Regulatory Framework for Business Transactions: Corporations and Securities Regulation Code Study Guide

Corporate Definition, Attributes, and Powers

• Definition of a Corporation: A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence.
• Attributes of a Corporation:
  • 1. Artificial Being: It possesses a juridical personality separate and distinct from the persons composing it.
  • Corporate Entity Theory: As a legal entity, the corporation is possessed with a 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.
  • Piercing the Veil of Corporate Entity: The applicability of the corporate entity theory is confined to legitimate transactions and is subject to equitable limitations to prevent its being used as a cloak or cover for fraud or illegality, or to work injustice. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as a mere association of persons, or in the case of two corporations, merge them into one (the one being merely regarded as part or instrumentality of the other). The same applies where a corporation is a mere dummy and serves no business purpose, being intended only as a blind, alter-ego, or business conduit for the sole benefit of the stockholders. In such cases, the concept of a separate juridical personality is set aside.
  • 2. Created by Operation of Law: The formal requirement of the State's consent through compliance with the requirements imposed by law is necessary for its creation; mere agreement of the persons composing or intending to organize it does not warrant the grant of an independent existence as a juridical entity.
  • Commencement of Corporate Existence: Reckoned at the time of the issuance of the Certificate of Incorporation or Registration. Only from this moment does it acquire juridical personality and legal existence, EXCEPT:
    • Corporations by Estoppel;
    • Those created by special laws;
    • Sole Corporation — which is reckoned from the filing of verified articles.
  • 3. Right of Succession: Unlike in a partnership, the death, incapacity, or civil interdiction of one or more stockholders does not result in corporate dissolution; this is otherwise referred to as the corporation's "strong" juridical personality.
  • 4. Powers, Attributes, and Properties Expressly Authorized by Law: It can exercise only such powers and hold only such properties as are granted to it by enabling statutes, unlike natural persons who can perform any lawful act.
• Classification of Corporate Powers:
  • Express Powers: Those expressly authorized by the Corporation Code, other laws, and its Articles of Incorporation.
  • Implied Powers: Those that can be inferred from or are necessary for the exercise of express powers.
  • Incidental Powers: Those that are incidental to the very existence of the corporation.
• Express Powers and Capacities under the Corporation Code:
  • To sue and be sued in its corporate name;
  • Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation;
  • To adopt and use a corporate seal;
  • To amend its articles of incorporation in accordance with the provisions of the Code;
  • To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with the Code;
  • In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of the Code; and to admit members to the corporation if it be a non-stock corporation;
  • To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to limitations prescribed by law and the Constitution;
  • To enter into merger or consolidation with other corporations as provided in the Code (under the Revised Corporation Code, a corporation can also enter into a partnership and joint venture);
  • To make reasonable donations, including those for public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, that no foreign corporation shall give donations in aid of any political party or candidate or for purposes of partisan political activity (the prohibition on domestic corporations making political donations has been removed);
  • To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers, and employees; and
  • Implied Powers: To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation.
• Ultra Vires Acts: Acts which cannot be executed or performed by a corporation because they are not within its express, inherent, or implied powers as defined by its Articles of Incorporation.

Classes of Corporations

• Stock Corporations: Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held.
• Non-Stock Corporations: Corporations which are not authorized to distribute surplus profits.
• Domestic Corporation: Organized or created under or by virtue of Philippine laws, either by legislative act or under the provisions of the General Corporation Law.
• Foreign Corporation: Formed, organized, or existing under any laws other than those of the Philippines.
• Close Corporations: Shares of stock are held by a limited number of persons (not exceeding $20$) like a family or closely-knit group. There are no public investors, and shareholders are active in the conduct of corporate affairs.
• Open Corporations: Formed to openly accept outsiders as stockholders or investors. Authorized and empowered to list in the stock exchange and offer shares to the public so stock ownership is widely dispersed. When listed, they are called Publicly-Listed Corporations.
• Private Corporations: Formed for some private purpose, benefit, aim, or end. Created for the immediate benefit and advantage of the individuals or members composing it, and their franchise is considered a privilege conferred by the State.
• Public Corporations: Formed or organized for the government of a portion of the State or any of its political subdivisions, having for their purpose the general good and welfare.
• Ecclesiastical Corporations: Composed exclusively of ecclesiastics organized for spiritual purposes or for administering properties held for religious ones, securing public worship or perpetuating the right of a particular religion.
• Lay Corporations: Organized for purposes other than religion. Further classified into:
  • Eleemosynary: Created for charitable and benevolent purposes, such as maintaining hospitals and houses for the sick, aged, or poor.
  • Civil: Organized not for public charity, but for the benefit, pecuniary or otherwise, of its members.
• Aggregate Corporations: Composed of a number of individuals vested with corporate powers.
• Corporation Sole: Consists of one person or individual only who is made into a body corporate and politic to confer legal capacity and advantage not held as natural persons. Under the Code, formed by the chief archbishop, bishop, priest, minister, rabbi, or other presiding elder of religious denominations, sects, or churches.

• Classes of Corporations According to Validity of Formation:
  • De Jure Corporation:
  • Compliance with requirements: Full compliance with valid incorporation requirements.
  • Separate personality: Yes.
  • Direct Attack: No.
  • Collateral Attack: No.
  • De Facto Corporation:
  • Requisites for existence:
    1. Existence of a valid law under which it may be incorporated;
    2. An attempt in good faith to incorporate (colorable compliance);
    3. Use of corporate powers.
  • Separate personality: Yes.
  • Direct Attack: Yes, via quo warranto proceeding.
  • Collateral Attack: No.
  • Corporation by Estoppel:
  • Compliance: No compliance at all. Persons composing it merely set themselves out as a corporation.
  • Separate personality: None; stockholders are liable as general partners.
  • Direct Attack: Yes.
  • Collateral Attack: Yes.
• Types of Legal Attacks:
  • Direct Attack: The very subject matter of the case is the legal existence or personality of the corporation. Allowed in a de facto corporation via quo warranto proceedings.
  • Collateral Attack: The main subject matter of the case is other than attacking the personality of the corporation, but corporate existence is questioned as a side issue.

Organization and Incorporation Stage

• 1. Promotional Stage: Undertaken by organizers or promoters who bring together persons interested in the business venture. They enter into contracts either in their own names or in the name of the proposed corporation.
  • Promoter Liability: A promoter, although assuming to act for and on behalf of a projected corporation, is held personally liable on contracts made for the benefit of the intended corporation. Personal liability continues even after corporate formation unless there is novation or an agreement releasing the promoter from liability.
• 2. Process of Incorporation: Drafting of Articles of Incorporation (AOI), preparation and submission of supporting documents, filing with the Securities and Exchange Commission (SEC), and subsequent issuance of the Certificate of Incorporation.
• Contents of the Articles of Incorporation (AOI):
  • Corporate Name: Essential to existence; required for suing, being sued, and performing legal acts. Organizers must ensure the proposed name is not identical or confusingly similar to any name already registered and protected by law, or the SEC will refuse registration.
  • Specific Purpose(s): Must be stated. Primary and secondary purposes must be specified if multiple exist.
  • Must be lawful;
  • Stated concisely in broad or general terms;
  • Capable of being lawfully combined;
  • Non-stock corporations cannot include a purpose that contradicts their non-stock nature.
  • Purpose defines and limits the scope of corporate authority and representative powers.
  • Principal Office: Must be located within the Philippines. Must specify the province and the specific City or Municipality. Important for:
  • Venue of actions;
  • Registration of chattel mortgages on shares;
  • Validity of stockholders' meetings relative to meeting venue.
  • Term of Existence:
  • Corporations have perpetual existence under the Revised Corporation Code (RCC), unless the AOI specifies a definite term.
  • Applies to existing corporations unless stockholders, by majority vote, notify the SEC to retain a specific term.
  • Definite Term Extension: May be extended no earlier than $3\text{ years}$ (formerly $5\text{ years}$) prior to expiry, unless justifiable reasons warrant earlier extension.
  • Revival of Corporate Existence: After expiration of the term, a corporation may apply for revival. Upon SEC approval, a certificate of revival is issued giving perpetual existence unless the application provides otherwise.
  • Incorporators vs. Corporators:
  • Corporators: All who compose the corporation at any given time.
  • Incorporators: Mentioned in the AOI as originally forming the corporation and signatories to the AOI. An incorporator is a corporator as long as ownership continues, but not all corporators are incorporators.
  • Number of Incorporators: Not more than $15$ (formerly $5\text{ to }15$).
  • Qualifications of Incorporators:
    1. Natural persons, partnerships, associations, or corporations;
    2. Natural person-incorporators must be of legal age (SEC MC No. 16-2019);
    3. Must own or subscribe to at least $1$ share.
  • Board Size (Directors / Trustees):
  • Directors: Governing board in stock corporations, not exceeding $15$ members.
  • Trustees: Governing board in non-stock corporations, may exceed $15$ members.
  • Independent Directors: Corporations vested with public interest must have independent directors constituting at least $20\%$ of the board. Applies to:
    1. Corporations covered by the Securities Regulation Code (SRC);
    2. Banks, quasi-banks, NSSLAs, pawnshops, money service businesses, pre-need, trust and insurance companies, and other financial intermediaries;
    3. Other corporations engaged in business vested with public interest as determined by the SEC.
    • Definition: An independent director is independent of management and free from business or other relationships that could materially interfere with independent judgment.
  • Capital Stock Requirements:
  • The former requirement that at least $25\%$ of authorized capital stock must be subscribed and $25\%$ of subscriptions paid-up upon incorporation has been removed under the RCC (remains applicable to capital stock increases).
  • Authorized Capital: Maximum amount fixed in the AOI to be subscribed and paid-in/secured, or maximum number of shares issued.
  • Subscribed Capital Stock: Total number and value of shares under acquisition/subscription contracts.
  • Paid-Up Capital Stock: Actual amount or value paid to the corporation for subscriptions.
  • Outstanding Capital Stock: Total shares issued including subscribed non-fully paid shares, excluding treasury shares.

• Considerations for Shares of Stock (Section 61):
  1. Actual cash paid;
  2. Tangible or intangible property received for lawful purposes at fair valuation equal to par or issued value;
  3. Labor performed or services actually rendered;
  4. Previously incurred corporate indebtedness;
  5. Amounts transferred from unrestricted retained earnings to stated capital;
  6. Outstanding shares exchanged in reclassification/conversion;
  7. Shares of stock in another corporation;
  8. Other generally accepted forms of consideration.
• Restrictions and Preferences:
  • Options, restrictions, and preferences must appear in the AOI AND in all stock certificates to bind good-faith purchasers.
  • In close corporations, restrictions and preferences must appear in the AOI, stock certificates, AND by-laws.
• Other Matters in the Articles of Incorporation:
  • Name of the elected Treasurer;
  • No Transfer Clause (for corporations required to maintain minimum Filipino ownership percentage);
  • Execution Clause (names and signatures of incorporators);
  • Notarial Acknowledgment.
• Amendments to Articles of Incorporation (General Requirements):
  • Majority vote of the Board of Directors/Trustees;
  • Written assent of stockholders representing $\frac{2}{3}$ of outstanding capital stock, or $\frac{2}{3}$ of members in non-stock corporations;
  • SEC approval (deemed approved if SEC does not act within $6\text{ months}$ from filing).

Board of Directors and Trustees

• Authority: Supreme management authority for regular and ordinary corporate business affairs. Fundamental charter changes belong to stockholders.
• Qualifications of a Director/Trustee:
  • Must own at least $1$ share in their own name (or be a member for trustees). Ceasing to own at least $1$ share or ceasing membership terminates directorship/trusteeship.
  • Residency Requirement: The requirement that a majority of directors must be Philippine residents has been removed by the RCC.
• Disqualifications of Director, Trustee, or Officer (within 5 years prior to election/appointment):
  1. Convicted by Final Judgment:
  • Of an offense punishable by imprisonment exceeding $6\text{ years}$;
  • Violation of the Corporation Code;
  • Violation of the Securities Regulation Code.
  1. Found administratively liable for any offense involving fraudulent acts;
  2. Convicted or penalized by a foreign court or foreign regulatory authority for similar misconduct;
  3. Other disqualifications specified in corporate by-laws.
• Election of Board Members / Trustees:
  • Quorum: Presence of stockholders representing a majority of outstanding capital stock, or majority of members entitled to vote.
  • Voting Procedure: By ballot upon request of any voting member/stockholder; otherwise viva-voce.
  • Winners: Candidates receiving the highest number of votes.
  • Report Requirement (Section 25 RCC): Non-holding of elections must be reported to the SEC within $30\text{ days}$, stating a new election date within $60\text{ days}$ of the original scheduled date. If no date is set or election is missed, the SEC may summarily order an election upon application.
• Methods of Voting:
  • Straight Voting: Each stockholder votes share counts for as many persons as there are directors to be elected (e.g., $1,000\text{ shares} = 1,000\text{ votes}$ per candidate).
  • Cumulative Voting:
  • For one candidate: Total votes equal to number of shares multiplied by number of directors to be elected, cast for a single candidate.
  • By distribution: Total votes distributed among multiple candidates.
  • Granted by law to stock corporation shareholders; generally not allowed in non-stock corporations unless authorized by AOI or by-laws.
  • Purpose: Ensures minority stockholder representation on the Board.
• Removal of Directors:
  • Requires a general or special meeting called for that purpose;
  • Affirmative vote of stockholders holding $\frac{2}{3}$ of outstanding capital stock or $frac{2}{3} of members;\n * Prior notice to stockholders/members stating intention to propose removal;\n * A director representing the minority cannot be removed except for cause; directors not representing the minority may be removed without cause.\n\n\n\n* **Filling Vacancies in the Board:**\n\n| Cause of Vacancy | Who Will Fill the Vacancy | When Election Will Be Held |\n| :--- | :--- | :--- |\n| Removal | Stockholders | Same day of the meeting authorizing the removal |\n| Expiration of term | Stockholders | No later than the day of such expiration at a meeting called for that purpose |\n| Other causes (death, resignation, abandonment) | Board of Directors (if remaining directors constitute a quorum); Stockholders (if remaining directors do not constitute a quorum) | No later than 45 ext{ days} from the time the vacancy arose |\n| Increase in the number of Directors | Stockholders | In a general or special meeting called for the purpose or in the same meeting authorizing the increase |\n\n* **Replacement of Hold-Over Directors:** If no election is held upon term expiration, the director serves in a hold-over capacity. If a hold-over director resigns, stockholders must fill the vacancy even if remaining directors constitute a quorum (Board power to fill vacancies applies only when resignation occurs prior to term expiration).\n* **Emergency Board:** Created when vacancy prevents a quorum and emergency action is necessary to prevent grave, substantial, and irreparable loss/damage.\n * Unanimous vote of remaining directors/trustees fills vacancy temporarily from corporate officers.\n * Authority limited strictly to necessary emergency action.\n * Term ceases upon termination of emergency or election of replacement director, whichever comes earlier.\n * SEC must be notified within 3 ext{ days} of creation, stating reasons.\n\n# Duties, Loyalty, and Self-Dealing Transactions of Directors\n\n* **Corporate Opportunity Doctrine (Duty of Loyalty):**\n * Places directors in a fiduciary position prohibiting them from seizing business opportunities or developing them using corporate facilities for personal gain.\n * **Ratification:** Profits acquired from a corporate opportunity must be accounted for and refunded to the corporation, unless ratified by stockholders owning at least \frac{2}{3} of outstanding capital stock.\n* **Acquiring Adverse Interest:**\n * A director who acquires an interest adverse to the corporation in any matter reposed in confidence must account for all profits. **Not subject to ratification**.\n* **Self-Dealing Directors:**\n * A director who transacts business directly with their own corporation.\n * **General Rule:** Contracts are **voidable** at the corporation's option.\n * **Exceptions (Valid Contract):**\n 1. Presence of the director in the board meeting was not necessary for a quorum;\n 2. Vote of the director was not necessary for approval;\n 3. Contract is fair and reasonable under the circumstances.\n * **Public Interest Corporations:** Approval requires at least \frac{2}{3} of the entire board membership and at least a majority of independent directors.\n * **Ratification of Voidable Self-Dealing Contract:** Requires vote of \frac{2}{3} of outstanding capital stock at a meeting called for that purpose, full disclosure of adverse interest, and fair/reasonable contract terms.\n * **Single/Substantial Shareholder:** If self-dealing director owns all or substantially all shares, reasonableness is determined as a question of fact.\n * **Self-Dealing Officers:** Contracts are voidable, unless previously authorized by the Board of Directors.\n* **Interlocking Directors:**\n * A director serving in two contracting corporations.\n * **General Rule:** Contract is **valid** if fair and reasonable under the circumstances.\n * **Exceptions:** Voidable if fraud is present, or if interest in one corporation is substantial (exceeds 20\% of capital stock) and nominal in the other (treated as a self-dealing director for the nominal interest corporation). If interest is substantial in both or nominal in both, the transaction remains valid.\n* **Remedies Against Erring Directors/Officers:**\n * **Individual/Personal Action:** Direct injury to individual rights (e.g., denial of inspection rights or pre-emptive rights).\n * **Representative/Class Suit:** Individual or derivative suit brought on behalf of a class of stockholders.\n * **Derivative Suit:** Action filed by a stockholder on behalf of the corporation for corporate injury, joining the corporation as a necessary party; recovery accrues directly to the corporation.\n\n# Executive Committees, Special Committees, and Director Compensation\n\n* **Executive Committee:**\n * Created via by-laws, composed of not less than 3 Board members appointed by the Board.\n * Acts by majority vote of members on delegated matters within board competence, **EXCEPT**:\n 1. Approval of actions requiring shareholder approval;\n 2. Filing vacancies on the Board;\n 3. Amendment, repeal, or adoption of by-laws;\n 4. Amendment or repeal of non-amendable board resolutions;\n 5. Cash dividend distributions.\n\n\n\n* **Special Committees:** The Board of Directors may create special committees of temporary or permanent nature and determine members' term, composition, compensation, powers, and responsibilities.\n* **Compensation of Directors / Trustees:**\n * **General Rule:** Directors are not entitled to compensation beyond reasonable per diems.\n * **Exceptions:**\n 1. Reasonable per diems;\n 2. Provided in corporate by-laws;\n 3. Approved by majority vote of stockholders;\n 4. Performing functions outside standard directorial duties.\n * **Compensation Limit:** Total yearly compensation of directors (excluding non-directorial services) cannot exceed 10\% of the corporation's net income before tax during the preceding year (Section 30).\n\n# Corporate Officers and Liability\n\n* **Election of Corporate Officers:**\n * Elected by the Board of Directors (except in close corporations where elected directly by stockholders).\n * Required officers:\n 1. **President:** Must be a director;\n 2. **Treasurer:** Resident of the Philippines (may or may not be a director);\n 3. **Secretary:** Resident and citizen of the Philippines;\n 4. **Compliance Officer:** Required for corporations vested with public interest;\n 5. Other officers specified in the by-laws.\n * **Concurrent Positions:** Allowed, **EXCEPT**:\n * President and Secretary cannot be the same person;\n * President and Treasurer cannot be the same person.\n * **Voting Requirement:** Requires majority vote of **ALL members** of the Board (e.g., 8$votes required if board size is$15$, even if only$9 are present).\n* **Authority to Bind Corporation:** Conferred through intentional express grant, incidental/implied authority in usual business operations, custom and usage, or apparent authority created by corporate representation.\n* **Liability of Corporate Officers:**\n * **General Rule:** Officers are not civilly or criminally liable for corporate acts performed in good faith without malice.\n * **Personal / Solidary Liability Attaches When:**\n 1. Assenting to patently unlawful corporate acts, acting in bad faith, committing gross negligence, or entering into conflicts of interest causing damage;\n 2. Consenting to watered stock issuance without filing written objections with the corporate secretary;\n 3. Expressly agreeing to personal/solidary liability;\n 4. Specific statutory provisions impose personal liability.\n\n# Shares of Stock, Subscriptions, and Delinquency\n\n* **Definitions:**\n * **Shares of Stock:** Units into which proprietary interest in a corporation is divided.\n * **Certificate of Stock:** Document evidencing ownership of shares.\n* **Classes of Shares:**\n * **Common Stocks:** Entitle owners to equal pro-rata division of profits without preference. Carry voting rights.\n * **Founders' Shares:** Granted exclusive right to vote and be voted for in director elections for a non-extendable period not exceeding 5 ext{ years}.\n * **Preferred Stocks:** Preference in dividend payments and/or asset distribution upon liquidation.\n * Issued only with a stated par value;\n * Preferences must be stated in AOI and stock certificates;\n * Generally non-voting, but retain statutory voting rights in 8 corporate acts.\n * **Par Value Shares:** Shares with fixed minimum subscription/issue prices specified in AOI and stock certificates.\n * **No-Par Value Shares:** Shares without stated values on certificates. Issued subject to:\n 1. Deemed fully paid and non-assessable upon issuance;\n 2. Consideration must not be less than \text{PHP }5;\n 3. Entire consideration constitutes capital (unavailable for dividend declaration);\n 4. Cannot be issued as preferred stock;\n 5. Cannot be issued by banks, trust companies, insurance companies, public utilities, and building and loan associations.\n * **Watered Stocks:** Shares issued at less than par or issued price.\n * **Redeemable Shares:** Subject to repurchase by the corporation at its option or stockholder option regardless of unrestricted retained earnings availability.\n * **Treasury Shares:** Shares repurchased/acquired by the corporation; not outstanding shares; no voting or dividend rights.\n* **Subscription Contracts:**\n * Any contract acquiring unissued stock is a subscription.\n * **Pre-Incorporation Subscriptions:** Irrevocable for at least 6 ext{ months} from subscription date, unless all subscribers consent to revocation or incorporation fails to materialize; irrevocable after AOI submission to SEC.\n * **Post-Incorporation Subscriptions:** Executed after incorporation.\n* **Certificate of Stock Issuance Requisites:**\n 1. Signed by President/Vice-President and countersigned by Secretary/Assistant Secretary;\n 2. Sealed with corporate seal;\n 3. Subscription price fully paid (including interest/expenses).\n * **Indivisibility of Subscription:** Subscriptions are indivisible; no certificate can be issued until full payment of the entire subscription is completed.\n* **Delinquent Shares:**\n * Unpaid subscriptions become delinquent 30 ext{ days} after the due date fixed in the contract or set by Board call.\n * **Effects of Delinquency:**\n * Stockholder loses voting rights, right to be represented, and all stockholder rights;\n * **Dividends:** Cash dividends applied to unpaid balance/costs; stock dividends withheld until full payment.\n * **Enforcement Remedies:** Board delinquency sale or court collection action.\n * **Delinquency Sale Procedure:**\n * Total amount due includes balance, accrued interest, advertisement costs, and sale expenses.\n * **Highest Bidder:** Person offering to pay the full amount due for the smallest number of shares.\n * **No Bidder:** Corporation bids for shares; total amount credited as paid in full; shares acquired become treasury shares.\n\n# Rights of Stockholders and Voting Thresholds\n\n* **Summary of Voting Requirements:**\n * **Majority Board + frac{2}{3} Outstanding Capital Stock (or Members):**\n 1. Increase / decrease capital stock;\n 2. Incur / create bonded indebtedness;\n 3. Sell, lease, exchange, encumber all or substantially all corporate assets;\n 4. Invest corporate funds in another corporation or business outside primary purpose;\n 5. Amend Articles of Incorporation;\n 6. Merger or consolidation;\n 7. Voluntary dissolution (where creditors are affected);\n 8. Extend or shorten corporate term;\n 9. Deny pre-emptive rights;\n 10. Declare stock dividends;\n 11. Management contracts (where stockholders owning > 33.33\% of managed corp control managing corp, or majority board interlocking).\n * **Majority Board + Majority Outstanding Capital Stock (or Members):**\n 1. Enter into management contracts (general rule);\n 2. Adopt, amend, or repeal by-laws.\n * **Direct Stockholder Vote Without Board Resolution:**\n * **frac{2}{3} Outstanding Capital Stock:**\n 1. Delegate power to amend by-laws to the Board;\n 2. Remove a member of the Board of Directors;\n 3. Ratify corporate opportunity seized by a director;\n 4. Ratify self-dealing director contracts where board quorum/vote conditions were not met.\n * **Majority Outstanding Capital Stock:**\n 1. Revoke delegated power to amend by-laws;\n 2. Call special meeting for director removal;\n 3. Fix compensation of directors;\n 4. Fix issue price/stated value of no-par value shares.\n* **Compulsory Dividend Declaration:**\n * Board can be compelled to declare dividends when accumulated retained earnings exceed 100\% of paid-up capital stock.\n * **Exceptions Permitting Retention:**\n 1. Justified by definite corporate expansion programs approved by Board;\n 2. Prohibited under loan agreement without creditor consent (not yet obtained);\n 3. Retention clearly necessary under special corporate circumstances.\n * Dividends cannot be declared out of capital stock, **EXCEPT** liquidating dividends and wasting asset corporations (e.g., mining, oil wells).\n* **Pre-Emptive Rights:** Right to subscribe to all new share issues/dispositions in proportion to holdings. **Exceptions:**\n 1. Statutory public offering requirements;\n 2. Good faith property acquisition for corporate purposes;\n 3. Payment of previously contracted debt;\n 4. Expressly denied in Articles of Incorporation.\n* **Appraisal Right:** Right to dissent and demand payment of fair share value. **Grounds:**\n 1. AOI amendments changing/restricting share rights, authorizing superior preferences, or extending/shortening corporate term;\n 2. Sale, lease, exchange, or disposition of all/substantially all corporate property;\n 3. Merger or consolidation;\n 4. Investment of corporate funds in another corporation or business outside primary purpose.\n * Shares are suspended from voting and dividend rights for a maximum of 30 ext{ days} upon exercising appraisal right.\n\n\n\n* **Financial Statement Reporting Requirements (Section 74 RCC vs. Old Section 75):**\n\n| Feature | Section 75 (Old) | Section 74 (RCC) |\n| :--- | :--- | :--- |\n| Certification | Independent CPA | In accordance with Code and SEC rules |\n| Alternative Certification | If paid-up capital is less than \text{PHP }50,000$, FS may be certified under oath by Treasurer or responsible officer | If total assets OR total liabilities are less than$\text{PHP }600,000 (or amount set by DOF), FS may be certified under oath by Treasurer and President |\n\n# Corporate By-Laws\n\n* **Definition & Effectivity:** Rules made by a corporation for its internal governance. Effective only upon SEC approval.\n* **Adoption of By-Laws:**\n * **Prior to Incorporation:** Signed by all incorporators, submitted together with AOI (no separate majority vote required).\n * **After Incorporation:** Approved by majority vote of outstanding capital stock or members.\n\n\n\n* **AMENDMENT (Section 45 RCC):** Removed the former requirement to submit by-laws within 1 ext{ month} from receipt of the certificate of incorporation.\n\n\n\n* **AMENDMENTS (Section 46(d) RCC):**\n * By-laws may state modes of attending meetings and casting votes (remote communication / *in absentia*);\n * May include an arbitration agreement;\n * Submission of amended by-laws no longer requires attachment to original AOI and original by-laws.\n\n# Corporate Meetings and Voting Requirements\n\n\n\n* **Comparison of Board vs. Stockholders Meetings:**\n\n| Provision | Directors | Stockholders |\n| :--- | :--- | :--- |\n| Quorum | Majority | Majority of Outstanding Capital Stock |\n| Date of Regular Meeting | Monthly as fixed in by-laws | Annual as fixed in by-laws; if none fixed, any date after April 15 |\n| Date of Special Meeting | Any time deemed necessary or as provided in by-laws | Any time deemed necessary or as provided in by-laws |\n| Notice Requirement | Regular/Special: 2 ext{ days}$prior (formerly$1 ext{ day}$) | Regular:$21 ext{ days}$prior (formerly$2 ext{ weeks}$); Special:$1 ext{ week} prior |\n| Meeting Location | Anywhere (even outside the Philippines) | Principal office city/municipality (if impracticable, within same city/municipality). Metro Cebu, Metro Davao, and other Metropolitan Areas are considered single cities/municipalities |\n| Proxy Voting | **Not allowed** (directors must attend and vote personally) | **Allowed** |\n| Voting Requirement | General Rule: Majority of those present acts as corporate act. Exceptions apply. | Refer to statutory thresholds under Stockholder Rights. |\n\n* **Validity of Defective Meetings:** Business transacted at improperly called/held meetings is valid if **ALL** stockholders/members are present or represented, **UNLESS** attendance is expressly to object to transacting business due to unlawful calling/convening.\n* **Waiver of Notice:** Notice may be waived expressly or impliedly. General waivers in AOI or by-laws are prohibited under Section 49 RCC.\n* **Remote Communication & Voting In Absentia:** Allowed under Section 23 RCC for stockholders/members and directors/trustees; participating members count toward quorum.\n* **Stock and Transfer Book Closing:** Closed at least 20 ext{ days}$before regular meetings and$7 ext{ days} before special meetings, unless by-laws specify longer.\n\n# Reorganization, Merger, and Consolidation\n\n* **Reorganization:** Entering into financial restructuring to avoid liquidation/bankruptcy or adjust corporate capital.\n* **Merger vs. Consolidation:**\n * **Merger:** One or more existing corporations are absorbed by another surviving corporation which continues business.\n * **Consolidation:** Two or more existing corporations combine to form an entirely new consolidated corporation, terminating constituent entities.\n* **Procedure for Merger / Consolidation:**\n 1. Board approval of plan of merger/consolidation for each constituent corporation;\n 2. Approval by \frac{2}{3} outstanding capital stock (or members) of each corporation at separate meetings;\n 3. Prior notice with plan summary sent to all stockholders/members;\n 4. Execution of articles of merger/consolidation by each corporation;\n 5. Submission to SEC (submission in quadruplicate **removed** under RCC); favorable recommendation of specialized regulatory agency obtained if applicable;\n 6. Issuance of Certificate of Merger or Consolidation by SEC (effective date of merger/consolidation).\n* **Effects:** Single surviving/consolidated entity; dissolution of absorbed/constituent entities without liquidation/winding up; full transfer of assets, rights, receivables, liabilities, and obligations to surviving entity.\n\n# Non-Stock Corporations\n\n* **Definition:** No part of income is distributable as dividends to members, trustees, or officers. Profits are used for organizational purpose operations.\n* **Comparison with Stock Corporations:**\n\n| Feature | Stock Corporation | Non-Stock Corporation |\n| :--- | :--- | :--- |\n| Purpose | Profit / Dividend distribution | Charitable, religious, educational, professional, social, civic, etc. |\n| Dividend Distribution | Authorized | **Not authorized** |\n| Term of Trustees/Directors | 1 ext{ year}$|$3 ext{ years} |\n| Voting Method | Cumulative voting allowed | Straight voting (cumulative allowed only if stated in AOI/by-laws) |\n| Manner of Voting | In person or proxy | In person, proxy, mail, or remote means authorized in by-laws |\n| Transferability | Transferable | Personal and non-transferable unless AOI/by-laws allow |\n| Director Ownership | Own at least 1 share | Must be a member (Independent trustees need not be members) |\n\n# Close Corporations\n\n* **Definition & Requisites in AOI:**\n 1. Issued stock held of record by not more than 20 persons;\n 2. Issued stock subject to specified transfer restrictions;\n 3. Prohibited from listing on stock exchanges or making public offerings.\n * Cannot be a close corporation if \frac{2}{3} of voting stock is owned/controlled by a non-close corporation.\n* **Ineligible Businesses:** Mining, oil companies, stock exchanges, banks, insurance companies, public utilities, educational institutions.\n* **Differences from Ordinary Stock Corporations:**\n * Stockholders may manage corporate affairs directly without a Board;\n * Board size up to 20;\n * Direct election/appointment of officers by stockholders permitted in AOI;\n * Pre-emptive rights extend to all issues without exception;\n * Unbridled appraisal rights for any reason (provided corporate assets exceed debts);\n * SEC arbitration petition available in case of deadlocks.\n\n# One Person Corporations (OPC)\n\n* **Definition:** Formed by a single stockholder (natural person, trust, or estate). Corporate name must contain "OPC".\n* **Inapplicable Matters:** Authorized Capital Stock, By-Laws, and Minutes of BOD Meetings (replaced by Minutes Book).\n* **Ineligible Entities:** Banks, quasi-banks, pre-need, trust, insurance companies, public/publicly-listed entities, non-chartered GOCCs, and natural persons exercising a profession.\n* **Corporate Officers:**\n * Sole stockholder is automatically Sole Director and President.\n * Appoints Treasurer, Corporate Secretary, and other officers within 15 ext{ days}$of incorporation; notifies SEC within$5 ext{ days}.\n * President **cannot** serve as Corporate Secretary.\n * President **may** serve as Treasurer if a bond is posted with the SEC and written undertaking provided.\n* **Nominee and Alternate Nominee:**\n * Designated to manage corporate affairs upon death or incapacity of sole stockholder.\n * **Temporary Incapacity:** Nominee manages until stockholder self-determines capacity to resume.\n * **Death / Permanent Incapacity:** Nominee manages until legal heirs are determined and designate estate/representative.\n * Nominee change does not require AOI amendment.\n* **Liability:** Sole stockholder must prove corporate assets are independent of personal property; otherwise jointly and severally liable. Corporate veil piercing applies.\n* **Conversions:**\n * **Ordinary to OPC:** Applied for when single entity acquires all shares.\n * **OPC to Ordinary:** Notice to SEC within 60 ext{ days}$of event. Upon death, transfer to heirs within$7 ext{ days}$; heirs decide within$60 ext{ days} to convert or dissolve.\n\n# Foreign Corporations and Nationality Tests\n\n* **Incorporation Test:** Determines foreign vs. domestic status based on state of incorporation.\n* **Corporate Nationality Tests:**\n * **Control Test:** Corporation is Filipino if at least 60\% of capital stock is owned by Philippine citizens.\n * **Grandfather Rule:** Traces true Filipino ownership through multi-tiered corporate structures by multiplying ownership percentages.\n * **Application Rule (Narra Nickel Mining Case):** Control Test applies first. Grandfather Rule is supplementally applied if Filipino equity falls below threshold or doubt exists regarding true ownership.\n* **Resident Agent:** Mandatory appointee for legal service. Foreign corporate resident agents must show proof of sound financial standing and SEC certification.\n* **Doing Business Without a License:**\n * Foreign corporations doing business without a license **cannot sue or intervene** in Philippine courts/administrative agencies, but **may be sued**.\n * **Tests for Doing Business:** Continuity Test, Substance Test, Contract Test.\n * **Exceptions (Foreign Corporations May Sue Without License):**\n 1. Isolated transactions;\n 2. Protection of trademark, trade name, goodwill, or corporate name;\n 3. Violations of Revised Penal Code;\n 4. Defending against suits;\n 5. Contracting party is estopped from challenging personality.\n\n# Corporate Dissolution and Liquidation\n\n* **Effect:** Extinguishes corporate franchise, terminates business operations. Entity continues for 3 ext{ years} strictly for liquidation and winding up.\n* **Modes of Dissolution:**\n * **1. Expiration of Term / Shortening of Term.**\n * **2. Voluntary Dissolution:**\n * **No Creditors Affected:** Majority Board vote + Majority Stockholder/Member vote (AMENDMENT: reduced from \frac{2}{3}$). Verified request filed with SEC. Publication once in local newspaper. Withdrawal allowed within$15 ext{ days}.\n * **Creditors Affected:** Majority Board vote + $frac{2}{3} Stockholder/Member vote. Petition filed with SEC.
  • 3. Involuntary Dissolution (Grounds under Section 138 RCC):
  • Non-use of corporate charter for $5\text{ years}$ (formerly $2\text{ years}$ automatic dissolution);
  • Continuous inoperation for $5\text{ years}$ (SEC places corporation under delinquent status for $2\text{ years}$ to comply; revocation occurs only upon non-compliance);
  • Lawful court order;
  • Incorporation procured through fraud;
  • Created for or committing securities violations, smuggling, tax evasion, money laundering, or graft.
• Liquidation: Assets sold, creditors settled, remaining assets distributed. $3\text{ year}$ limit does not apply if trustee/receiver is appointed.

Securities Regulation Code (SRC) - RA 8799

• Purpose: Protect investing public through disclosure requirements and penalizing fraudulent practices.
• Definition of Securities: Shares, participations, or interests in a corporation/enterprise evidenced by certificates/contracts, purchased expecting passive income/appreciation.
  • Investment Contract: Investment of money in a common enterprise with expectation of profits primarily from the efforts of others (modifies Howey Test).
• Registration Requirements:
  • Securities cannot be sold/offered without an SEC-approved Sworn Registration Statement and Prospectus.
  • Publication of notice once a week for $2\text{ consecutive weeks}$. SEC issues order within $45\text{ days}$.
  • Filing fee capped at $\frac{1}{10}\text{ of }1\%$ of aggregate offering price.
• Exempt Securities (GRIB):
  1. Government issues/guarantees;
  2. Foreign government issues (reciprocity);
  3. Receiver/trustee certificates in bankruptcy;
  4. Securities regulated by Insurance Commission, HLURB, or BIR;
  5. Bank securities (except bank's own stock).
• Exempt Transactions (BISCEPS SMILE):
  1. Broker transactions on customer orders;
  2. Isolated transactions by owner;
  3. Stock dividends;
  4. Conversion of securities;
  5. Exclusive sale to existing stockholders;
  6. Private placement (fewer than $20$ persons in $12\text{ months}$);
  7. Subscriptions pre-incorporation or for capital increase;
  8. Sophisticated / Qualified Buyers (banks, insurance, investment houses, pension funds);
  9. Mortgage-backed securities sold to a single purchaser;
  10. Judicial/Insolvency sales;
  11. Liquidation of bona fide debt pledged securities;
  12. Exchange of securities with existing holders.
• Reportorial Requirements: Covered entities include registered issuers, exchange-listed entities, and entities with assets $\ge \text{PHP }50,000,000$ and $\ge 200$ holders with $\ge 100$ shares each.
• Insider Trading: Transacting securities while possessing material non-public information. Relatives within 2nd degree of affinity/consanguinity presumed trading on inside info if executed before public absorption.
• Fraudulent Transactions / Market Manipulations: Wash sale, Matched order, Marking the close, Painting the tape, Squeezing the float, Hype and dump, Boiler room operations, Disseminating false info, Misleading statements, Pegging/stabilizing price, Short sale abuses.
• Mandatory Tender Offer Rule: Mandatory offer to buy all tendered shares when acquiring $\ge 35\%$ over $12\text{ months}$ (or acquisition resulting in $> 50\%$ ownership) in listed/public entities.

Multiple Choice Questions and Answer Key

• 1. An ultra vires act is an act or a transaction of a corporation which:

  • A. Is considered illegal
  • B. Is contrary to morals, public policy, good customs
  • C. Not within the express, implied or incidental powers of the corporation
  • D. All of the above

• 2. Under the Revised Corporation Code, a foreign corporation has power and capacity to do all of the following, except:

  • A. Form joint ventures
  • B. Adopt and use a corporate seal
  • C. Give aid for political partisan activities
  • D. Acquire properties in its own name

• 3. Under the Revised Corporation Code, the number of directors in the Articles of Incorporation:

  • A. 5 to 15
  • B. 5 to 10
  • C. Not exceeding 15
  • D. Not exceeding 10

• 4. If a corporation is classified as de facto,

  • A. It does not have a separate juridical personality.
  • B. It complied with all the requirements for a valid incorporation.
  • C. It can be the subject of a collateral attack.
  • D. Its personality can be questioned via a direct attack called quo warranto.

• 5. Mr. X invested his property in exchange for shares in ABC Corporation. Later on, the same property mortgaged as security for the loan of ABC Corporation from M Bank. For failure to pay, the mortgage was foreclosed and proceeds were less than the amount of the outstanding balance of the loan which M Bank sought from Mr. X contending that the property was invested by him. Mr. X cannot be made liable under which principle:

  • A. Corporate Entity Theory
  • B. Piercing the Veil of Corporate Entity
  • C. Limited Liability Principle
  • D. All of the above

• 6. Under the Revised Corporation Code, a corporation has:

  • A. A maximum of 50 years of existence
  • B. A maximum of 50 years of existence but renewable not earlier than 5 years prior to expiration of the term
  • C. A maximum of 50 years of existence but renewable not earlier than 3 years prior to expiration of the term
  • D. Perpetual existence

• 7. Which of the following is still a requirement that applies to incorporators under the Revised Corporation Code:

  • A. Majority must be residents of the Philippines
  • B. Must be natural persons
  • C. Natural persons must be of legal age
  • D. None of the choices

• 8. A, B, C, D and E is organizing a corporation whose Authorized Capital Stock is $\text{PHP }64,000$. How much is the minimum paid-up capital requirement under the Revised Corporation Code for the corporation to incorporate?

  • A. $\text{PHP }0$
  • B. $\text{PHP }4,000$
  • C. $\text{PHP }5,000$
  • D. $\text{PHP }16,000$

• 9. A restriction as to transfer of shares in an ordinary stock corporation must be indicated in:

  • I. Articles of Incorporation
  • II. By-Laws
  • III. Certificate of Stock
  • A. I, II and III
  • B. I and II
  • C. I and III
  • D. II and III

• 10. The existence of a corporation sole begins from:

  • A. The time the parties came to an agreement to form a corporation and contribute money or property.
  • B. Filing of the verified articles of incorporation.
  • C. Issuance of a certificate of registration.
  • D. First day of the year following the filing of the Articles of Incorporation

• 11. Which of the following is an incorrect requirement for a director of a corporation?

  • A. They must own at least $1\%$ share
  • B. They meet all the qualifications under the by-laws
  • C. They do not possess any of the disqualifications under the Corporation Code
  • D. All of the choices are correct

• 12. A, is a stockholder of Silver Corporation, who holds $10,000$ shares thereof. A stockholders meeting was called to elect members of a 5-man Board. How many votes can A cast in favor of B if they employ cumulative voting?

  • A. $10,000\text{ votes}$
  • B. $25,000\text{ votes}$
  • C. $50,000\text{ votes}$
  • D. $100,000\text{ votes}$

• 13. A, B, C, D and E are members of the Board of Directors. D retired and E died. In this case, who shall fill-up the vacancy?

  • A. Stockholders in a meeting called for the purpose, regardless if the directors still have a quorum
  • B. A, B and C, since they still constitute a quorum
  • C. A, B and C, regardless if they still constitute a quorum
  • D. Stockholders in a meeting called for the purpose since the directors no longer have a quorum

• 14. A, B, C, D, E, F, G, H, I are members of the Board of Directors. In the meeting to appoint corporate officers, only A, B, C, D and E are present. How many votes are required to elect corporate officers?

  • A. $2$
  • B. $3$
  • C. $4$
  • D. $5$

• 15. A, B, C, D and E are directors of REALTY CORP., Z wanted to sell his property with a fair market value of $\text{PHP }100\text{M}$ for $\text{PHP }90\text{M}$. Z offered the property first to A, who acquired it for $\text{PHP }90\text{M}$ and eventually sold the same for $\text{PHP }100\text{M}$. In this case,

  • A. A can keep the profits provided the sale is ratified by the stockholders.
  • B. A can keep the profits because it was offered to him and not to REALTY CORP.
  • C. The sale is not subject to ratification and A may be required to remit the profits to REALTY CORP
  • D. None of the choices is correct

• 16. Mr. X is a Director of both XYZ Corporation and ABC Corporation. XYZ and ABC entered into a contract of sale, the contract between XYZ and ABC, is considered valid absent fraud and provided it is reasonable under the circumstances. But it is considered voidable if the shareholdings of Mr. X in the two corporations are (ABC ; XYZ):

  • A. $25\% ; 25\%$
  • B. $5\% ; 5\%$
  • C. $25\% ; 5\%$
  • D. $3\% ; 20\%$

• 17. Which of the following corporate officer positions may be held by the same person?

  • A. President and Secretary
  • B. Treasurer and Secretary
  • C. President and Treasurer
  • D. None of the above

• 18. Mr. X, as the president of ABC Corporation, signed the check in his official capacity. Later on, the check bounced due to insufficiency of funds and he is now being sued for violation of BP Blg. 22. Can Mr. X be made personally liable?

  • A. Yes, because he acted in bad faith in allowing the issuance of a worthless check
  • B. No, because he merely signed in his official capacity
  • C. Yes, because he is made personally liable by law
  • D. No, because of the corporate entity theory

• 19. Which of the following is false with regards preferred shares?

  • A. Preferred share is a stock that gives the holder preference over the holder of common stocks with respect to the payment of dividends and/or with respect to distribution of capital upon liquidation.
  • B. A preferred share can be issued without a par value provided it is not issued for less than $\text{PHP }5$.
  • C. The preference must be stated in the Articles of Incorporation and the Certificate of Stock.
  • D. None of the choices is false

• 20. As a general rule, preferred shares do not give the holder the right to vote. However, they shall have the right to vote on the following, except:

  • A. Amendment of the Articles of Incorporation
  • B. Adoption and amendment of the by-laws
  • C. Sale of all or substantially all of the inventories
  • D. Increase or decrease of capital stock

• 21. X Co. has $\text{PHP }10\text{M}$ Authorized Capital Stock divided into: (1) $5\text{M}$ shares at $\text{PHP }1.00$ par value; and (2) $1\text{M}$ no par value shares with issued value at $\text{PHP }5.00$. If A acquired $100,000$ no par value shares at $\text{PHP }4.00$ and the same were issued. In this case,

  • A. There is no issuance of watered stocks
  • B. A and the directors of X Co. are solidarily liable for the $\text{PHP }1.00$ per share difference.
  • C. Only A is liable for the $\text{PHP }1.00$ per share difference.
  • D. Only the directors of X Co. are liable for the $\text{PHP }1.00$ per share difference

• 22. Mr. A subscribed to $10,000$ shares of $\text{PHP }1$ par value for $\text{PHP }10$ per share. He was able to pay $50\%$ of the subscription price. In this case, which of the following is not a right granted to Mr. A?

  • A. He can receive dividends attributable to the whole $10,000$ shares
  • B. He has the right to vote equivalent to the $10,000$ shares
  • C. He can demand the issuance of certificate of stock for the $5,000$ shares already paid
  • D. None of the choices.

• 23. Which of the following grounds to deny pre-emptive right requires the approval of $frac{2}{3} of the outstanding capital stock?\n * A. Shares to be issued in order to comply with the laws requiring stock offering or minimum stock ownership by the public\n * B. Shares issued in good faith in exchange for property needed for corporate purposes\n * C. In case the right is denied in the By-Laws\n * D. None of the choices\n* **24.** The appraisal right of a stockholder may be exercised in the following actions of the corporation, except:\n * A. In case of merger or consolidation.\n * B. Sale of all or substantially all the assets of the corporation.\n * C. Investment of funds in another corporation or business or for any other purpose other than the primary purpose.\n * D. Amendments to the Articles of Incorporation to change the name of the corporation\n* **25.** Under the revised corporation code, which of the following is a valid requirement for the validity of the annual stockholders' meeting?\n * A. If there is no date fixed in the by-laws, it can be held on any date in April\n * B. There must be notice 2 weeks prior to the meeting\n * C. It must be held in the city where the principal office is located\n * D. It must be called by the proper party\n* **26.** The delegation of the power to amend the by-laws would require \_\_\_\_\_ vote of the stockholders, while its revocation would require \_\_\_\_\_ vote.\n * A. Majority; Majority\n * B. Majority; \frac{2}{3}\n * C. \frac{2}{3}$;$\frac{2}{3}\n * D. \frac{2}{3} ; Majority\n* **27.** A Corp. and B Corp. agreed to a business combination. In the agreement, A Corp. will absorb all the assets and liabilities of B Corp. and the latter will cease to exist. The business combination entered into is a:\n * A. Merger\n * B. Consolidation\n * C. Reorganization\n * D. Quasi-reorganization\n* **28.** The merger or consolidation is deemed effective:\n * A. On the date the parties agreed to a consolidation or merger\n * B. On the date the stockholders ratified the Board resolution for consolidation or merger\n * C. Upon submission of the articles of merger or consolidation to the SEC\n * D. Upon issuance of the certificate of merger or consolidation\n* **29.** As a general rule, \_\_\_\_\_ of the outstanding capital stock is required to constitute a quorum; and majority of \_\_\_\_\_ is the voting requirement.\n * A. Majority; outstanding capital stock\n * B. Majority; those present\n * C. \frac{2}{3} ; outstanding capital stock\n * D. \frac{2}{3}$$ ; those present

• 30. The regular meetings of _____ are to be held monthly:

  • A. Stockholders
  • B. Members
  • C. Board of Directors
  • D. All of the choices

• 31. The following does not apply to an OPC, except:

  • A. Articles of Incorporation
  • B. By-Laws
  • C. Authorized Capital Stock
  • D. Minutes of the Meetings of BOD

• 32. What will be the term of the nominee in case of temporary incapacity of the sole stockholder?

  • A. Until declaration of the court of the sole stockholder's capacity to take over
  • B. Upon self-determination of the sole stockholder that he regained capacity
  • C. Until the legal heirs of the stockholder have been determined
  • D. Once the heirs have designated one of them to take over management

• 33. The place of meetings of trustees in a non-stock corporation:

  • A. Anywhere
  • B. Anywhere in the Philippines
  • C. The principal office
  • D. The city or municipality where the principal office is located

• 34. In order to be considered as a close corporation, the following are required to appear in the Articles of Incorporation, except:

  • A. All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty.
  • B. All the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title.
  • C. The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.
  • D. None of the choices is an exception.

• 35. Which of the following business is allowed to incorporate as a close corporation?

  • A. Banks and insurance companies
  • B. Mining companies
  • C. Educational institutions
  • D. Hospitals

• 36. To qualify as a foreign corporation, the consideration is:

  • A. Ownership of the shares of stock
  • B. Appointment of a resident agent
  • C. Agreement of the parties
  • D. Under what country's law it was incorporated

• 37. The following are effects of dissolution, except:

  • A. The corporate entity ceases to exist except for liquidation purposes.
  • B. It can no longer enter into contracts for furthering its purpose
  • C. It can no longer apply for a secondary franchise
  • D. Existing contracts are deemed terminated

• 38. In case the corporation has been continuously inoperative for a period of 5 years, under the Revised Corporation Code, it:

  • A. Is automatically dissolved
  • B. Provides for a ground to dissolve the corporation
  • C. Will be placed under delinquent status by the SEC
  • D. Shall no longer be allowed to operate

• 39. Under the Revised Corporation Code, any asset distributable to any creditor or stockholders or members who is unknown or cannot be found shall be escheated in favor of:

  • A. The national government
  • B. The city or municipality where the asset is located
  • C. A charitable institution designated by the corporation
  • D. The other stockholders

• 40. A corporation doing business in the Philippines without the requisite license:

  • A. Can sue and be sued in Philippine courts
  • B. Can sue but cannot be sued in Philippine courts
  • C. Can be sued but cannot sue in Philippine courts
  • D. Cannot sue and be sued in Philippine courts

• Answer Key:

  • 1. C
  • 2. C
  • 3. C
  • 4. D
  • 5. A
  • 6. D
  • 7. C
  • 8. A
  • 9. C
  • 10. B
  • 11. A
  • 12. C
  • 13. B
  • 14. D
  • 15. A
  • 16. C
  • 17. B
  • 18. C
  • 19. B
  • 20. C
  • 21. D
  • 22. C
  • 23. B
  • 24. D
  • 25. D
  • 26. D
  • 27. A
  • 28. D
  • 29. B
  • 30. C
  • 31. A
  • 32. B
  • 33. A
  • 34. D
  • 35. D
  • 36. D
  • 37. D
  • 38. C
  • 39. A
  • 40. C