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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

1. The following are the attributes of a corporation d) No, since as a rule only natural persons like
except: the members of the board of directors can
a) artificial being with separate and distinct commit corporate crimes.
personality
b) created by operation of law 5. It is the method by which the percentage of
c) enjoys the right of succession Filipino equity in a corporation engaged in
d) delectus personae. nationalized and/or partly nationalized areas of
activities is computed, in cases where corporate
2. The Corporation Code sanctions a contract shareholders are present in the situation, by
between two or more corporations which have attributing the nationality of the second or even
interlocking directors, provided there is no fraud subsequent tier of ownership to determine the
that attends it and it is fair and reasonable under nationality of the corporate shareholder.
the circumstances. The interest of an interlocking a) Control Test
director in one corporation may be either b) Alter Ego Doctrine
substantial or nominal. It is nominal if his interest: c) Grandfather Rule
a) does not exceed 20% of the outstanding capital d) Incorporation Test
stock.
b) does not exceed 25% of the outstanding capital 6. This doctrine provides that subscriptions to the
stock. capital stock of a corporation constitute a fund to
c) exceeds 20% of the outstanding capital stock. which the creditors have a right to look for the
d) exceeds 25% of the outstanding capital stock. satisfaction of their claims.
a) Doctrine of piercing the corporate veil
3. Under this doctrine, the separate personality of a b) Doctrine of equality of shares
corporation may be disregarded when such c) Appraisal right
separate personality is misused, or when it d) Trust fund doctrine
becomes a shield for fraud, illegality or inequity
committed against third persons. 7. Clinton Corp. increased its capital stocks from
a) Principle of ostensible agency Php20 Million to Php25 Million and, in the
b) Piercing the veil of corporate fiction process, issued 1,000 new shares divided into
c) Trust fund doctrine Common Shares "B" and Common Shares "C."
d) Doctrine of corporate negligence Hillary, a stockholder owning 500 shares, insists
on buying the newly issued shares through a right
4. The Board of Directors of Trump Corporation of pre-emption. The company claims, however,
unanimously passed a Resolution approving the that its By-laws deny Hillary any right of pre-
taking of steps that in reality amounted to willful emption. Is the corporation correct?
tax evasion. Upon its discovery, the government a) Yes, because a stockholder has no right of pre-
filed tax evasion charges against the members of emption.
the board of directors of Trump Corporation. The b) Yes, since the denial of the right under the By-
directors invoked the defense that they have no laws is binding on Hillary.
personal liability, being mere directors of a c) No, since the By-Laws cannot deny a
fictional being. Are they correct? shareholder his right of pre-emption.
a) Yes, since it is Trump Corporation that did not d) No, since pre-emptive rights may be exercised
pay the tax and it has a personality distinct by any stockholder absolutely.
from its directors.
b) Yes, since the directors officially and 8. ABC Corp. operates a call center that received
collectively performed acts that are imputable orders for food and beverages on behalf of XYZ
only to the corporation. Corp. which operates fast food restaurants. The
c) No, since the law makes directors of Trump two companies have the same set of corporate
Corporation solidarily liable for gross officers. After 3 years, ABC Corp. dismissed its
negligence and bad faith in the discharge of call agents for no reason. The agents filed a
their duties. collective suit for illegal dismissal against both
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ABC Corp. and XYZ Corp. based on the doctrine least one (1) share of the capital stock of the
of piercing the veil of corporate fiction. XYZ Corp. corporation.
set up the defense that the call agents are
employees of ABC Corp. which is a separate 13. Statement 1: A corporation shall exist for a period
corporation. Is XYZ Corp. correct? of fifty (50) years from the date of incorporation
a) Yes, since the ABC Corp. and XYZ Corp. unless sooner dissolved or unless said period is
perform two distinct businesses. extended.
b) Yes, it is not shown that one corporation
completely dominates the finances, policies, Statement 2: The corporate term as originally
and business practices of the other. stated in the articles of incorporation may be
c) No, since the two companies having the same extended for another fifty (50) years in any single
set of corporate officers, the doctrine of instance by an amendment of the corporate by-
piercing the veil of corporate fiction would laws.
apply. a) Only Statement 1 is correct.
d) No, the real employer is XYZ Corp., with ABC b) Only Statement 2 is correct.
Corp. serving as an arm for receiving its c) Both statements are correct.
outside orders for food and beverages. d) Both statements are incorrect.

9. This is a corporation which has capital stock 14. A private corporation commences to have
divided into shares and is authorized to distribute corporate existence and juridical personality and
to holders of such shares, dividends or allotments is deemed incorporated from ________:
of the surplus profits on the basis of such shares. a) the date of signing of the articles of
a) De jure corporation incorporation and by-laws
b) Stock corporation b) the date of filing of the articles of
c) Non-stock corporation incorporation and by-laws with the Securities
d) Corporation sole and Exchange Commission
c) the date the Securities and Exchange
10. The Articles of Incorporation must be Commission issues a certificate of
accompanied by a Treasurer's Affidavit certifying incorporation
under oath, among others, that the total d) the mere agreement of the incorporators
subscription paid is:
a) not more than P5,000.00. 15. All persons who assume to act as a corporation
b) not more than P25,000.00. knowing it to be without authority to do so shall
c) not less than P5,000.00. be liable as general partners for all debts, liabilities
d) not less than P25,000.00. and damages incurred or arising as a result
thereof. This is called a ________:
11. An individual stockholder is permitted to institute a) De jure corporation
a case on behalf of the corporation in order to b) De facto corporation
protect or vindicate corporate rights, whenever the c) Corporation by prescription
directors of the corporation refuse to sue, or are d) Corporation by estoppel
the ones to be sued, or hold the control of the
corporation. This is called ______: 16. The following are corporate officers, except:
a) Individual suit a) Treasurer
b) Derivative suit b) Corporate Secretary
c) Class suit c) Vice-President for Finance provided for in
d) Representative suit the corporation’s by-laws
d) In-house counsel
12. Which of the following statements is correct?
a) Any number of natural or juridical persons 17. The following are the qualifications for the
not less than five (5) but not more than fifteen director of a corporation, except:
(15), may form a private corporation for any a) Must be a resident of the Philippines
lawful purpose or purposes. b) Ownership of at least one (1) share of the
b) Any number of natural persons not less than capital stock of the corporation
five (5) but not more than fifteen (15), all of c) Must not have been convicted by final
legal age and a majority of whom are judgment of an offense punishable by
residents of the Philippines, may form a imprisonment for a period exceeding six (6)
private corporation for any lawful purpose or years
purposes. d) Must be a natural person and of legal age
c) All incorporators must be residents of the
Philippines. 18. Which of the following statements is correct?
d) Majority of the incorporators of a stock a) The by-laws of a corporation may create an
corporation must own or be a subscriber to at executive committee, composed of not less
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than three members of the board, to be 24. The corporate term of a stock corporation is that
appointed by the board. which is stated in its Articles of Incorporation. It
b) The executive committee has the power to may be extended or shortened by an amendment
distribute cash dividends to the stockholders. of the Articles when approved by majority of its
c) The board of directors may include a third Board of Directors and:
party who is not a stockholder as a member a) ratified by at least 2/3 of all stockholders.
of an executive committee. b) approved by at least 2/3 of the stockholders
d) The executive committee is empowered to representing the outstanding capital stock.
amend or repeal by-laws. c) approved and ratified by at least 2/3 of all
stockholders.
19. This doctrine states that a corporation can act only d) ratified by the stockholders representing 2/3 of
through its directors and officers. As such, all the outstanding capital stock.
businesses of the corporation shall be conducted
and all its properties shall be controlled and held 25. The rule is that no stock dividend shall be issued
by the board of directors. without the approval of stockholders representing
a) Doctrine of separate juridical personality at least 2/3 of the outstanding capital stock at a
b) Doctrine of centralized management regular or special meeting called for the purpose.
c) Trust fund doctrine With respect to other forms of dividends:
d) Business judgment rule a) mere majority of the votes of stockholders
representing outstanding capital stock applies.
20. This is the right to demand payment of the fair b) the same rule of 2/3 votes applies.
value of the shares, after dissenting from a c) a mere majority of the quorum of the Board of
proposed corporate action involving a Directors applies.
fundamental change in the corporation in the d) majority of the entire Board of Directors
cases provided by the law. applies.
a) Right of first refusal
b) Pre-emptive right 26. Stocks issued not in exchange for their equivalent
c) Appraisal right either in cash, property, share, stock dividends, or
d) Right of subscription services, or issued for a consideration less than the
par or issued price thereof is called _______:
21. Which of the following statements is correct? a) Delinquent stocks
a) Stockholders and directors may vote in person b) Watered stocks
or by proxy in all meetings of stockholders c) Share in escrow
and directors. d) Treasury shares
b) No proxy shall be valid and effective for a
period longer than five (5) years at any one 27. This doctrine provides that a director who, by
time. virtue of his office, acquires for himself a business
c) Proxies may be oral or in writing. If in writing, opportunity which should belong to the
it must be signed by the stockholder. corporation, thereby obtaining profits to the
d) Written proxies need not be filed before the prejudice of the corporation, is guilty of disloyalty
scheduled meeting with the corporate and should, therefore, account to the latter for all
secretary. such profits by refunding the same,
notwithstanding that he risked his funds in the
22. The following may be valid considerations for the venture.
issuance of stock, except: a) Doctrine of general capacities
a) Actual cash paid to the corporation b) Doctrine of corporate opportunity
b) Previously incurred indebtedness of the c) Conflict of interest doctrine
corporation d) Doctrine of necessary implication
c) Future services to be rendered to the
corporation 28. An appraisal right may be exercised in the
d) Property actually received by the corporation following instances, except:
and necessary or convenient for its use and a) In case any amendment to the articles of
lawful purposes incorporation has the effect of changing or
restricting the rights of any stockholder or
23. This is a contract for the acquisition of unissued class of shares
stock in an existing corporation or the shares of a b) In case of sale, lease, exchange, mortgage,
corporation still to be formed. pledge or other disposition of all or
a) Subscription contract substantially all of the corporate property and
b) Promotion contract assets
c) Contract of sale c) In case of extension or of shortening the term
d) Voting trust agreement of corporate existence
d) In case of increase or decrease of capital stock
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29. An act committed outside the object for which a 34. Bill owns 99% of the capital stock of AAA
corporation is created as defined by the law of its Corporation. Bill also owns 99% of BBB
organization and therefore beyond the powers Corporation. AAA Corporation obtained a loan
conferred upon it by law, as well as to the acts from BPI Bank. On due date, AAA Corporation
done by a corporation outside of its express and failed to pay despite due notice. Meanwhile, BBB
implied powers vested in it by its charter: Corporation is financially healthy. Which
a) Intra vires act statement is correct?
b) Illegal act a) The doctrine of piercing the veil of corporate
c) Ultra vires act fiction can be applied in this case.
d) Voidable act b) AAA Corporation and BBB Corporation,
although both are owned by Bill, are two
30. A merger of two corporations shall only be distinct corporations with separate juridical
effective upon: personalities hence, the BBB Corporation
a) Drawing up of plan of merger of the cannot automatically be held liable for the
constituent corporations loan of AAA Corporation.
b) Execution of the Articles of Merger of the c) BBB Corporation, 99% owned by Bill, can
constituent corporations automatically be held liable.
c) Submission to the Securities and Exchange d) Bill being a controlling owner of AAA
Commission of the Articles of Merger Corporation can automatically be held
d) Issuance by the Securities and Exchange personally liable for the loan of AAA
Commission of Certificate of Merger Corporation.

31. Brent Corporation enters in a contract with Kim 35. Brent, the President of ZZZ Corporation, was
Corporation whereby Brent Corp. acquires all of authorized by the Board of Directors of ZZZ
the properties of Kim Corp., in exchange for Corporation to obtain a loan from BDO Bank and
shares of stock of Brent Corp. As a consequence, to sign documents in behalf of the corporation.
Brent Corp. would end up with the business Brent personally negotiated for the loan and got
enterprise of Kim Corp. whereas Kim Corp. would the loan at very low interest rates. Upon maturity
end up with basically its remaining assets being of the loan, ZZZ Corporation was unable to pay.
the shares of stock of Brent Corp. This Which statement is correct?
arrangement is called: a) If ZZZ Corporation cannot pay, Brent can be
a) Consolidation held subsidiarily liable.
b) De facto merger b) Because Brent was personally acting in behalf
c) Joint venture agreement of ZZZ Corporation, he can be held personally
d) Corporation by estoppel liable.
c) Brent, as President, cannot be personally held
32. Statement 1: When one corporation buys all the liable for the obligation of the corporation
shares of another corporation, this will operate to even though he signed all the loan documents,
dissolve the other corporation. because the loan was authorized by the Board.
Statement 2: When one corporation buys all the d) BDO Bank can choose as to who it wants to
shares of another corporation, the acquiring hold liable for the loan.
corporation assumes all the liabilities of the other
corporation. 36. The Board of Directors of XYZ Corp. unanimously
a) Only Statement 1 is correct. passed a Resolution approving the taking of steps
b) Only Statement 2 is correct. that in reality amounted to willful tax evasion. On
c) Both statements are correct. discovering this, the government filed tax evasion
d) Both statements are incorrect. charges against all the company’s members of the
board of directors. The directors invoked the
33. In a close corporation, there is _______ when the defense that they have no personal liability, being
directors or stockholders are so divided respecting mere directors of a fictional being. Are they
the management of the business and affairs of the correct?
corporation that the votes required for any a) Yes, since it is the corporation that did not pay
corporate action cannot be obtained and as a the tax and it has a personality distinct from
result, business and affairs can no longer be its directors.
conducted to the advantage of the stockholders b) No, since the law makes directors of the
generally: corporation solidarily liable for gross
a) Dead-end negligence and bad faith in the discharge of
b) Deadlock their duties.
c) Conflict c) Yes, since the directors officially and
d) Revocation collectively performed acts that are imputable
only to the corporation.

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d) No, since as a rule only natural persons like c) Engaging into continuous business acts or
the members of the board of directors can transactions
commit corporate crimes. d) Participating in the management, supervision
or control of any domestic business firm,
37. To constitute a quorum for the transaction of entity or corporation in the Philippines
corporate business, only a majority of the number
of Board of Directors is required: 42. Their names are mentioned in the Articles of
a) as fixed by the corporate by-laws Incorporation as originally forming the
b) as fixed in the articles of incorporation corporation and are signatories thereof:
c) actually serving in the board a) Stockholders
d) actually serving in the board but constituting a b) Corporators
quorum c) Incorporators
d) Directors
38. Unless the by-laws provide otherwise, written
notice of regular meetings shall be sent to all stock 43. The articles of incorporation differ from the by-
holders of record: laws in that the articles of incorporation are:
a) at least one day prior to the meeting a) The rules of action adopted by a corporation
b) at least two days prior to the meeting for its internal government
c) at least one week prior to the meeting b) Adopted before or after incorporation
d) at least two weeks prior to the meeting c) A condition precedent in the acquisition by
the corporation of a juridical personality
39. Which of the following will cause the automatic d) Approved by the stockholders if adopted after
dissolution of a corporation? incorporation
a) Commission by the corporation of an ultra
vires act 44. A delinquent stockholder is not entitled to the
b) Continuous non-operation for a period of at following rights, except the right:
least 5 years a) To be voted
c) Refusal to comply with or defiance of any b) To vote or be represented in the meetings of
lawful order of the SEC restraining stockholders
commission of acts which would amount to c) To dividends
grave violation of its franchise d) He is not entitled to all the rights of a
d) None of the above stockholder

40. MUO Corporation has increased its capital stock 45. Rachel, Mariel, Chanel, Liz and Nelda want to
and new shares of stock are issued. The establish a car repair business. Rachel, Mariel and
stockholders of MUO Corp wish to exercise their Chanel each have the amount of P200,000 to
pre-emptive right regarding the shares to be contribute to the business capital. Liz is to
issued. Which of the following shares does a pre- contribute to the firm his lot and building, while
emptive right of stockholders extends? Nelda will contribute his services as a mechanic.
a) to shares to be issued in compliance with laws All of them are of legal age and residents of the
requiring stock offerings or minimum stock Philippines. They are deciding on what type of
ownership by the public business organization to put up.
b) to shares to be issued in good faith with the a) The five can only put up a partnership.
approval of stockholders representing 2/3 of b) The five can only put up a corporation.
the outstanding capital stock in exchange for c) The five can put up either a partnership or a
property needed for corporate purposes corporation.
c) to shares to be issued in good faith with the d) The five cannot put up either a partnership or
approval of the stockholders representing 2/3 a corporation.
of the outstanding capital stock in payment of
previously contracted debt 46. The ordinary stock of the corporation entitling the
d) treasury shares reacquired using the funds owner to pro rata dividends without any priority
from the surplus profits of the corporation or preference over any other shareholders or class
which could have been declared as dividends of shareholders but equally with all other
stockholders except preferred stockholders is:
41. The following instances are considered as a) Common stock
“indicators” that a foreign corporation is b) Preferred stock
“transacting business” in the Philippines, even c) Guaranteed stock
without securing a license, except: d) Convertible stock
a) Soliciting orders, purchases and service e) None of the above
contracts
b) Subscribing shares of stock from a domestic 47. A, B, C ,D and E represented themselves to X as
corporation directors and stockholders of “Titanic
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Corporation.” In reality, no such corporation is each having a par value of P10.00. at the time of
registered with SEC. Later, X granted credit sales incorporation, how much are the minimum
to “Titanic Corporation.” When “Titanic subscription and paid-in capital requirements of
Corporation” defaulted in its payment, X sued the corporation?
“Titanic Corporation.” “Titanic Corporation” a) P12,500 and P3,125, respectively.
moved for the dismissal of the complaint on the b) P12,500 and P12,500, respectively.
ground that it had no corporate personality. Is the c) P12,500 and P5,000, respectively.
defense of “Titanic Corporation” tenable? d) P50,000 and P12,500, respectively.
a) Yes, because it was not registered with SEC.
b) No, because it is estopped from raising as a 52. This share can be acquired by the corporation
defense its lack of corporate personality even without unrestricted retained earnings.
against X. a) Founders’ shares.
c) Yes, because “Titanic Corporation” does not b) Redeemable shares.
really exist. c) Par value share.
d) Yes, because only the Office of the Solicitor d) No-par value share.
General can sue “Titanic Corporation.” e) None of the above.

48. Assume the same facts from the preceding 53. The term GGG Corporation in accordance with its
number except that it was “Titanic Corporation” Articles of Incorporation ended last January 30,
which granted sales to X. When X defaulted in his 2012. The term was not extended. What will
payment, “Titanic Corporation” filed a collection happen to the corporation?
case against him. X moved for the dismissal of the a) The corporation is dissolved ipso facto.
complaint on the ground that “Titanic b) There is a need to pass a board resolution to
Corporation” was a non-existent corporation. Is formally dissolve the corporation.
the defense of X tenable? c) The Board of Directors must pass a resolution
a) Yes, because “Titanic Corporation” was not for the corporation to formally go into
registered with SEC. liquidation.
b) No, because X is precluded from raising the d) The stockholders must pass a resolution to
defense that “Titanic Corporation” does not dissolve the corporation.
exist.
c) Yes, because “Titanic Corporation” does not
54. It refers to the total shares of stock issued to
really exist.
subscribers or stockholders, whether or not fully
d) Yes, because “Titanic Corporation” lacks
separate juridical personality. or partially paid (as long as there is a binding
subscription agreement), except treasury shares.
49. Stock corporations formed under the Corporation a) Outstanding capital stock
Code are required to have a minimum b) Issued capital stock
subscription at the time of incorporation (in case c) Subscribed capital stock
the shares have par value) in an amount:
d) Authorized capital stock
a) Not less than 25% of the authorized capital
stock.
b) Equivalent to 100% of the authorized capital 55. Non-voting shares may vote in the following
stock. cases, except:
c) Not less than 50% of the authorized capital a) In the amendment of the articles of
stock. incorporation.
d) Equivalent to 50% of the authorized capital b) In case of merger or consolidation of the
stock. corporation with another corporation or other
corporations.
50. Stock corporations are required to have a paid-up c) In the election of directors of the corporation.
capital at the time of incorporation (in case the d) Non-voting shares are not allowed to vote at
shares have par value) in amount which is at least: all, that is why they are classified as non-
a) 25% of the authorized capital stock or P5,000 voting.
whichever is higher.
b) 25% of the subscribed capital stock or P5,000 56. Which of the following statements concerning no-
whichever is higher. par shares is incorrect?
c) 25% of the fair market value of the subscribed a) Subscriptions to no-par shares shall be
capital stock or P5,000 whichever is higher. deemed fully paid and non-assessable.
d) P50,000. b) The entire consideration received for no-par
shares shall all be treated as capital and no
51. The articles of incorporation of Crown Office part thereof shall be available for distribution
Supplies Corporation provide for an authorized as dividends.
capital stock of P50,000 divided into 5,000 shares
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c) They may be issued for a consideration of less 63. Corporate By-Laws may be adopted prior to or
than P5.00 per share. after incorporation. TRUE
d) They may not be issued by banks, trust 64. Appraisal right of a stockholder may be exercised
companies, insurance companies, public in all instances. FALSE
utilities, and building and loan associations. 65. A non-stock corporation is one where no part of its
income is distributable as dividends to its
57. Which of the following documents is not required members. TRUE.
to be submitted at the time of incorporation? 66. A corporation commences to exist upon the
a) Articles of incorporation execution of the articles of incorporation by the
b) Treasurer’s affidavit incorporators. FALSE
c) Certificate of bank deposit on the paid-up 67. The continuous inoperation of a corporation for a
capital period of at least five years will result in its
d) By-laws automatic dissolution. FALSE
68. The term "outstanding capital stock" means the
58. Incorporators of a stock corporation must, in total shares of stock issued under binding
addition to being natural persons, possess the subscription agreements to subscribers or
following qualifications, except one. Which is such stockholders, whether or not fully or partially
exception? paid, including treasury shares. FALSE
a) They must be of legal age. 69. A resident agent may be either an individual
b) Majority of them must be citizens of the residing in the Philippines or a domestic
Philippines. corporation lawfully transacting business in the
c) They must not be less than 5 nor more than 15 Philippines. TRUE
in number. 70. A corporation may be dissolved by the Securities
d) They must be the owner of at least one share and Exchange Commission upon filing of a
of stock. verified complaint and after proper notice and
hearing on the grounds provided by existing laws,
59. The term for which a corporation is to exist which rules and regulations. TRUE
must be stated in the articles of incorporation at
the time of incorporation: III. ESSAY: What is your message to your professor?
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 “Good luck in the pursuit of your dreams. Do whatever sets your heart
number of stockholders shall not exceed twenty on fire. Always remember: YOUR DREAMS ARE VALID.”
-Atty. Tyron Baculo
five (25). FALSE

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