TITLE II – INCORPORATION AND ORGANIZATION OF PRIVATE

CORPORATIONS

Note:
A delinquent corporation shall have a period of two (2) years to resume operations and
comply with all requirements that the Commission shall prescribe. Upon compliance by the
corporation, the Commission shall issue an order lifting the delinquent status. Failure to comply
with the requirements and resume operations within the period given by the Commission shall
cause the revocation of the corporation’s certificate of incorporation.
MULTIPLE CHOICE
1. I. Any person, partnership, association or corporation, singly or jointly with others but
not more than 15 in number, may organize a corporation for any lawful purpose or
purposes.
II. Natural persons who are licensed to practice a profession, and partnerships or
associations organized for the purpose of practicing a profession, shall not be allowed to
organize as a corporation.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

2. I. Incorporators who are natural persons must be of legal age.

II. Each incorporator of a stock corporation must own or be a subscriber to at least 1
share of the capital stock.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

3. A written contract to purchase newly issued shares of stock.

a. Subscription contract
b. Sales contract
c. Redemption contract
d. Purchase contract

4. Is that portion of the authorized capital stock which has been both subscribed and paid.
a. Authorized capital stock
b. Paid-up capital
c. Unissued capital
d. Outstanding capital

5. I. The contents of the articles on incorporation are binding, not only the corporation, but
also on its shareholders.
II. the general rule as to corporations is that each corporation must have a name by which
it is to sue and be sued and do all legal acts.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

6. I. A corporation can change its name by amending its by-laws.

II. A corporation with a single stockholder is considered a One person Corporation.
a. Only I is true
b. Only II is true
c. Both are true
 d. Both are false

7. The following are the reasons that a principal office of the corporation must be stated in
its articles of incorporation in a definitely place.
a. To fix the residence of the corporation in a definite place.
b. To determine the venue of court cases involving corporation.
c. For purposes of board of directors’ meeting.
d. To determine the place where the books and records of the corporation are
ordinarily kept.

8. I. A corporation is in a metaphysical sense a resident of the place where its principal

office is located as stated in the articles of incorporation.
II. The place where the principal office of the corporation is to be ocated is one of the
required contents of the by-laws.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

9. I. Only a natural person, trust, or an estate may form a One Person Corporation.
II. Banks and quasi-banks, preneed, trust, insurance, public and publicly-listed
companies, and non-chartered government-owned and controlled corporations may not
incorporate as One Person Corporations.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

10. This is the maximum amount fixed in the articles of incorporation that may be subscribed
and paid by the stock holders of the corporation.
a. Outstanding capital stock
b. Authorized capital stock
c. Paid-up capital stock
d. None of the above

11. The following are limitations in the amendment of the articles of incorporation, except:
a. The amendment must be for legitimate purposes and must not be contrary to the
Corporation Code and special laws.
b. The amendment must be approved by a majority of the board of directors or board
of trustees.
c. The amendment requires the vote or written assent of stockholders’ representing
majority of the outstanding capital majority members if it be a non-stockholders.
d. The original and amended articles together shall contain all provisions required by
law to be set out in the articles of incorporation.

12. I. A corporation shall have perpetual existence unless its articles of incorporation.
 II. The general rule as to corporations is that each corporation must have a name by
which it is to sue and be sued and do all legal acts.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

13. I. It is the certificate of incorporation that gives juridical personality to a corporation and
places it under the jurisdiction of the Securities and Exchange Commission.
II. A corporation commences its corporate existence and juridical personality and is
deemed incorporated from the date the DTI issues certificate of incorporation under its
official seal.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

14. The following are the requirements before one can qualify as a de facto corporation,
except:
a. The existence of a valid law under which it may be incorporated.
b. An attempt in good faith to incorporate.
c. Assumption of corporate powers.
d. None of the above.

15. I. The filling of articles of incorporation and the issuance of the certificate of
incorporation are essential for the existence of a de facto corporation.
II. An organization not registered with the SEC cannot be considered a corporation in any
concept, not even as a corporation de facto.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

16. It applies when persons assume to form a corporation and exercise corporate functions
and enter into business relations with third persons.
a. Corporation by estoppel
b. De facto corporation
c. Communication by prescription
d. De jure corporation

17. I. Stock corporations shall not be required to have a minimum capital stock.
II. All corporations shall file with the Commission articles of incorporation in any of the
official languages.
a. Only I is true
b. Only II is true
c. Both are true
 d. Both are false

18. I. AN unincorporated association, which represented itself to be a corporation, will be

estopped from denying its corporate capacity in a suit against it by a third person who
relied in good faith on such representation.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

19. I. Corporation by estoppel is founded on principles of equity and is designed to prevent

injustice and unfairness.
II. Consolidation becomes effective not upon mere agreement of the members but only
upon issuance of the certificate consolidation by the SEC.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

20. The amendment of the articles of incorporation, requires merely that:

I. The Amendment is not contrary to any provision or requirement under the Corporation
Code.
II. It is for a legitmate purpose.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

21. The following are the three-fold nature of the articles of incorporation, except:
a. A contract between the Sate and the corporation.
b. A contract between the corporation and its stockholders.
c. A contract between the stockholders intense.
d. A contract between the corporations intense.

22. The purpose of the principal of the corporation are the following, except:
a. To fix the residence of the corporation in a definite place.
b. To determine the venue of court cases involving the stockholders.
c. For purposes of stockholders or members meeting.
d. To determine the place where the books and records of the corporation are
ordinarily kept.

23. I. The number of directors shall not be more than 15.

II. The number of trustees may be more than 15.
a. Only I is true
b. Only II is true
c. Both are true
 d. Both are false

24. I. The articles of incorporation of a nonstick corporation may be amended by the vote or
written assent of majority of the trustees and at least 2/3 of the members.
II. The amendment of the articles of incorporation shall take effect upon their approval by
the SEC or from the date of filing with the SEC if not acted upon within 9 months from
the date of filing for a cause not attributable to the corporation.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

25. The following are grounds for such disapproval, except:

a. The articles of incorporation or any amendment thereto is not substantially in
accordance with the form prescribed by the Philippine Cooperative Code.
b. The purpose or purposes of the corporation are patently unconstitutional, illegal,
immortal or contrary to government rules and regulations.
c. The certification concerning the amount of capital stock subscribed and/or paid is
false.
d. The required percentage of Filipino ownership of the capital stock under existing
laws or the Constitution has not been complied with.

26. No corporate name shall be allowed by the SEC if it is not distinguishable from that
already reserved or registered for the use of another corporation. A name is not
distinguishable even if it contain one or more of the following:
I. The word “corporation”, “company”, “incorporated”. limited “limited liability”, or an
abbreviation of one of such words;
II. Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different
tenses, spacing, or number of the same word or phrase.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

27. I. If a corporation does not formally organize and commence its business within 5 years
from the date of its incorporation, its certificate of incorporation shall be deemed
revoked.
II. If a corporation has commenced its business but subsequently becomes inoperative for
a period of at least 5 consecutive years, the SEC may, after due notice and hearing, place
the corporation under delinquent status.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
28. I. A delinquent corporation shall have a period of 2 years to resume operations and
comply with all requirements that the SEC shall prescribe.
II. Upon compliance by the corporation, the SEC shall issue an order lifting the
delinquent status. Failure to comply with the requirements and resume operations within
the period given by the SEC shall cause the revocation of the corporation’s certificate of
incorporation.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
 TITLE III
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

Correlation of the board of directors/trustees, officers and stockholders

Under the Corporation Code, stockholders or members periodically elect the board of
directors or trustees, who are charge with the management of the corporation. The board, in
turn, periodically elects officers to carry out management functions on a day-to-day basis. As
owners, though, the stock holders or members have residual powers over fundamental and major
corporate changes.

Acts of management and ownership

While stockholders and members (in some instances) are entitled to receive profits, the
management and direction of the corporation are lodged with their representatives and agents –
the board of directors or trustees. In other words, acts of management pertain to the board; and
those of ownership, to the stockholders or members. In the latter case, the board cannot act
alone, but must seek approval of the stockholders or members.

Where do corporate powers reside?

Conformably with the foregoing principles, one of the most important rights of a
qualified shareholder or member is the right to vote – either personally or by proxy – for the
directors or trustees who are to manage the corporate affairs. The right to choose the persons
who will direct, manage and operate the corporation is significant, because it is the main way in
which a stockholder can have a voice in the management of corporate affairs, or in which a
member in a nonstick corporation can have a say on how the purposes and goals of the
corporation may be achieved. Once the directors or trustees are elected, the stockholders or
members relinquish corporate powers to the board in accordance with law.

What is business judgment rule?

Contracts intra vires entered into by the board of directors are binding upon corporation
and courts will not interfere unless such contracts are so unconscionable and oppressive as to
amount to wanton destruction to the rights of the minority, as when plaintiffs aver that the
defendants (members of the board), have concluded a transaction among themselves as will
result in serious injury to the plaintiffs stockholders.
The reason behind the rule is aptly explained by Dean Cesar L. Villanueva, an esteemed
author in corporate law, thus:
Court and other tribunals are wont to override the business of business, and the laissez
faire rule or the free enterprise system prevailing in our social and economic set-up dictates that
it is better for the State and its organs to leave business to the businessmen;