Far Eastern University Institute of Accounts, Business and Finance
Business Organizations Long Quiz Atty. Tyron Kim D. Baculo December 2, 2017 I. Multiple Choice Questions
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The following are the attributes of a corporation except: a) artificial being with separate and distinct personality b) created by operation of law c) enjoys the right of succession d) delectus personae . The Corporation Code sanctions a contract between two or more corporations which have interlocking directors, provided there is no fraud that attends it and it is fair and reasonable under the circumstances. The interest of an interlocking director in one corporation may be either substantial or nominal. It is nominal if his interest: a) does not exceed 20% of the outstanding capital stock. b) does not exceed 25% of the outstanding capital stock. c) exceeds 20% of the outstanding capital stock. d) exceeds 25% of the outstanding capital stock. Under this doctrine, the separate personality of a corporation may be disregarded when such separate personality is misused, or when it becomes a shield for fraud, illegality or inequity committed against third persons. a) Principle of ostensible agency b) Piercing the veil of corporate fiction c) Trust fund doctrine d) Doctrine of corporate negligence The Board of Directors of Trump Corporation unanimously passed a Resolution approving the taking of steps that in reality amounted to willful tax evasion. Upon its discovery, the government filed tax evasion charges against the members of the board of directors of Trump Corporation. The directors invoked the defense that they have no personal liability, being mere directors of a fictional being. Are they correct? a) Yes, since it is Trump Corporation that did not pay the tax and it has a personality distinct from its directors. b) Yes, since the directors officially and collectively performed acts that are imputable only to the corporation. c) No, since the law makes directors of Trump Corporation solidarily liable for gross negligence and bad faith in the discharge of their duties.
d) No, since as a rule only natural persons like the members of the board of directors can commit corporate crimes. 5.
It is the method by which the percentage of Filipino equity in a corporation engaged in nationalized and/or partly nationalized areas of activities is computed, in cases where corporate shareholders are present in the situation, by attributing the nationality of the second or even subsequent tier of ownership to determine the nationality of the corporate shareholder. a) Control Test b) Alter Ego Doctrine c) Grandfather Rule d) Incorporation Test
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This doctrine provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the satisfaction of their claims. a) Doctrine of piercing the corporate veil b) Doctrine of equality of shares c) Appraisal right d) Trust fund doctrine
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Clinton Corp. increased its capital stocks from Php20 Million to Php25 Million and, in the process, issued 1,000 new shares divided into Common Shares "B" and Common Shares "C." Hillary, a stockholder owning 500 shares, insists on buying the newly issued shares through a right of pre-emption. The company claims, however, that its By-laws deny Hillary any right of preemption. Is the corporation correct? a) Yes, because a stockholder has no right of preemption. b) Yes, since the denial of the right under the Bylaws is binding on Hillary. c) No, since the By-Laws cannot deny a shareholder his right of pre-emption. d) No, since pre-emptive rights may be exercised by any stockholder absolutely. absolutely.
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ABC Corp. operates a call center that received orders for food and beverages on behalf of XYZ Corp. which operates fast food restaurants. The two companies have the same set of corporate officers. After 3 years, ABC Corp. dismissed its call agents for no reason. The agents filed a collective suit for illegal dismissal against both Page 1 of 7
ABC Corp. and XYZ Corp. based on the doctrine of piercing the veil of corporate fiction. XYZ Corp. set up the defense that the call agents are employees of ABC Corp. which is a separate corporation. Is XYZ Corp. correct? a) Yes, since the ABC Corp. and XYZ Corp. perform two distinct businesses. b) Yes, it is not shown that one corporation completely dominates the finances, policies, and business practices of the other. c) No, since the two companies having the same set of corporate officers, the doctrine of piercing the veil of corporate fiction would apply. d) No, the real employer is XYZ Corp., with ABC Corp. serving as an arm for receiving its outside orders for food and beverages. 9.
This is a corporation which has capital stock divided into shares and is authorized to distribute to holders of such shares, dividends or allotments of the surplus profits on the basis of such shares. a) De jure corporation b) Stock corporation c) Non-stock corporation d) Corporation sole
10. The Articles of Incorporation must be accompanied by a Treasurer's Affidavit certifying under oath, among others, that the total subscription paid is: a) not more than P5,000.00. b) not more than P25,000.00. c) not less than P5,000.00. d) not less than P25,000.00. 11. An individual stockholder is permitted to institute a case on behalf of the corporation in order to protect or vindicate corporate rights, whenever the directors of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation. This is called ______: a) Individual suit b) Derivative suit c) Class suit d) Representative suit 12. Which of the following statements is correct? a) Any number of natural or juridical persons not less than five (5) but not more than fifteen (15), may form a private corporation for any lawful purpose or purposes. b) Any number of natural persons not less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes. c) All incorporators must be residents of the Philippines. d) Majority of the incorporators of a stock corporation must own or be a subscriber to at
least one (1) share of the capital stock of the corporation. 13. Statement 1: A corporation shall exist for a period of fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. Statement 2: The corporate term as originally stated in the articles of incorporation may be extended for another fifty (50) years in any single instance by an amendment of the corporate bylaws. a) Only Statement 1 is correct. b) Only Statement 2 is correct. c) Both statements are correct. d) Both statements are incorrect. 14. A private corporation commences to have corporate existence and juridical personality and is deemed incorporated from ________: a) the date of signing of the articles of incorporation and by-laws b) the date of filing of the articles of incorporation and by-laws with the Securities and Exchange Commission c) the date the Securities and Exchange Commission issues a certificate of incorporation d) the mere agreement of the incorporators 15. 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. This is called a ________: a) De jure corporation b) De facto corporation c) Corporation by prescription d) Corporation by estoppel 16. The following are corporate officers, except: a) Treasurer b) Corporate Secretary c) Vice-President for Finance provided for in the corporation’s by -laws d) In-house counsel 17. The following are the qualifications for the director of a corporation, except: a) Must be a resident of the Philippines b) Ownership of at least one (1) share of the capital stock of the corporation c) Must not have been convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years d) Must be a natural person and of legal age 18. Which of the following statements is correct? a) The by-laws of a corporation may create an executive committee, composed of not less Page 2 of 7
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than three members of the board, to be appointed by the board. The executive committee has the power to distribute cash dividends to the stockholders. The board of directors may include a third party who is not a stockholder as a member of an executive committee. The executive committee is empowered to amend or repeal by-laws.
19. This doctrine states that a corporation can act only through its directors and officers. As such, all businesses of the corporation shall be conducted and all its properties shall be controlled and held by the board of directors. a) Doctrine of separate juridical personality b) Doctrine of centralized management c) Trust fund doctrine d) Business judgment rule 20. This is the right to demand payment of the fair value of the shares, after dissenting from a proposed corporate action involving a fundamental change in the corporation in the cases provided by the law. a) Right of first refusal b) Pre-emptive right c) Appraisal right d) Right of subscription 21. Which of the following statements is correct? a) Stockholders and directors may vote in person or by proxy in all meetings of stockholders and directors. b) No proxy shall be valid and effective for a period longer than five (5) years at any one time. c) Proxies may be oral or in writing. If in writing, it must be signed by the stockholder. d) Written proxies need not be filed before the scheduled meeting with the corporate secretary. 22. The following may be valid considerations for the issuance of stock, except: a) Actual cash paid to the corporation b) Previously incurred indebtedness of the corporation c) Future services to be rendered to the corporation d) Property actually received by the corporation and necessary or convenient for its use and lawful purposes 23. This is a contract for the acquisition of unissued stock in an existing corporation or the shares of a corporation still to be formed. a) Subscription contract b) Promotion contract c) Contract of sale d) Voting trust agreement
24. The corporate term of a stock corporation is that which is stated in its Articles of Incorporation. It may be extended or shortened by an amendment of the Articles when approved by majority of its Board of Directors and: a) ratified by at least 2/3 of all stockholders. b) approved by at least 2/3 of the stockholders representing the outstanding capital stock. c) approved and ratified by at least 2/3 of all stockholders. d) ratified by the stockholders representing 2/3 of the outstanding capital stock. 25. The rule is that no stock dividend shall be issued without the approval of stockholders representing at least 2/3 of the outstanding capital stock at a regular or special meeting called for the purpose. With respect to other forms of dividends: a) mere majority of the votes of stockholders representing outstanding capital stock applies. b) the same rule of 2/3 votes applies. c) a mere majority of the quorum of the Board of Directors applies. d) majority of the entire Board of Directors applies. 26. Stocks issued not in exchange for their equivalent either in cash, property, share, stock dividends, or services, or issued for a consideration less than the par or issued price thereof is called _______: a) Delinquent stocks b) Watered stocks c) Share in escrow d) Treasury shares 27. This doctrine provides that a director who, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of the corporation, is guilty of disloyalty and should, therefore, account to the latter for all such profits by refunding the same, notwithstanding that he risked his funds in the venture. a) Doctrine of general capacities b) Doctrine of corporate opportunity c) Conflict of interest doctrine d) Doctrine of necessary implication 28. An appraisal right may be exercised in the following instances, except: a) 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 b) In case of sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets c) In case of extension or of shortening the term of corporate existence d) In case of increase or decrease of capital stock Page 3 of 7
29. An act committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the powers conferred upon it by law, as well as to the acts done by a corporation outside of its express and implied powers vested in it by its charter: a) Intra vires act b) Illegal act c) Ultra vires act d) Voidable act 30. A merger of two corporations shall only be effective upon: a) Drawing up of plan of merger of the constituent corporations b) Execution of the Articles of Merger of the constituent corporations c) Submission to the Securities and Exchange Commission of the Articles of Merger d) Issuance by the Securities and Exchange Commission of Certificate of Merger 31. Brent Corporation enters in a contract with Kim Corporation whereby Brent Corp. acquires all of the properties of Kim Corp., in exchange for shares of stock of Brent Corp. As a consequence, Brent Corp. would end up with the business enterprise of Kim Corp. whereas Kim Corp. would end up with basically its remaining assets being the shares of stock of Brent Corp. This arrangement is called: a) Consolidation b) De facto merger c) Joint venture agreement d) Corporation by estoppel 32. Statement 1: When one corporation buys all the shares of another corporation, this will operate to dissolve the other corporation. Statement 2: When one corporation buys all the shares of another corporation, the acquiring corporation assumes all the liabilities of the other corporation. a) Only Statement 1 is correct. b) Only Statement 2 is correct. c) Both statements are correct. d) Both statements are incorrect. 33. In a close corporation, there is _______ when the directors or stockholders are so divided respecting the management of the business and affairs of the corporation that the votes required for any corporate action cannot be obtained and as a result, business and affairs can no longer be conducted to the advantage of the stockholders generally: a) Dead-end b) Deadlock c) Conflict d) Revocation
34. Bill owns 99% of the capital stock of AAA Corporation. Bill also owns 99% of BBB Corporation. AAA Corporation obtained a loan from BPI Bank. On due date, AAA Corporation failed to pay despite due notice. Meanwhile, BBB Corporation is financially healthy. Which statement is correct? a) The doctrine of piercing the veil of corporate fiction can be applied in this case. b) AAA Corporation and BBB Corporation, although both are owned by Bill, are two distinct corporations with separate juridical personalities hence, the BBB Corporation cannot automatically be held liable for the loan of AAA Corporation. c) BBB Corporation, 99% owned by Bill, can automatically be held liable. d) Bill being a controlling owner of AAA Corporation can automatically be held personally liable for the loan of AAA Corporation. 35. Brent, the President of ZZZ Corporation, was authorized by the Board of Directors of ZZZ Corporation to obtain a loan from BDO Bank and to sign documents in behalf of the corporation. Brent personally negotiated for the loan and got the loan at very low interest rates. Upon maturity of the loan, ZZZ Corporation was unable to pay. Which statement is correct? a) If ZZZ Corporation cannot pay, Brent can be held subsidiarily liable. b) Because Brent was personally acting in behalf of ZZZ Corporation, he can be held personally liable. c) Brent, as President, cannot be personally held liable for the obligation of the corporation even though he signed all the loan documents, because the loan was authorized by the Board. d) BDO Bank can choose as to who it wants to hold liable for the loan. 36. The Board of Directors of XYZ Corp. unanimously passed a Resolution approving the taking of steps that in reality amounted to willful tax evasion. On discovering this, the government filed tax evasion charges against all the company’s members of the board of directors. The directors invoked the defense that they have no personal liability, being mere directors of a fictional being. Are they correct? a) Yes, since it is the corporation that did not pay the tax and it has a personality distinct from its directors. b) No, since the law makes directors of the corporation solidarily liable for gross negligence and bad faith in the discharge of their duties. c) Yes, since the directors officially and collectively performed acts that are imputable only to the corporation. Page 4 of 7
d) No, since as a rule only natural persons like the members of the board of directors can commit corporate crimes. 37. To constitute a quorum for the transaction of corporate business, only a majority of the number of Board of Directors is required: a) as fixed by the corporate by-laws b) as fixed in the articles of incorporation c) actually serving in the board d) actually serving in the board but constituting a quorum 38. Unless the by-laws provide otherwise, written notice of regular meetings shall be sent to all stock holders of record: a) at least one day prior to the meeting b) at least two days prior to the meeting c) at least one week prior to the meeting d) at least two weeks prior to the meeting 39. Which of the following will cause the automatic dissolution of a corporation? a) Commission by the corporation of an ultra vires act b) Continuous non-operation for a period of at least 5 years c) Refusal to comply with or defiance of any lawful order of the SEC restraining commission of acts which would amount to grave violation of its franchise d) None of the above 40. MUO Corporation has increased its capital stock and new shares of stock are issued. The stockholders of MUO Corp wish to exercise their pre-emptive right regarding the shares to be issued. Which of the following shares does a preemptive right of stockholders extends? a) to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public b) to shares to be issued in good faith with the approval of stockholders representing 2/3 of the outstanding capital stock in exchange for property needed for corporate purposes c) to shares to be issued in good faith with the approval of the stockholders representing 2/3 of the outstanding capital stock in payment of previously contracted debt d) treasury shares reacquired using the funds from the surplus profits of the corporation which could have been declared as dividends 41. The following instances are considered as “indicators” that a foreign corporation is “transacting business” in the Philippines, even without securing a license, except: a) Soliciting orders, purchases and service contracts b) Subscribing shares of stock from a domestic corporation
c) Engaging into continuous business acts or transactions d) Participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines 42. Their names are mentioned in the Articles of Incorporation as originally forming the corporation and are signatories thereof: a) Stockholders b) Corporators c) Incorporators d) Directors 43. The articles of incorporation differ from the bylaws in that the articles of incorporation are: a) The rules of action adopted by a corporation for its internal government b) Adopted before or after incorporation c) A condition precedent in the acquisition by the corporation of a juridical personality d) Approved by the stockholders if adopted after incorporation 44. A delinquent stockholder is not entitled to the following rights, except the right: a) To be voted b) To vote or be represented in the meetings of stockholders c) To dividends d) He is not entitled to all the rights of a stockholder 45. Rachel, Mariel, Chanel, Liz and Nelda want to establish a car repair business. Rachel, Mariel and Chanel each have the amount of P200,000 to contribute to the business capital. Liz is to contribute to the firm his lot and building, while Nelda will contribute his services as a mechanic. All of them are of legal age and residents of the Philippines. They are deciding on what type of business organization to put up. a) The five can only put up a partnership. b) The five can only put up a corporation. c) The five can put up either a partnership or a corporation. d) The five cannot put up either a partnership or a corporation. 46. The ordinary stock of the corporation entitling the owner to pro rata dividends without any priority or preference over any other shareholders or class of shareholders but equally with all other stockholders except preferred stockholders is: a) Common stock b) Preferred stock c) Guaranteed stock d) Convertible stock e) None of the above 47. A, B, C ,D and E represented themselves to X as directors and stockholders of “Titanic Page 5 of 7
Corporation.” In reality, no such corporation is registered with SEC. Later, X granted credit sales to “Titanic Corporation.” When “Titanic Corporation” defaulted in its payment, X sued “Titanic Corporation.” “Titanic Corporation” moved for the dismissal of the complaint on the ground that it had no corporate personality. Is the defense of “Titanic Corporation” tenable? a) Yes, because it was not registered with SEC. b) No, because it is estopped from raising as a defense its lack of corporate personality against X. c) Yes, because “Titanic Corporation” does not really exist. d) Yes, because only the Office of the Solicitor General can sue “Titanic Corporation.”
48. Assume the same facts from the preceding number except that it was “Titanic Corporation” which granted sales to X. When X defaulted in his payment, “Titanic Corporation” filed a collection case against him. X moved for the dismissal of the complaint on the ground that “Titanic Corporation” was a non -existent corporation. Is the defense of X tenable? a) Yes, because “Titanic Corporation” was not registered with SEC. b) No, because X is precluded from raising the defense that “Titanic Corporation” does not exist. c) Yes, because “Titanic Corporation” does not really exist. d) Yes, because “Titanic Corporation” lacks separate juridical personality.
each having a par value of P10.00. at the time of incorporation, how much are the minimum subscription and paid-in capital requirements of the corporation? a) P12,500 and P3,125, respectively. b) P12,500 and P12,500, respectively. c) P12,500 and P5,000, respectively. d) P50,000 and P12,500, respectively. 52. This share can be acquired by the corporation even without unrestricted retained earnings. a) Founders’ shares. b) Redeemable shares. c) Par value share. d) No-par value share. e) None of the above. 53. The term GGG Corporation in accordance with its Articles of Incorporation ended last January 30, 2012. The term was not extended. What will happen to the corporation? a) The corporation is dissolved ipso facto. b) There is a need to pass a board resolution to formally dissolve the corporation. c) The Board of Directors must pass a resolution for the corporation to formally go into liquidation. d) The stockholders must pass a resolution to dissolve the corporation. 54. It refers to the total shares of stock issued to subscribers or stockholders, whether or not fully or partially paid (as long as there is a binding subscription agreement), except treasury shares.
49. Stock corporations formed under the Corporation Code are required to have a minimum subscription at the time of incorporation (in case the shares have par value) in an amount: a) Not less than 25% of the authorized capital stock. b) Equivalent to 100% of the authorized capital stock. c) Not less than 50% of the authorized capital stock. d) Equivalent to 50% of the authorized capital stock. 50. Stock corporations are required to have a paid-up capital at the time of incorporation (in case the shares have par value) in amount which is at least: a) 25% of the authorized capital stock or P5,000 whichever is higher. b) 25% of the subscribed capital stock or P5,000 whichever is higher. c) 25% of the fair market value of the subscribed capital stock or P5,000 whichever is higher. d) P50,000. 51. The articles of incorporation of Crown Office Supplies Corporation provide for an authorized capital stock of P50,000 divided into 5,000 shares
a) Outstanding capital stock b) Issued capital stock c) Subscribed capital stock d) Authorized capital stock 55. Non-voting shares may vote in the following cases, except: a) In the amendment of the articles of incorporation. b) In case of merger or consolidation of the corporation with another corporation or other corporations. c) In the election of directors of the corporation. d) Non-voting shares are not allowed to vote at all, that is why they are classified as nonvoting. 56. Which of the following statements concerning nopar shares is incorrect? a) Subscriptions to no-par shares shall be deemed fully paid and non-assessable. b) The entire consideration received for no-par shares shall all be treated as capital and no part thereof shall be available for distribution as dividends. Page 6 of 7
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They may be issued for a consideration of less than P5.00 per share. d) They may not be issued by banks, trust companies, insurance companies, public utilities, and building and loan associations. 57. Which of the following documents is not required to be submitted at the time of incorporation? a) Articles of incorporation b) Treasurer’s affidavit c) Certificate of bank deposit on the paid-up capital d) By-laws 58. Incorporators of a stock corporation must, in addition to being natural persons, possess the following qualifications, except one. Which is such exception? a) They must be of legal age. b) Majority of them must be citizens of the Philippines. c) They must not be less than 5 nor more than 15 in number. d) They must be the owner of at least one share of stock. 59. The term for which a corporation is to exist which must be stated in the articles of incorporation at the time of incorporation: a) Should be 50 years. b) Any number of years which may be more than 50 years. c) Any number of years provided it does not exceed 50 years. d) Need not be stated since a corporation may exist indefinitely. 60. Unknown to the other four proponents, Enrico (who had been given the task of attending to the Articles of Incorporation of the proposed corporation, Auto Mo,Ayos Ko) misappropriated the filing fees and never filed the Articles of Incorporation with the Securities and Exchange Commission (SEC). Instead, he prepared and presented to the proposed incorporators a falsified SEC certificate approving the Articles. Relying on the falsified SEC certificate, the incorporators began assuming and discharging corporate powers. Auto Mo, Ayos Ko is a __________ a) de jure corporation b) de facto corporation c) corporation by estoppel d) general partnership II. True or False 61. A mining company cannot be a close corporation. TRUE 62. A close corporation is a special kind of corporation whose articles of incorporation provides that the number of stockholders shall not exceed twenty five (25). FALSE
63. Corporate By-Laws may be adopted prior to or after incorporation. TRUE 64. Appraisal right of a stockholder may be exercised in all instances. FALSE 65. A non-stock corporation is one where no part of its income is distributable as dividends to its members. TRUE. 66. A corporation commences to exist upon the execution of the articles of incorporation by the incorporators. FALSE 67. The continuous inoperation of a corporation for a period of at least five years will result in its automatic dissolution. FALSE 68. The term "outstanding capital stock" means the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, including treasury shares. FALSE 69. A resident agent may be either an individual residing in the Philippines or a domestic corporation lawfully transacting business in the Philippines. TRUE 70. A corporation may be dissolved by the Securities and Exchange Commission upon filing of a verified complaint and after proper notice and hearing on the grounds provided by existing laws, rules and regulations. TRUE III. ESSAY: What is your message to your professor? ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ “Good luck in the pursuit
of your dreams. Do whatever sets your heart on fire. Always remember: YOUR DREAMS ARE VALID.” -Atty. Tyron Baculo
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