the e•etdte of hi1- 1ppraiHI rlatu ln !'#latlon 10 his rlchu. as a
sto'"'olde.r? (3ptsJ
From ihe provl#onJ of Ste. 8J of ihe ,o,p,orort<Qn Codt, it con bt os"'ram~ rhor
tht eietdst of oppraFsol rJoht shall JuJ~ oll rlohu otcrulno 10 suth shores.
lntllldlng YOdng and dMdend dghts. ~xctpt rh t right of lht dissmllng s1ockl1oftkr
ro rtai~ paymenr oj th.I! fair value of his shorts.
b. Wh.Jt Ii the effect of 1t,e fllfluro on 1h11: pan of th corporation to pay hf, shar•s:
from date or-awa.rd wllhln the pe,lod provided farl n the code (3pts)
Sedlon 83 aJ lhr. Corporation lo.st paragraph provides, "Provided, Thal If the
d,ss~ntlng .stodchofdc, ts not paid the value of his shores within 30 days ofter the
awo1d, hlf voling 011d dfvidrnd rlgJtts sholl lmmediattly restor~s.
Aller one 11,1 year the corporation made PSOM 1.1nremkted reta.lnNI e.unlngs and the
rcmalnln• 4 Slodtholders/ dlrcctQn now want t.o pay lhc f.alr v:.luc 01 •A',/' share• wttl~h
Is PlM and 1h.1t they will thereaht't declare lhe ~malnder as cash dividends lo lhe
eicd1.1~on of •A"
t. Maytheyvilldly do so1Whyorwhynot?tSptsJ
No, under t/14,- provl1ions of Seel/on BJ of Ott! Corr,orotlon cod,: whfdl Jtorm: that'" ij
the dlJ,untlng stockhold~r (s nor paid rhe valve of his shor~s wlll'Jin JO days ofter 1he
owo,d, his votino ond di'11ltknd rl9ht.s Jho/1 lmmediot~ly rtsro,n. •A"' Is rht1nfore
hos brrn rtt.srore.s from his r(ghu os o srockholde, and thus enc/tied ro the
dimlbur(ori of the tMh divfdtnds, thf! Jou, othtr dltectof'I lOMOt 110/ldJv tMludt "A,.
from""'' dtcioto:ron
-
TRIJE OR FALSE:
I. An educational institution can have nine members.

False. The number of the boanl of lrUSICCS should not be less than 5 but not more
than 15.
l. ln all cues, disM>lution is followed by liquidation and winding up.
False. In case of merger and consolidation, the constituent corporations ate
automatically dissolved but there is continuance of the enterprise and of the
Stockholders.
3. A corpontion Is • close corpontion if 213 or voting right is owned by another
corpontlon.
False. Close corporatio.n is a special kind of stock corporation whose stocks, 81
least 2/3 of the voting stocks or voting rights of which ate not owned or controlled
by another corporation which is not a close corporation.
4. Purcbue of treasury sban is equivalent to subscription.
False. Treasury shares ate shares of stocks which have been issued and fully paid
for. Subscription refers to any contract for the acquisition of un-issued stock in an
existing corporation or a corporation Still to be performed shall be deemed a
subscription.
5. In amendment in tbe by-laws apprabal right is available.
False. Amendment in the by-laws is not included in the illSlaDCCS enumerated in
the corporation code. It should be a proposed action involving a fundamental
change in the corporation in the cases provided by law.
lmtllnces of Appraisal Right:
a. An omendmcnt to the AOI that has the effect of:
b. Sale. encumbrnncc or other dlsp0sltlons of all or substanllally all of the
corporate property or assets.
c. Investment of corporate funds in another corporation or in a purpose other
than the primary purpose.
d. Merger or consolidation.
e. In a close corporation, a stockholder may for any reason, compel tbe
corporation to purchase his shares when the corporation has sufficient as.~ts
in hs boob to cover itS debts and liabilities exclusive of capital stocks.
6. Pre-emptive right is available lo shares issued in exchange for corporate
proper1y.
False, Denial of pre-emptive right extends to shares issued in good faith in
exchange of property oceded for corporate purposes or in payment of previously
conuacted debts.
- hutances wbffl Pn,,cmptlve right b not avallablt:
a. Shares to be issued to comply with laws requiring Stock oftering or minlmum
stock owncrslup by the public.
b. It does not apply to shares that ate being re-offered by the corporation after
they were initially offered together witb all the shares.
c. Shares issued in good faith in exchange for property needed for corporate
purposes.
d. Shares issued in payment of previously contracted debis.
e. In cases the right is denied in the W1iclcs of incorporation.
f. Waiver of the right by lhc stockholder.
7. The averment of a fo reign corponotion' s capa.city to sue is not necessary for it
to pin access to our cour1 if it mtttly defending a suit against iL
• True.
8. Tbe powtr and authority of a corponotion sole to own, dispose and .u....te
real pro~rties is tht same as in any other COTJ>Onotion.
- False. The extent of its power to sell or mortgage real propcr1ics is $Ubject to a
cer18ln restriction not otherwise imposed In any corporation. That is, a proper coUl1
order must first be secured for that purpose.
9. A tnutte in a voting trust agreement can vote by proxy.
• True.
10. All educational corponotions mu.,t have a governing board of S, 10 or 15.
- Fo.lse. In a non-stock corporation, the number of board of trustees may be more than
15. In an educational corporation, lhe number of the board of trustees should not be
less than 5 but not more than 15.
11. A director whose shares are declared delinquent does not automatically cease
to be a director.
• True.
12. T h e by-laws of • stock corponotion may provide that stockholders' metti ng
may be b eld anywhere In tbe Philippines.
• False. The meetings of stockholders or members should be held in the
eity/munlcipality where the principal office of the corporation is loca1cd, and if
pmcticable in the principal office of the corporation: Provided. that Metro Mnnila
shall, for the purpose of Section 51, be considered a city or municipality.
U. A n:ligjous ao.ciety does n o t commence to have • juridical ~rsonality until
t he issuance oflbe ecrtiflcate of registnotion/incorporation by t he SEC.
- True.
- The General Rule is that, the Corporation Code does not require any religious
group to be registered as e corporation but if ii wants to acquire legal personality, its
members should incorporate under the Corporation Code.
14. The appointment of an exclu.,ive dealer domk:iled In the Philippines by a
foreign corponotlon does not atceU■rily imply doing/transacting b11Sin-.
• True.
15. The d issolved constituent corponotion in a merger should necessary llquldatt
ib corponote affairs.
16. • False. The oonstltuent oorpomtions are automatic:ally dissolved but there ls
oontinuance of tbe enterprise and of the stockholders.
17. Non-ming o f by-laws within tbc ~riod of time provided for by law results to
the a uto matic dissolution of the corponotlon.
- False. Failure 10 submit or file the by-laws within 30 days from incorporation does
not automatically dissolve the corporation. It is merely a ground for suspension or
revocation of its charter after tbe proper ootice ad hearing. The corporation is. at the
very least, a de facto corporation whose existeoee may not be collaterally attacked.
18. C wnulative voting is generally n ot allowed in non-stock corponotions •
• True.
--·. .·- ----- -------- --- -------~==-~-----

No. 5
When a corporation amends its Articles of Incorporation to effect a change in
the corporate name, will its rights and liabilities change as well? *
a) Yes because the new name means that the nature of the corporation has already
changed.
b) Yes because the rights and liabilities follow the corporate name.
c) No because it is still considered the same corporation with a different name.
d) No because what was amended was only the corporate name and not the
classification of the corporation
No.7
A,B, C, D and E are the five-man governing board of X Co. Inc. On March 10,
2020 the remaining members of the Board consisting of A, Band C held and
conducted a meeting to fill up two (2) vacancies in the board caused by the
resignation of D six months before the expiration of his term and by the removal
of E by the stockholders. D was replaced by F and E by G. The election of F and G
are --- *
O a) valid for both.
O b) invalid for both.
O c) invalid for F but valid for G.
O d) valid for F but invalid for
No. 8
Which of the following acts of a director is not subject to ratification at the
instance of any one stockholder.
a) If the director acquire any personal or pecuniary interest in respect to any matter
repose in him in confidence.
b) 1f the director acquires any personal or pecuniary interest in conflict with his duty
as such director.
c) If the director acquires for himself a business opportunity rightfully belonging to
the corporation.
d) if a director enters into a contract with his own corporation
No. 9
Which of the following meetings is not generally valid?*
a) Members' meeting held in Tagaytay City where the principal office is located in
Makati but the by-laws provide that members' meetings may be held anywhere in the
Philippines.
b) Stockholders' meeting held in Yagaytay City where the principal office is located in
Makati but the by-laws provide that meetings of stockholders may be held anywhere
in the Philippines.
c) Directors meeting held in Singapore where the principal office is located in Makati.
d) Trustees meeting held in Tagaytay City where the principal office is located in
Makati.
No. 11
Which of the following general statements is not correct?
a) A foreign corporation doing business in the Philippines with a license can sue
before our courts
b) A foreign corporation not doing business in the Philippines and without a license
can sue before our courts.
c)A foreign corporation not doing business in the Philippines and without a license
courts cannot be sued in Philippine courts.
d ) A foreign corporation doing business in the Philippines and without a license can
sue before our courts.
II. TRUE OR FALSE

If you answer is True, just write TRUE. If FALSE, write, FALSE and your reason/s in not more
than 8 sentences.
No. 1 in any domestic corporation, the corporate president cannot legally be the corporate
secretary at the same time. *
True
No.2 A Corporation organize under Philippine law cannot have a governing board consisting
solely of foreigners. *
Your answer
No. 3 A stockholder who entered into a Voting Trust Agreement covering all his share is still
qualified to be elected as director. *
Tf
No.4 The tenure of a director may be of a shorter or longer duration than his term.*
Your answer
No. 5. Common shares cannot validly be denied the right to vote by a provision in the articles of
incorporation.
No. 6. Wash sale and matched order are not illegal per se.
No. 7. There is no limited shareholders liability to persons assuming to act as a corporation

knowing it without authority to do so.
No. 8. Contracts between corporations with interlocking directors are generally voidable.
No. 9. A de facto corporation may exist, in so far as the incorporation themselves are concerned,
even without the issuance of the certificate of incorporation.
No. 10. A proxy holder has all legal rights to the shares.
III. CASE ANALYSIS

Thoroughly answer each item in not more than 8 sentences (that means, it can be less than 8).
X CO., INC. has an authorized capital stock of Php2M, Ph1 M of which were subscribed and
fully paid up by the following stockholders: A with 200Tshares, B 200Tshares, C, 200Tshares D
100Tshares, and E with 100Tshares who are members of the same family and the majority
stockholders. The other stockholders consist of F with 100Tshares, G 50Tshares, H 25Tshares,
and I, 25Tshares who are not in any way related to each other nor those of the majority
stockholders and thus the minority shareholders.
a) If the corporation has a 5-man governing board, how may the minority have a rightful
representation in the board? Explain and/or illustrate. (5pts) *
b) Assume that the 5-man governing board consists of A, who is at the same the President and
Chairman of the Board, B, the Vice Chairman, C, the Corporate Secretary, D, the Treasurer, and
F with no other position except as director. At a duly held and constituted meeting of the Board,
a Resolution was passed granting compensation in favor of the Chairman, the Vice Chairman,
Secretary and Treasurer over the vehement objection of F in view of the fact that there is no by-
law provision authorizing it nor any direct grant torn the stockholders. Rule on the objection and
explain. (5pts) *
c) Assuming that A, the President and D, the treasurer, issued a check in payment of corporate
obligations but the check covering the same bounces and the creditor sued them in their personal
capacities criminally and civilly. They interpose the defense of the Corporate Entity Theory to
evade liability. Rule and explain. (3pts)*
Your answer
d) Assume likewise, that the corporation’s unrestricted retained earnings reached more than
100% of its paid up/in capital and the minority stockholders made a demand on the Board to
declare dividends but the Board refused to do so. Is the actuation of the Board valid? Why or
why not? (3pts)*
Your answer
e) Assume further that due to insistent demand of the stockholders, the Board goes to you for
legal advise. What advise will you give to absolve them from liability for not declaring
dividends? (6pts)*
Your answer
f) If the corporation decides to amend the Articles of Incorporation to provide for preferred non-
voting shared and “G” dissented but was out-voted. He then surrendered his stock certificate for
notation that they are dissenting shares. The next day, however, he transferred his shares to “Z”
to whom a new stock certificate was issued in his name. Twenty five (25) days after the
resolution to amend the Articles of Incorporation, “G” now, makes a demand on the corporation
to the payment of the fair market value of his shares. Can he do so? Why or why not?
Your answer
g) Assume further that “A” has unpaid subscriptions and was appointed as the corporate
president by the Board of Directors. Subsequently, however, there was a change in management
and had a disagreement with the new management. He resigned and made a demand that he be
paid his unpaid salaries. The corporation refused and claimed that it applied the same to his
unpaid balance on his subscription. Is the corporation correct? Why or why not? (3pts)*
Your answer
h) Assume that further that the par value of the shares is at Ph100.00. In January 2020, “Z”
acquired 50 thousand of the unissued shares of the corporation with a stipulation that he shall pay
outright 50% of the value thereof, the balance to be paid on or before the end of August and that
until and unless he pays the full acquisition cost he shall not be considered as a stockholder. Is
the condition that he will not be considered as a stockholder valid? Why or why not? (3pts)*
Your answer
i) Three (3) months later, “Z” not having paid his entire acquisition cost, the corporation declared
cash dividends. Will “Z” be entitled thereto? Why or why not? (3pts)*
Your answer
j) Assume further that the corporation is into the manufacturing concern, it leased a 1.5 hectare
land from a 3rd party where it built its plant/factory warehouse and corporate headquarters. Two
(2) months after “Z” acquired the unissued stocks the entire compound was ravaged by fire
turning everything into ashes rendering the corporation insolvent. May the corporation or its
creditors be able to collect the unpaid acquisition cost of the shares acquired by “Z”? Why or
why not? (5pts)*
Your answer
k) Assume further that “K”, a non-stockholder was appointed by the Board as the Finance
Manager, a position required by the by-laws. One (1) year later, he was removed from office by
the new set of directors. He questions the propriety/legality of his removal from office by filing a
case with the Special Commercial Court. The Board questions its jurisdiction in that there is no
intra-corporate relationship between “K” and the corporation. Rule and explain. (5pts)*
Your answer
l) Disregarding the foregoing, and assume that the corporation is engaged in the general
construction business and nothing more. A, B, C, D and E are the only stockholders/directors.
The Articles of Incorporation is amended by changing the purpose clause to buying and selling
of any type/s of real properties. “A” vehemently objected but was out-voted by the other 4
stockholders since they intend to use the funds of the corporation to acquire real properties in La
Union which will be traversed by the TPLEX Extension Project. Thirty (30) days after the
meeting, “A” went to the corporate office, armed with a demand letter that he be paid the fair
value of his shares. All the stockholders/directors were present where it was unanimously agreed
that the fair value of his shares is Ph10M. The corporation, however has no more funds to pay
the shares of “A” since the funds were used up to acquire real properties in La Union. Thus “A”
was not paid the value of his shares. A year later, the corporation sold all the properties to be the
developer of the TPLEX Extension Project and the corporation made a hefty Ph110M
unrestricted retained earnings. May the corporation now pay the fair market value of the shares
of “A” and later declare the remaining Ph100M unrestricted retained earnings as cash dividends
to his exclusion? Why or why not? (5pts)*
Your answer
m) Disregarding the above and assume that the corporation is a listed company engaged in the
drilling of natural gas. It discovered along the coast of Palawan, natural gas of commercial
quantity. For a month the corporation did not disclose the same to the SEC and the Philippines
Stock Exchange. In the interim, The directors and officers bought shares of the corporation from
the PSE at a very low price. After the disclosure the value of the shares increased five-folds and
the directors/officers sold their shares earning huge profits. What provision of the Securities
Regulation Code was violated and why? (5pts)*
Your Answer
n) If the corporation involved is a close corporation and made Ph10M in profits but has Ph5M in
liabilities and the remaining Ph5M was used as reserves for possible contingencies. May a
stockholder, for any reason, compel the corporation that he be paid the fair value of his shares
and be paid the same? Why or why not? (5pts)*
Your Answer
IV. COMMENTARY
Answer in not more than 10 sentences (it means your answer can also be less than 10 sentences).
Give your comment of the decision of the High Court in Clemente vs CA, regarding a juridical
entity, long dissolved (about 40 years) with no known stockholders/creditors to the effect that:
“The termination of the life of a juridical entity does not only by itself cause the extinction or
diminution of the rights and liabilities of such entity (Gonzales vs Sugar Regulatory
Administration) nor those of its owners or creditors. If the three year extended life expired
without a trustee or receiver having been expressly designated itself, following the rationale of
the Supreme Court’s decision in Gelano vs C.A., may be permitted to do so as “trustees” by legal
implication to complete the liquidation. Still in the absence of a board of directors or trustees,
those having any pecuniary interest in the assets including not only the stockholders but likewise
the creditors of the corporation, acting for and in its behalf, might make proper representations
with the SEC, which has primary and sufficiently broad jurisdiction in matters of this nature, for
working out a final settlement of the corporate concern.”*
Your answer
c
(RANADA – Wednesday) CORPORATION LAW MIDTERM EXAM
I. MULTIPLE CHOICE QUESTIONS

Write down the letters to the correct answers.
3. Which of the following general statements is not correct?
a) A foreign corporation doing business in the Philippines with a license can sue before our courts.
b) A foreign corporation not doing business in the Philippines and without a license can sue before our courts.
c) A foreign corporation doing business in the Philippines and without a license can sue before our courts.
d) A foreign corporation not doing business in the Philippines and without a license cannot be sued in the
Philippine courts.
e) None of the above
6. A close corporation may validly provide in its articles of incorporation or by-laws that
a) cumulative voting shall be denied to the stockholders.

b) proxy voting shall be denied to the stockholders.
c) meetings of the stockholders may be held anywhere in the Philippines.
d) quorum and voting requirements in the stockholders’ meeting shall be more than those provided by
law.
e) none of the above
10. Assume that of the 20,000 subscribed shares of B, he has paid only 10,000 thereof. The corporation
increases its capital stock from the original 100,000 par value of Ph100.00 per share. What is the extent of his
pre-emptive right over the new issuance of the additional 100,000 shares.
a) 100,000 shares because the stockholders have the right to subscribe to all issues of disposition of share.
b) 100,000 or the extent of his paid up capital.
c) 20,000 because that represents his proportionate interest in the corporation
d) 100,000 because it is the same number of the original issuance.
c
1. Wash sale and matched order are illegal per se.
Answer: False. Since wash sale and matched order are illegal only when it is used to create false or
misleading appearance of active trading in the security concerned.
2. A stockholder who acquires all the shares of an insurance company may convert the latter as One Person
Corporation.
Answer: True
3.
4.
5. The term of office of a director/trustee in a stock educational corporation may be five (5) years.
Answer: False. The Revised Corporation code provide that trustees shall be elected for a term not
exceeding 3 years from among the members of the corporation.
6.
7. Contracts between corporations with interlocking directors are generally valid.
Answer: True
8. Subscribers to the shares of stock of a corporation are considered stockholders/shareholders.
Answer: True
9. A corporation cannot act simultaneously as a corporation de jure and a de facto corporation.
Answer: True
10.
2. For purposes of determining the nationality of a corporation, when will the Grandfather Rule apply instead of
the incorporation or control test. (3pts)
c
Answer: According to jurisprudence provide that the grandfather rule will apply as an exception that in case of
war the control test will apply. In case of war, the grandfather rule will apply.
c
A. The business judgment rule will not apply in case of deadlocks in a close corporation. (4pts)
Answer: The business judgment rule will not apply in the case of deadlocks because the court can intervene. It
can appoint a provisional director who is an extension of the court and he can case the deciding vote to break
the deadlock.
B. The preemptive right of a stockholder in a close corporation, if not denied by a provision in the articles of
incorporation or any amendment thereto, is absolute as may be compared to the ordinary/regular
corporation. (4pts)
Answer: The revised corporation code provides that the pre-emptive right of a stockholder in a close
corporation extends to all stocks to be issued. It includes reissuance of the treasury share whether for money,
property of personal services or in payment of the corporation debts, unless the article of incorporation provide
otherwise.
C. The grounds for the dissolution of a close corporation is more extensive than those of the ordinary stock
corporation. (3pts)
Answer: Yes. Because the Revised Corporation code provides a dissolution in a voluntary dissolution where no
creditors are affected and a dissolution where creditors are affected.
c
b. If there will be no bidders in the delinquency sale, may the corporation bid? Why or why not? (3pts)
Answer: No, the corporation cannot bid. The Revised Corporation code provides that there be no bidder at a the
public auction who offers to pay the full amount of the balance on the subscription together with the accrued
interest, cost of advertisement and expenses of sale, the smallest number of shares or fraction of a share, the
corporation may bid.
c. Disregarding the above, and assume that “C” one of the stockholders was validly awarded by the board, by
way of a contract, to operate the canteen in the corporate headquarters. By virtue of a subsequent violation
of the contractual obligation committed by “C”, relative to the operation of the said canteen, the Board
decided to terminate the award granted to “C”. If “C” will question the actuation of the Board may the
action be instituted in any Regular Trial Court and not the Special Commercial Court? Why or why not?
(4pts)
Answer: -
i.a. Assume further that the par value of the share is at Ph100.00. In January 2020, “Z” acquired 50 thousand of
the unissued shares of the corporation with a stipulation that he shall pay outright 50% of the value thereof, the
balance to be paid on or before the end of August and that until and unless he pays the full acquisition cost he
shall not be considered as a stockholder. Is the condition that he will not be considered as a stockholder valid?
Why or why not? (3pts)
Answer: No. Z shall enjoy the rights of a stockholder even if there is unpaid balance. Under the Revised
Corporation code, holders of subscribed shares are not fully paid which are not delinquent shall have the rights
of a stockholders. In this case, Z’s shares is not a delinquent share. Hence, he shall have the rights of a
stockholder.
i.b. (In relation to item i.a. above) Three (3) months later, “Z” not having paid his entire acquisition cost, the
corporation declared cash dividends. Will “Z” be entitled thereto. Why or why not? (3pts)
Answer: Z is entitled to receive cash dividends because the Revised Corporation code provides that subject to
the condition that the cash dividend he receives will be transpired as payment for his unpaid subscription,
inclusive of cost and expenses.
c
j. Assume further that the corporation is into the manufacturing concern, it leased a 1.5 hectare land from a 3rd
party where it built its plant/factory warehouse and corporate headquarters. Two (2) months after “Z” acquired
the…..
(RANADA-Wednesday) CORPORATION LAW FINAL EXAM
No. 3
Short sale is illegal per se if the SEC has no rules and regulations governing the same.
FALSE. Because it must have rules and regulations.
No. 4
An educational corporation may have an eleven (11) man member board.
TRUE
No. 6
A stockholder who is also a director who entered into a voting trust agreement is still qualified to be and act as a
director.
FALSE. He is not qualified as a director. the Revised Corporation code requires that one qualification to be me
a director is that he must own at least one share of stock.
d. A close corporation may pay the value of the shares of a withdrawing stockholder even if the
corporation has no unrestricted retained earnings. (3pts)
It does not require URE, only sufficient asstes to cover the debts and liabilities. It cannot use capital stock to
pay shares of withdrawing stockholder.
c
h) Assume further that “A” has unpaid subscriptions and was appointed as the corporate president by
the Board of Directors. Subsequently, however, there was a change in management and had a
disagreement with the new management. He resigned and made a demands that he be paid his unpaid
salaries. The corporation refused and claimed that it applied the same to the unpaid balance on his
subscription, is the corporation correct? Why or why not? (3 pts)
The corporation is incorrect. Proper notice and demand were made since there was an absence of a call and it
should have been made by the board. Under the law, in case of payment of balance in subscription, it is
important that the date indicated in the subscription contract be followed in terms of payment, and a call made
by the board be presented for collection of unpaid balance of the subscriber. Hence, it was not followed since
the corporation did not issue the resolution regarding the call nor checked in subscription terms.
(RANADA-Wednesday) CORPORATION LAW MIDTERM EXAM
No. 4
In so far as the stockholders, directors and officers of a de facto corporation concerned, they have the same
rights, liabilities and obligations as those jure corporation.
FALSE, they have different rights, liabilities and obligations.
No. 5
Common shares cannot legally be denied the right to vote by a provision in the Articles of Incorporation.
FALSE, common shares may be denied the right to vote in founder's shares when they are issued. This can be
granted with an exclusive right to vote for a period which will not exceed 5 years.
c
No. 7
The Doctrine of Equality of Shares in one where all shares of stock issued by the corporation are equal in all
respects unless the Articles of Incorporation provide otherwise.
FALSE, the law provides that the rule as to the equality of shares, there should be more than one kind of shares
issues. This is irrespective of classification which is: (1) as a general rule, equal in all respects; and (2) as an
exception to the rule it must be stated in the Articles of incorporation and Certificate of stock.
No. 9
A self-dealing director refers to one whose shares of stock is either nominal or substantial in both corporations
dealing with each other.
FALSE. It should be interlocking directors. It refers to one whose shares of stock is either nominal or
substantial in both corporations dealing with each other.
No. 10
Cumulative voting is the method of casting one vote per director/candidate.
FALSE. This is a definition of a straight voting. In cumulative voting, it is defined as a method of
concentrating votes to give sufficient opportunity to minority shareholders to secure representation in vote.

Write down the letters to the correct answer.
No. 1
c
A, B, C, D, and E, are the 5-man governing board of X Co., Inc. On October 30, 2020, the Board of Directors,
consisting of A, B, and C held and conducted a meeting to fill up two (2) vacancies in the Board by virtue of the
removal of D the stockholders and the death of E. F was unanimously elected to replace D. G in lieu of E. The
election of F and G is/are
a) valid for both
b) invalid for both
c) not valid for F but valid for G
d) not valid for G but valid for F
(RANADA-Wednesday) CORPORATION LAW FINAL EXAM
No. 1
The fair market value of the shares of a stockholder exercising his appraisal right should be determined on date
a) of the meeting where he interposed his dissent/objection thereto
b) of the receipt of the corporation of his written demand that he be paid the fair market value of his shares.
c) of the payment of his shares.
d) None of the above.
No. 4
A stockholder whose shares are declared delinquent will have
a) Voting rights but no dividend rights.
b) Voting and dividend rights.
c) No voting and dividend rights
d) All dividend rights but no voting
c
No. 5
The winning bidder in a delinquency sale is
a) The bidder who bids for the highest price for the shares of delinquent stockholder.
b) The bidder who pays or tenders to pay the amount to delinquency plus cost, expenses and interest, if any, for
the most number of shares.
c) The bidder who pays or tenders to pay the full value of the shares the amount to delinquency plus cost,
expenses and interest, if any for the least number of shares
d) The bidder who pays or tenders to pay the full value of the shares exclusive of the amount already paid for by
the delinquent stockholder.
e) None of the above.
No. 7
Which of the following meeting is not generally valid?
a) Members' meeting held on Tagaytay City where the principal office is located in Makati but the by-law
provide that members' meeting may be held anywhere in the Philippines.
b) Directors meeting held in Singapore where the principal office is located in Makati.
c) Trustees meeting held in Tagaytay City where the principal office is located in Makati.
d) Stockholders' meeting held in Tagaytay City where the principal office is located in Makati but the by-laws
provide that meeting of stockholders may be held anywhere in the Philippines.
No. 9
c
B subscribed to 20,000 shares of X. Co., Inc. and paid 25% of his subscription. In a shareholders' meeting, how
many shares is he entitled to vote?
a) 5,000 because he is a stockholder to the extent of number of shares paid.
b) None because he is not yet a stockholder of the corporation pending full payment of the shares he subscribed.
c) 20,000 because all the shares he subscribed are outstanding capital.
d) 5,000 which constitutes 25% of the paid shares because the Code requires that 25% of the amount subscribed
should be paid.
a) May the other shareholders exercise their pre-emptive rights as to the originally unsubscribed portion of the
original authorized capital stock? Why or why not? (5pts)
Yes. They may exercise their preemptive right is the right of shareholders to subscribe to all issues or
disposition of shares of any class in proportion of their shareholders and it does not distinguish between newly
issued shares and previously unsubscribed shares. Therefore, the other shareholders can exercise their pre-
emptive rights.
b) Disregarding the above, and assume that the entire 10M has been subscribed. The 5 directors, A, B, C, D, and
E passed a Resolution for the grant of their compensation subject to approval of the majority of the outstanding
capital stock. A and B owns 20% each of the outstanding capital stock while the three (3) others at 10% each.
30% thereof are held by the other stockholders. What is the vote required in order that the stockholders may
validly grant them compensation? Explain (5pts)
No. there is no vote required in order that the stockholder to grant compensation.
c
c) Disregarding the above, and assume instead that of the Authorized Capital of 10M, 5M was subscribed at 1M
each by A, B, C, D, and E. 4M was paid up. 1M each
balance on their respective subscriptions. The corporation made 6M unrestricted retained earnings. May the
Board be compelled by a stockholder to declare dividends? Why or why not? (3pts)
No, the stockholder should not compel the board to declare dividends. Under the law, the board has the
discretion to declare dividends.
d) With the approval of the stockholders, may the entire 6M be declared as stock dividends. Why or why not?
(3pts)
No. In the approval of stock dividends it must have an approval from the board of directors of 2/3 votes.
e) If the corporation declares Ph5M cash dividends, how much will each of the 5 stockholders receive as their
share of the dividends. Explain. (4pts)
f) Assume further that the corporation invested Ph1M of its funds to buy SMC shares at Ph1.00 per share or 1M
shares. In due course, SMC declared stock dividends to its stockholders including X Co., Inc. entitling them 1
share for every 2 shares held by each of them. X Co., thus received 500T SMC stock dividends. If X Co., Inc.
decides to declare the 500T SMC shares as dividends to its stockholders will latter's approval be required for its
validity. Why or why not? (3pts)
Yes. Under the law, the approval of the stockholder's representing at least 2/3 of the outstanding capital stock is
necessary to validly issue stock dividends. Hence, it must have the approval of the stockholders to declare the
500T SMC shares as dividends.
c
g) Disregarding the above, and assume that the 5-man member Board are A, B, C, D, and E who were elected as
such on October 15, 2020. Two (2) months later, E sold all his shares to A. In a subsequent meeting of the
Board for purposes of amending the Articles of Incorporation, E attended for the reason that he is still a member
of Board, in that the elected directors shall serve for term of one (1) year until their successors are duly elected
and qualified in accordance with law. Is the contention of E valid? Why or why not? (3pts)
No. E's contention is invalid. As section 22 of the corporation code provides that a director who ceases to own
at least one share of stock. In this case E sold all hiss shares to A.
m) Disregarding the above and assume that the corporation is a listed company engaged in the drilling of
natural gas. It discovered along the coast of Palawan, natural gas of commercial quantity. For a month
the corporation did not disclose the same to the SEC and the PSE. In the interim, the directors and
officers bought shares of the corporation from the PSE at a very low price. After the disclosure the value
of the shares increased five-folds and the directors/officers sold their shares earning huge profits. What
provision of the Securities Regulation Code was violated and why? (5pts) *
It shall be deemed as insider trading. Such is sanctioned by the Securities Regulation Code.
Under the law, in an insider trading, no person may trade particular security while in possession of
material non-public information. As such the non-disclosure of the discover and the subsequent
purchase of shares of the corporation without informing the SEC and Stock Exchange would amount to
insider trading.
a) If the corporation has 5-man governing board, how may the minority have a rightful representation in
the board? Explain and/or illustrate. (5pts) *
In this case, the minority have a rightful representation by means of cumulative voting. In a cumulative
voting, a stockholder can give a number of votes to one or some of the candidates at the stockholder’s
discretion without any limitation, except that the total votes cast by the said stockholder shall not
exceed the number of shares owned multiplied by the number of the directors elected.
c
No. 4. The tenure of a director may be of a shorter or longer duration than his term.
TRUE
No. 7. There is no limited shareholders liability to persons assuming to act as a corporation knowing it
without authority to do so.
FALSE. As provided in the Revised Corporation Code, all persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a results thereof: Provided, however, that when any such ostensible
corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as
such, it shall not be allowed to use as a defense its lack of corporate personality. On who assumes an
obligation to an ostensible corporation as such, cannot resist the performance thereof on the ground
that there was in fact no corporation. Hence, there is limited shareholders liability to persons assuming
to act as a corporation knowing it without authority to do so.
No. 9 Which of the following meetings is not generally valid.
a) Members’ meeting held in Tagaytay City where the principal office is located in Makati but the
by-laws provides that members’ meetings may be held anywhere in the Philippines.
b) Directors meeting held in Singapore where the principal office is located in Makati.
c) Trustees meeting held in Tagaytay City where the principal office is located in Makati.
d) Stockholders’ meeting held in Tagaytay City where the principal office is located in Makati
but the by-laws provide that meetings of stockholders may be held anywhere in the
Philippines.
i) Three months later, “Z” not having paid his entire acquisition cost, the corporation declared cash
dividends, Will “Z” be entitled thereto. Why or why not? (3pts) *
Yes, Z will be entitled to the cash dividends.
As a stockholder, whether his shares are fully paid or not, he shall enjoy all the rights of a stockholder,
including his right to the dividends.
c
The only instance when he may be denied of his right to dividends is when he be declared as a
delinquent stockholder.
No. 10. A subscriber to shares of stock who has paid 50% of his subscription is--- *
a) entitled to the issuance of a certificate stock covering the whole number of shares subscribed
b) entitled to the issuance of shares of stock covering the portion (number of shares) he may have
already correspondingly paid for
c) not entitled to the issuance of any stock certificate
d) entitled to the issuance of a stock certificate corresponding to the number of shares already paid for if
agreed upon pursuant to a contract or allowed by the by-laws.
c) Disregarding the above, and assume instead that of the Authorized Capital of 10M, 5M was subscribed
at 1M each by A, B, C, D, and E. 4M was paid up. 1M each by A,B, and C, and 500T each by D and E,
leaving the latter two (2) SOOT unpaid balance on their respective subscriptions. The corporation made
6M unrestricted retained earnings. May the Board be compelled by a stockholder to declare dividends?
Why or why not? (3pts) *
No, the stockholder should not compel the board to declare dividends. Under the law, the board has the
discretion to declare dividends.
d) With the approval of the stockholders, may the entire 6M be declared as stock dividends. Why or why
not? (3pts) *
No. in the approval of stock dividends it must have an approval from the board of directors of 2/3 votes.
e) If the corporation declares Ph5M cash dividends, how much will each of the 5 stockholders receive as
their share of the dividends. Explain. (4pts) *
(LADIA MW3pm) CORPORATION LAW MIDTERM EXAM

* Required
No.1. A. B, C, D. and E are the 5-man governing board of X Co.. Inc. On October 3 2020, the Board of
Directors, consisting of A, B. and C held and conducted a meeting to fill up two (2) vacancies in the Board
c
by virtue of the removal of D the stockholders and the death of E. F was unanimously elected to replace
D. G in lieu of E. The election of F and G is/are *
a) valid for both.

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

Write down the letters to the correct answers.
No. 4. In so far as the stockholders, directors and officers of a de facto corporation concerned, they have
the same rights, liabilities and obligations as those jure corporation. *
FALSE, they have different rights, liabilities and obligations.
No. 5. Common shares cannot legally be denied the right to vote by a provision in the Articles of
Incorporation.
FALSE, common shares may be denied the right to vote in founder's shares when they are issued. This
can be granted with an exclusive right to vote for a period which will not exceed 5 years.
No. 7. The Doctrine of Equality of Shares is one where all shares of stock issued by the corporation are
equal in all respects unless the Articles of Incorporation provide otherwise.*
FALSE, the law provides that the rule as to the equality of shares, there should be more that one kind of
shares issues. This is irrespective of classification which is 1 as a general rule, equal in all respects and 2
as an exception to the rule, it must be stated in the AOI and Certificate of Stock.
c
a) May the other shareholders exercise their pre-emptive rights as to the originally unsubscribed portion
of the original authorized capital stock? Why or why not? (5pts) *
Yes. They may exercise their preemptive right is the right of shareholders to subscribe to all issues or
disposition of shares of any class in proportion of their shareholdings and it does not distinguish between
newly issued shares and previously unsubscribed shares. Therefore, the other shareholders can exercise
their pre-emptive rights.
b) Disregarding the above and assure that the entire 10M has been subscribed. The 5 directors, A, B, C,
D, and E passed a Resolution for the grant of their compensation subject to the approval of the majority
of the outstanding capital stock. A and B owns 20% each of the outstanding capital stock while the three
(3) others at 10% each. 30% thereof are held by the other stockholders. What is the vote required in
order that the stockholders may validly grant them compensation? Explain (5pts) '
f) Assume further that the corporation invested Ph1M of its funds to buy SMC shares at Ph1.00 per share
or 1M shares. In due course, SMC declared stock dividends to its stockholders including X Co., Inc.
entitling them 1 share for every 2 shares held by each of them. X Co., thus received 500T SMC stock
dividends. If X Co., Inc. decides to declare the 500T SMC shares as dividends to its stockholders will the
latter's approval be required for its validity. Why or why not? (3pts)
Yes. Under the law, the approval of the stockholder's representing at least 2/3 of the outstanding capital
stock is necessary to validly issue stock dividends. Hence, it must have the approval of the stockholders
to declare the 500T SMC shares as dividends.
g) Disregarding the above and assume that the 5-man member Board are A, B, C, D, and E who were
elected as suction October 15. 2020. Two (2) months later, E sold all his shares to A. In a subsequent
meeting of the Board for purposes of amending the Articles of Incorporation, E attended because he is
still a member of Board, in that the elected directors shall serve for a term of one (1) year until their
successors are duly elected and qualified in accordance with law. Is the contention of E valid? Why or
why not? (3pts) *
No. E's contention is invalid. As section 22 of the corporation code provides that director who ceases to
own at least one share of stock. In this case, E sold all of his shares to A.
c
(LADIA | Sat/Sun 6-8:30) CORPORATION LAW FINAL EXAM
1. A
2. B
3. C
4. The tenure of a director may be of a shorter or longer duration than his term.
TRUE
5. When a corporation amends its Articles of Incorporation to effect a change in the corporate name,
will its right and liabilities change as well?
o a) Yes because the new name means that the nature of the corporation has already changed.
o b) Yes because the right and liabilities follow the corporate name
o c) No because it is till considered the same corporation with a different name
o d) No because what was amended was only the corporate name and not the classification of the
corporation
6. .
7. There is no limited shareholders liability to persons assuming to act as a corporation knowing it
without authority to do so.
FALSE. As provided in the Revised Corporation Code, all persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof. Provided, however, that when any such ostensible
corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such,
it shall not be allowed to use as a defense its lack of corporate personality. On who assumes an obligation to
an onstensible corporation as such, cannot resist performance thereof on the ground that there was in fact no
corporation. Hence, there is limited shareholders liability to persons assuming to act as a corporation
knowing it without any authority to do so.
c
8. Contracts between corporations with interlocking directors are generally voidable.
TRUE
9. Which of the following meetings is not generally valid?
o a) Members; meeting held in Tagaytay City where the principal office is located in Makati but the
by-laws provide that members’ meetings may be held anywhere in the Philippines
o b) Stockholders’ meeting held in Tagaytay City where the principal office is located in Makati but
the by-laws provide that members’ meetings may be held anywhere in the Philippines
o c) Directors meeting held in Singapore where the principal office is located in Makati
o d) Trustees meeting held in Tagaytay City where the principal office is located in Makati
o
10. A subscriber to shares of stock who has paid 50% of his subscription is ---
o a) entitled to the issuance of a certificate of stock covering the whole number of shares subscribed.
o b) entitled to the issuance of shares of stock covering the portion (number os shares) he may have
already correspondingly paid for.
o c) not entitled to the issuance of any stock certificate
o d) entitled to the issuance of a stock certificate corresponding to the number of shares already paid
for if agreed upon pursuant to a contract or allowed by the by-laws.
11. Which of the following general statements is not correct?
o a) The foreign corporation doing business in the Philippines with a license can sue before out courts
o b) A foreign corporation not doing business in the Philippines and without a license can sure before
the courts
c
o c) A foreign corporation not doing business in the Philippines and without a license cannot be sued
in the Philippine Courts
o d) A foreign corporation doing business in the Philippines and without a license can sue before our
courts
…the following stockholders: A with 200Tshares, B 200Tshares, C 200Tshares, D 200Tshares and E with
100Tshares, who are members of the same family and the majority stockholders. The other stockholders
consist of F with 100Tshares, G 50Tshares, H 25Tshares and I 25Tshares who are not in any way related
to each other nor those of the majority stockholders and thus the minority shareholders.
a) If the corporation has a 5-man governing board, how may the minority have a rightful representation
in the board? Explain and/or illustrate. (5 pts)
In this case, the minority have a rightful representation by means of cumulative voting. In a cumulative
voting, a stockholder can give a number of voted to one or some of the candidates at the stockholder’s
discretion without any limitation except that the total votes case by the said stockholder shall not exceed
the number of shares owned multiplied by the number of the directors to be elected.
i) Three (3) months later, “Z” not having paid his entire acquisition cost, the corporation declared cash
dividends. Will “Z” be entitled thereto. Why or why not? (3 pts)
Yes, Z will be entitled to the cash dividends.
As a stockholder, whether his shares are fully paid or not, he shall enjoy all the rights of a stockholder,
including his right to the dividends.
The only instance when he may be denied of his right to dividends is when he be declared as a
delinquent stockholder.
j) Assume further that the corporation is into the manufacturing concern, it leased a 1.5 hectare land
from a 3rd party where it built its plant/factory warehouse and corporate headquarters. Two (2) months
after “Z” acquired the unissued stocks the entire compound was ravaged by fire turning everything into
ashes rendering the corporation insolvent. May the corporation or its creditors be able to collect the
unpaid acquisition cost of the shares acquired by “Z”? Why or why not? (5 pts)
c
Yes. The corporation or its creditors may collect the unpaid subscription..,
k) Assume further that “K”, a non stockholder was appointed by the Board as the Finance Manager, a
position required by the by-laws. One (1) year later, he was removed from office by the new set of
directors. He questions the propriety/legality of his removal from the office by filing a case with the
Special Commercial Court. The Board questions its jurisdiction in that it is the NLRC that is possessed
with jurisdiction in that there is no intra-corporate relationship between “K” and the corporation. Rule
and explain. (5 pts)
No. the regular courts has the jurisidiction over this case because it is stated under Sec. 5 of P.D. No.
902-A among others, controversies in the election or appointments of directors, trustees, officers or
managers of such corporations, partnerships or associations. In the case at bar, K held a position
required in the bylaws of the corporation, hence, there is an intra-corporate relationship between him
and the corporation. Therefore, the cour who has jurisdiction over the case is the regular courts and not
NLRC.
m) Disregarding the above and assume that the corporation is a listed company engaged in the drilling of
natural gas. It discovered along the coast of Palawan, natural gas of commercial quantity. For a month,
the corporation did not disclose the same to the SEC and the Philippine Stock Exchange. In the intermin,
the directors and officers bought shares of the corporation from the PSE at a very low price. After the
disclosure the value of the shares earning hugee profits. What provision of the Security Regulation was
violated and why? (5 pts)
It shall be deemed as insider trading. Such is sanctioned by the Securities Regulation Code.
Under the law, in an insider trading, no person may trade particularly security while in possession of
material non-public information. As such, the non-disclosure of the discovery and the subsequent
purchase of shares of the corporation, without informing the SEC and Stock Exchange would amount to
insider trading.
n) If the corporation involved is a close corporation and made Php10M in profits but has Php5M in
liabilities and the remaining Php5M was used as reserves for possible contingencies. May a stockholder,
for any reason, compel the corporation that he be paid the fair value of his shares and be paid the same?
Why or why not? (5 pts)
Yes, the stockholder may compel the close corporation for payment for the fair value of this shares.
c
In a close corporation, a stockholder may ask for the payment of his fair value of shares for any reason,
as long as the said corporation has sufficient assets aside from his capital stock.
In this case, the value of his shares will be paid out of the Php5,000,000 reserves.
...President and Chairman of the Board, B, the Vice Chairman, C, the Corporate Secretary, D, the
Treasurer, and F with no other position except as director. At a duly held and constituted meeting of the
Board, a Resolution was passed granting compensation in favor of the Chairman, the Vice Chairman,
Secretary and Treasurer over the vehement objection of F in view of the fact that there is no by-law
provision authorizing it nor any direct grant from the stockholders. Rule on the objection and explain.
The objection of F should be sustained.
Under the Revised Corporation Code, Sec. 29 provides that Directors are not allowed to receive
compensation except for per diems. Therefore, even if there is a by-law provision or grant from the
stockholders, it will be void because such is not allowed under the Code. In denying such compensation,
it has been held that giving it to them may affect their interest in the welfare of the corporation, which
shall be the paramount interest of the directors or officers.
c) Assuming that A, the President and D, treasurer, issued a check in payment of corporate litigations but
the check covering the same bounced and the creditor sued them in their personal capacities criminally
and civilly. They interpose the defense of the Corporate entity Theory to evade liability. Rule and explain.
(3 pts)
Yes, they may interpose the defense of Corporate Entity Theory to evade liability.
Under the corporate entity theory, the corporation is possessed with the juridical personality separate
and distinct from the individual stockholders or members and is not affected by the personal rights,
obligations or transactions of the latter. Further, the properties it possesses belongs to it exclusively as a
separate juridical entity such that personal creditors of its stockholders or members cannot attach
corporate properties to satisfy their claims. Therefore, here they may evade liability.

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MULTIPLE CHOICE

1. A stockholder whose shares are declared delinquent will have

2. Which of the following meetings is not valid?

5. A close corporation may validly provide in its AOI or by-laws that

1. In cases of merger, the employees of the absorbed/dissolved corporation are automatically

5. A transferee of a certificate of stock in a non-stock corporation, if they are transferable by virtue of a

• Distinctions between CC and OSC (see page 106!)

8. The appointment of a distributor/representative in the Philippines made by a foreign corporation

9. The winning bidder in a delinquency sale is the highest bidder

1.) Dissipation, loss, wastage or destruction of assets or other properties and;

2. All of the following statements are correct. Why it is said that:

e. Certificate of stock are merely quasi-negotiable but non-negotiable (3pts)

DE FACTO CORPORATIONS identity of corporate interest between the two

d. not fraudulent unless used as a run-away corporation = PVCF

7. Which of the following meetings is not valid?

18. The appointment of a distributor/representative in the Philippines made by a foreign corporation

19. The winning bidder in a delinquency sale is the highest bidder

3.) Dissipation, loss, wastage or destruction of assets or other properties and;

5. All of the following statements are correct. Why it is said that:

j. Certificate of stock are merely quasi-negotiable but non-negotiable (3pts)

I. TRUE OR FALSE: If your answer is FALSE explain your answer. (20pts)

Exceptions to the inherent right to vote are the following

*Registration is necessary for the following reasons:

***Watered stock may be issued in either of the following ways:

Call is not necessary in the following:

Section 80 provides for the effects of a merger or consolidation. These are:

**Instances when appraisal right may be exercised:

THE SECURITIES REGULATION CODE

Page 645 for additional..

PRESIDENTIAL DECREE No. 902-A, AS AMENDED

***For intra-corporate to exist, there must:

To be an intra-corporate controversy it must pertain to any of the following relationship:

***Requisites before the appointment of management committee, board or body

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

3. The declaration of stock dividends will generally have

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

4. A contract between a corporation and its president is

a. removal of a member of the Board of Directors

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

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

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

a. valid for both

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

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

a. automatically cease to be a director

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

3. What is the Business Judgment Rule? Define

2. Which of the following meetings is not valid?

5. A close corporation may validly provide in its AOI or by-laws that

1. In cases of merger, the employees of the absorbed/dissolved corporation are automatically

5. A transferee of a certificate of stock in a non-stock corporation, if they are transferable by virtue of a

7. Absent any by-law provision authorizing t holding of a meetings of members in a non-stock

8. The appointment of a distributor/representative in the Philippines made by a foreign corporation

9. The winning bidder in a delinquency sale is the highest bidder

1.) Dissipation, loss, wastage or destruction of assets or other properties and;

2. All of the following statements are correct. Why it is said that:

e. Certificate of stock are merely quasi-negotiable but non-negotiable (3pts)

- True, Sec. 71.

Two modes of transferring shares of stock: