[JIM PETERICK G.

SISON
April 24, 2020
MIDTERM EXAM]

JIM PETERICK G. SISON

CORPORATION LAW
MIDTERM EXAM
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PART I
1. Under the Revised Corporation Code, 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 incidental to its
existence.

2.  The doctrine “Piercing the Veil of Corporate Entity” means that the law will not
recognize separate corporate existence with reference to the particular
transaction involved.
3.  It removes the barrier between corporation and its individual stockholders/
members because such corporation is used as a shield for undertaking illegal
activities, to defeat public convenience.
PART II
1. a.) A Corporation is the parent or holding company of X, Inc. and Y, Inc. X, Inc.
and Y, Inc. are only Corporation A’s subsidiaries.
b.) X, Inc. and Y, Inc. are affiliates of each other.
2. The following are the two elements of a stock corporation:
a.) having capital divided into shares; and
b.) Authorized to distribute to holders shares, dividends or allotments.

3. The following are the two ways by which a corporation may be created by law
or by operation of law:
a.) by special incorporation law or charter directly creating the corporation;
and
b.) by general corporation law under which individuals desiring to be and act
as a corporation may incorporate.

4. a. De jure- a corporation existing in fact and in law.

b. De facto- A corporation existing in fact but not in law.
5. The following are the two kinds of corporations:
a.) stock corporations; and
b.) non-stock corporations.

PART III
 [JIM PETERICK G. SISON
April 24, 2020
MIDTERM EXAM]

1.  a. True
b. False
c. True
d. True

2.   a. Computation:

1,000 preferred shares

x P100 par value per share
P100,000
X 5% guaranteed cumulative dividends
= P5,000 dividends A would receive per year
P 5,000 dividends per year
x 5 years
P25,000 dividends for 5 years
+ P 5,000 dividends for the current year
P30,000 total dividends

b. Explanation:
A will receive a total of P30,000 for his 1000 shares.
It is a well-settled rule that for cumulative preferred share, the holder thereof is
not only entitled to the payment of current dividends but also to dividends in
arrears.
In the case at bar, the total dividends A would receive per year is computed by
multiplying preferred shares by par value per share, times 5% guaranteed
cumulative dividends. The result will then be multiplied by the number of years
the dividends were not declared plus the dividends for the current year.
Therefore, A will receive a total of P30,000 for his 1000 shares.

PART IV
 [JIM PETERICK G. SISON
April 24, 2020
MIDTERM EXAM]

1. The following are the two rights which a treasury share does not have:
a.) voting rights; and
b.) rights to dividends.

2. The following are the four advantages of a corporation:

a.) Group of persons can act as a single entity;
b.) limited risk;
c.) a corporation is not affected by death or change of the individual members;
and
d.) can accumulate large amount of capital.

3. a.) True
b.) False
c.) False

PART V
1. The following are the threefold nature of the corporate charter:
a.) a contract between the State and the corporation;
b.) a contract between the corporation and its stockholders; and
c.) a contract between the stockholders inter se.

2. a.) False
b.) False
c.) False
d.) False

PART VI
1. The following are the four requisites of a de facto corporation:
a.) a valid law under which a corporation with powers assumed might be
incorporated;
b.) attempt in good faith/bona fide to organize a corporation under such law;
c.) actual uses or exercise in good faith of corporate powers inferred upon it
by law; and
d.) stockholders enjoy exemption from personal liability for corporate
obligations.

2. The following are the three (3) powers of stockholders or members to amend
the articles of incorporation:
a.) extension or shortening of the corporate term;
b.) to increase or decrease of the capital stock; and
c.) to amendments in general.
 [JIM PETERICK G. SISON
April 24, 2020
MIDTERM EXAM]

3. a.) False
b.) False
c.) True

PAT VII
1. The following are the four acts which constitute the formal organization of a
corporation:
a.) adoption of by-laws;
b.) filing of by-laws with the Securities and Exchange Commission;
c.) election of the board of directors or trustees; and
d.) establishment of principal office.

2.  The following are the tri-level structure of a corporation:

At the base are the Stockholders whose vote is required to elect the board of
directors and to pass on other major corporate actions.
The next level are the directors who constitute the policy making body of the
corporation and select the officers annually.
At the top are the officers, who have some discretion but in general deemed
to execute policies formulated by the board.
3.  a.) True
b.) True
c.) True
d.) False

PART VIII

1. The following are the three methods of voting:

a.) straight voting;
b.) cumulative voting for one candidate; and
c.) cumulative voting by distribution.

2.  a.) False

b.) True
c.) False

3.  If I were their legal counsel, I would advise them that:

A cannot be both president and treasurer. Under the law, the same person
may hold two or more positions concurrently, except that no one can act as
 [JIM PETERICK G. SISON
April 24, 2020
MIDTERM EXAM]

president and secretary or as president and treasurer at the same time, unless
otherwise allowed under the Revised Corporation Code.
B cannot be treasurer. Under the law, the treasurer must be a resident. In this
case, B is a non-resident of the Philippines.
C cannot be secretary. Under the law, the secretary must be a citizen and a
resident of the Philippines. In this case, C is an American citizen and not a
Filipino citizen.
Therefore, none of them are qualified to be officers of their corporation.

PART IX
1. a.) If I were the legal counsel of X Corporation, I will advise their
stockholders/members to fill up the vacancy. Under the law, any vacancy
occurring in the board of directors or trustees other than by removal or by
expiration of term may be filled by the vote of at least a majority of the remaining
directors or trustees, if still constituting a quorum; otherwise, said vacancies must
be filled by the stockholders or members in a regular or special meeting called for
that purpose. When the vacancy is due to term expiration, the election shall be
held no later than the day of such expiration at a meeting called for that purpose.
b.) If I were the legal counsel of Y Corporation, I would advise their Board of
Directors or Board of Trustees to fill up the vacancy. Under the law, the vacancy
may be filled up by the Board of Directors / Trustees when the vacancy does not
result from removal, expiration of term or increase in number of
directors/members. In this case, the vacancy is due to the director’s terminal
illness.
c.) If I were the legal counsel of Z Corporation, I would advise their Board of
Directors or Board of Trustees to fill up the vacancy. Under the law, the vacancy
may be filled up by the Board of Directors / Trustees when the vacancy does not
result from removal, expiration of term or increase in number of
directors/members. In this case, the vacancy is due to the director’s death
caused by a vehicular accident.
d.) If I were the legal counsel, I would advise the stockholder/members to fill up
the vacancy. Under the law, any vacancy occurring in the board of directors or
trustees other than by removal or by expiration of term may be filled by the vote
of at least a majority of the remaining directors or trustees, if still constituting a
quorum; otherwise, said vacancies must be filled by the stockholders or
members in a regular or special meeting called for that purpose.
In this case, the vacancy results from the removal by stockholders. Hence,
the stockholders/members can fill out said vacancy.
 [JIM PETERICK G. SISON
April 24, 2020
MIDTERM EXAM]

e.) When a vacancy prevents the remaining directors from constituting a quorum
and emergency action is required, I will advise the Board of Directors or Board of
Trustees to undertake new procedure to fill up vacancy by unanimous vote of the
Board of Directors or Board of Trustees, based on the stipulations under the
same section as above of the Revised Corporation Code.
2.  Sec. 31 of the Revised Corporation Code will apply.
Under the law, Sec. 31 shall apply on the contract between the corporation
where the director has a substantial interest and the corporations where he had a
nominal interest.
In this case, C has a substantial interest with B Corporation (30%) and only
nominal interest (10%) with A Corporation.
Therefore, Sec. 31 of the Revised Corporation Code on self-dealing directors will
apply and not Sec. 32 of the same Code.
3. Sec. 32 of the Revised Corporation Code will apply.
Under the law, Sec. 32 of the Revised Corporation Code shall apply when the
interest of the director is nominal in both corporations or is substantial in both
corporations.
In this case, C have both substantial interests with the two Corporations or his
interest with A Corporation and B Corporation exceeds 20% each.
Therefore, Sec. 32 shall apply.