Quiz for Law 2

Select the best answer by writing the letter of your choice.

1. Which of the following is not an attribute of a corporation?

a) It is an artificial being.
b) It is created by the agreement of the incorporators.
c) It has the right of succession.
d) It has the powers, attributes and properties expressly authorized by law or incident to its
existence.

2. It refers to the doctrine to the effect that the separate personality of a corporation will be
disregarded if it is used to defeat public convenience, justify a wrong, protect fraud, or defend crime.
a) Doctrine of limited liability
b) Doctrine of corporate opportunity
c) Trust fund doctrine
d) Doctrine of piercing the veil of corporate entity

3. These statements are presented to you: (I) Frequent transactions between a parent company and
its subsidiary are by themselves a sufficient reason for disregarding the fiction of separate corporate
personality. (II) For as long as the separate personality of a corporation is not used for illegal or
fraudulent purpose, the other party to the transaction has no right to pierce the corporate veil. In your
evaluation of the foregoing statements:
a) Both statements are true
b) Both statements are false
c) Only Statement I is true
d) Only Statement II is true

4. These statements are presented to you: (I) Mere ownership by a single stockholder of all or nearly
all of the capital stock of a corporation is by itself sufficient reason for disregarding the fiction of
separate corporate personality. (II) The fact that the name of a corporation includes the name of one
of the stockholders is a valid ground to pierce the corporate veil. In you evaluation of the foregoing
statements:
a) Both statements are true
b) Both statements are false
c) Only Statement I is true
d) Only Statement II is true

5. Mr. S and his family are the owners of the outstanding capital stock of ABC Factory Corporation
(ABC) which owed its workers certain benefits under the law. Then ABC ceased operations. The
following day, ABC was succeeded by, and its assets were turned over to, XYZ Factory Corporation
(XYZ) whose subscribed shares are also owned by Mr. S and his family. XYZ also hired its own workers.
The ABC workers now sue XYZ and Mr. S and his family for the unpaid benefits.
a) Both XYZ and Mr. S and his family are liable for the unpaid benefits.
b) Neither XYZ nor Mr. S and his family are liable for the unpaid benefits because they have a
personality separate and distinct from ABC, the actual employer of the suing workers.
c) The unpaid benefits of the ABC workers are deemed forfeited in view of the cessation of
operations of ABC.
d) Only Mr. S and his family are personally liable since they are the stockholders of both ABC
and XYZ.

6. A corporation commences to exist:

a) Upon the execution of the articles of incorporation by the incorporators.
 b) Upon the filing of the articles of incorporation with the Securities and Exchange
Commission.
c) Upon the issuance of the certificate of incorporation.
d) On the date when the incorporators acknowledged the due execution of the articles of
incorporation before a notary public.

7. These statements are presented to you: (I) A corporation continues to exist for the period for which
it has been formed regardless of the changes in the ownership of its shares or in its membership. (II)
The existence of a corporation is not affected by the death , insolvency or incapacity of the individual
stockholders or members. Which of the foregoing statements refer to the right of succession of a
corporation?
a) Both I and II
b) Neither I nor II
c) Statement I only
d) Statement II only

8. The following independent situations concerning Coronet Corporation, a stock corporation, are
presented to you: (I) All the stockholders of the corporation died. (II) All of the stockholders of the
corporation became insolvent. In your evaluation of the foregoing, which of the above situations will
dissolve the corporation?
a) I only
b) II only
c) Both I and II
d) Neither I nor II

9. The following cases are presented to you for evaluation: (I) Sale of 6 of the 7 directors of XYZ
Corporation of their shareholdings to Mr. A, the remaining director. (II) Death of Mr. B, a director of
the XYZ Corporation, who owns 95% of its outstanding capital stock. (III) Expiration of the shortened
term of XYZ Corporation. The corporation was formed for a term of 50 years but its articles of
incorporation were amended to reduce its term to 30 years and such period has expired. Which of the
foregoing cases will not affect the corporate existence of XYZ Corporation?
a) I and II
b) II and III
c) I and III
d) I, II and III

10. A partnership and a corporation are similar except with respect to:
a) Having a separate personality
b) Being composed of a group of persons
c) Being artificial persons
d) Having the right of succession

11. The following characteristics are applicable to a corporation, except one which pertains to a
partnership. Which one pertains to the latter?
a) The admission of a member to the firm requires the consent of all existing members.
b) It may not be formed for an indefinite period.
c) Its members are not liable for the firm’s debts.
d) It cannot be dissolved without the consent of the State.

12. A, B, C, D and E want to establish a car repair business. A, B and C each have the amount of
P200,000 to contribute to the business capital. D is to contribute to the firm his lot and building, while
E 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.
13. These statements are presented to you: (I) A general partnership may be formed by the mere
agreement of the partners. (II) The death of a general partner dissolves the partnership. (III) A stock
corporation may be formed by the mere agreement of the incorporators. (IV) The death of an
incorporator or stockholder dissolves the corporation. In your evaluation of the foregoing statements:
a) Only I and II are true
b) Only III and IV are true
c) Only I and III are true
d) Only II and IV are true

14. One of the following is not a characteristic of a stock corporation. Which is it?
a) It is formed by not less than 5 but not more than 15 persons.
b) The stockholders are liable only to the extent of their investment.
c) The stockholders directly own the properties of the corporation.
d) It acts through a board of directors.

15. A stock corporation differs from a non-stock corporation in that in a non-stock corporation:
a) There is capital stock divided into shares.
b) There is an authority to distribute dividends or allotments from surplus profits.
c) Its income shall be used only for the furtherance of the purpose for which it was
incorporated.
d) It is formed for profit.

16. It refers to a corporation which operates within the country under whose laws it was incorporated.
a) Foreign corporation
b) Offshore corporation
c) Domestic corporation
d) Public corporation

17. Under this test of determining the nationality of a corporation, the nationality of a corporation
follows that of the country under whose laws it was formed.
a) Incorporation test
b) Control test
c) Business domiciliary test
d) Grandfather rule

18. This is the test applied in determining the nationality of a corporation during wartime where the
assets of a corporation may be confiscated by the State under whose laws it was incorporated for
purposes of national security.
a) Control Test
b) Incorporation Test
c) Business domiciliary test
d) Grandfather rule

19. A corporation that is organized for the government of a portion of the State, like a province, city,
municipality or barangay.
a) Public corporation
b) Quasi-public corporation
c) Government-owned corporation
d) Government-controlled corporation

20. A corporation that has been created in strict compliance with all the legal requirements and whose
right to exist as a corporation cannot be successfully attacked in a direct proceeding for that purpose
by the State.
a) De facto corporation
b) De jure corporation
c) Corporation by prescription
 d) Corporation by estoppel

21. A corporation that is defectively created but there is an actual exercise of corporate rights and
franchise resulting from an attempt in good faith to incorporate on the part of the members.
a) De jure corporation
b) Corporation by prescription
c) Corporation by estoppel
d) De facto corporation

22. Its due existence can be attacked directly in a quo warranto proceeding by the State.
a) De facto corporation
b) De jure corporation
c) Both de facto and de jure corporation
d) Neither de facto nor de jure corporation

23. Its due existence can be inquired into collaterally either by the State or private persons.
a) De facto corporation
b) De jure corporation
c) Both de facto and de jure corporation
d) Neither de facto nor de jure corporation

24. Assuming that a certificate of incorporation was issued by the Securities and Exchange
Commission, which of the following is not a de facto corporation?
a) A corporation that failed to comply with the subscription and/or paid-in capital
requirements.
b) A corporation where an incorporator is incapable of giving consent.
c) A corporation where the acknowledgment of the incorporators is defective.
d) A corporation which failed to file its articles of incorporation.

25. When the certificate of incorporation was issued despite the fact that majority of the
incorporators are not residents of the Philippines, the corporation that is created is a:
a) De jure corporation
b) De facto corporation
c) Corporation by estoppel
d) Corporation by prescription

26. D purchased goods on credit amounting to P100,000 from Clover Leaf Corporation whose
certificate of incorporation was issued two months earlier by the Securities and Exchange
Commission. D defaulted in his payment on due date. Accordingly, Clover Leaf Corporation filed a
complaint for collection against him. D moved for the dismissal of the complaint on the ground that
Clover Leaf Corporation’s paid up capital amounted to only 20% of the subscribed capital stock which
was in violation of the minimum requirement of 25% paid-up. Is D correct in questioning the due
existence of Clover Leaf Corporation in the case filed against him?
a) Yes, because Clover Leaf really had no right to sue.
b) No, because he cannot make a collateral attack on the due existence of Clover Leaf
Corporation in the same action that was brought against him.
c) Yes, because he can make a direct attack on the due existence of Clover Leaf Corporation in
the same action brought against him.
d) Yes, because Clover Leaf Corporation is a de facto corporation.

27. One which is not in reality a corporation but is considered as one with respect to those who are
precluded by their admission or conduct from denying its existence.
a) Corporation by estoppel
b) Corporation by prescription
c) De jure corporation
d) De facto corporation
28. Those composing it are liable as general partners.
a) Corporation by estoppel
b) Corporation by prescription
c) De jure corporation
d) De facto corporation

29. A, B. C, D and E represented themselves to X as directors and stockholders of “Titanic

Corporation”. In reality, no such corporation is registered with the Securities and Exchange
Commission. 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 has no corporate personality. Is the defense of “Titanic
Corporation” tenable?
a) Yes, because it was not registered with the Securities and Exchange Commission.
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”.

30. Assume the same facts in the preceding number except that it was “Titanic Corporation” which
granted credit 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 the Securities and Exchange
Commission.
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.

31. Refer to No. 29. The corporation formed under the circumstances is a :
a) Corporation by prescription
b) Corporation by estoppel
c) De facto corporation
d) De jure corporation

32. A corporation that has exercised corporate powers for such a length of time without interference
from the State and which, by fiction of law, is given the status of a corporation.
a) Corporation by estoppel
b) De facto corporation
c) Corporation by prescription
d) De jure corporation

33. In case a corporation is formed for the exercise of a profession, it shall be considered as a:
a) De facto corporation
b) De jure corporation
c) Either (a) or (b) depending on whether or not a certificate of incorporation was issued
d) Non-existent corporation even if a certificate of incorporation was issued

34. Those mentioned in the articles of incorporation as originally forming and composing the
corporation and are signatories of such document are known as:
a) Corporators
b) Stockholders
c) Incorporators
d) Members

35. These statements are presented to you: (I) An incorporator of a corporation must be a subscriber
to its capital stock in case of a stock corporation, or a member thereof in case of non-stock
corporation, at the time of incorporation. (II) An incorporator remains as such even if he is no longer a
stockholder or a member of the corporation. In your evaluation of the foregoing statements:
a) Both statements are true
b) Both statements are false
c) Only Statement I is true
d) Only Statement II is true

36. He facilitates the creation of a corporation by negotiating contracts for its initial operations
including subscriptions to its capital stock, incorporating the business, and helping management start
operations.
a) Subscriber
b) Incorporator
c) Corporator
d) Promoter

37. The total amount of shares which a corporation is authorized to issue if the shares have par value.
a) Subscribed capital stock
b) Unissued capital stock
c) Authorized capital stock
d) Issued capital stock

38. These statements are presented to you: (I) Issued capital stock refers only to the capital stock that
has been fully paid and for which stock certificates have been issued. (II) Subscribed capital stock
refers only to the capital stock that has been subscribed but has not been fully paid. In your evaluation
of the foregoing statements:
a) Both statements are true
b) Both statements are false
c) Only Statement I is true.
d) Only Statement II is true.

39. It refers to the total par value of all issued par value shares, or the total cash or consideration
received for all issued no-par value shares.
a) Stated capital
b) Legal capital
c) Paid-up capital
d) Capital

40. 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.
a) Outstanding capital stock
b) Issued capital stock
c) Subscribed capital stock
d) Authorized capital stock