St.

Vincent College of Cabuyao

PRELIM EXAM
Name: _________________________________ Score: __________
Law on Corporations Mr. D.R. Magalang

MULTIPLE CHOICE. Indicate your answers by writing the letter representing the answer of your choice.

1. In a special meeting called for the purpose, 2/3 of the stockholders representing the outstanding capital
stock in X Co. authorized the company’s Board of Directors to amend its By- Laws. By majority vote,
the Board then approved the amendment. Is the amendment valid?
a. No, since the stockholders cannot delegate their right to amend the by- laws to the board
b. Yes, since he majority of votes in the Board was sufficient to amend the by- laws
c. No, because the voting in the Board should have been by majority of a quorum
d. Yes, since the votes of 2/3 of the stockholders and majority of the Board were secured
2. A law was passed disqualifying former members of Congress from sitting in the Board of Directors of
government owned and controlled corporations. Because of this, the Board of Directors of ABC Corp.,
a government owned and controlled corporation, disqualified C, a former Congressman, from
continuing to sit as one of its members. C objected, however, insisting that under the Corporation Code,
members of the Board of Directors of corporations may only be removed by vote of stockholders
holding 2/3 of its outstanding capital stock in a regular or special meeting called for that purpose. Is C
correct?
a. Yes, since the new law cannot be applied to members of the board of directors already elected prior
to its passage
b. No, since the disqualification takes effect by operation of law, it is sufficient that he was declared
no longer a member of the board
c. Yes, since the provisions of the Corporation Code applies as well to government owned and
controlled corporations
d. No, since the board has the power to oust him even without the new law
3. The corporate term of a stock corporation is that which is stated in its articles of incorporation. It may
be extended or shortened by an amendment of the articles when approved by majority of its Board of
Directors and
a. Approved and ratified by at least 2/3 of all stockholders
b. Approved by at least 2/3 of the stockholders representing the outstanding capital stock
c. Ratified by at least 2/3 of all stockholders
d. Ratified by at least 2/3 of the stockholders representing the outstanding capital stock
4. The articles of incorporation differ from the by-laws in that the articles of incorporation are:
a. The rules of action adopted by a corporation for its internal government.
b. Adopted before or after incorporation.
c. A condition precedent in the acquisition by a corporation of a juridical personality.
d. Approved by the stockholders if adopted after incorporation.
5. The following may be the consideration of the shares of stock of a corporation, except:
a. Actual cash paid to the corporation.
b. Previously incurred indebtedness of the corporation.
c. Amounts transferred from unrestricted retained earnings.
d. Service to be performed by a lawyer on the proposed increase in capital stock of the corporation.
6. A certificate of stock is distinguished from share of stock in that a share of stock:
a. Is the written evidence of a stockholder’s interest in the assets and management of a corporation.
b. Is tangible personal property.
c. Is one of the units into which the capital stock is divided.
d. May not be issued if the subscription has not been fully paid.
7. The articles of incorporation of Acme Corporation provide for the issuance of 100,000 shares without
par value and an issued price per price of Php 10.00. At the time of incorporation, the subscription and
paid- up capital should not less than:
a. Php 250,000 and Php 62,500, respectively.
b. Php 1,000,000 and Php 250,000, respectively.
c. Php 250,000 and Php 250,000, respectively.
d. Php 250,000 and Php 125,000, respectively.
8. Their names are mentioned in the articles of incorporation as originally forming the corporation and are
signatories thereof.
a. Corporators.
b. Stockholders.
c. Incorporators.
d. Members.
9. A corporation acquires juridical personality:
a. Upon the filing of the articles of incorporation.
b. Upon the filing of the by- laws.
c. Upon the issuance of the certificate of incorporation.
d. Within 30 days from the receipt of the notice of the issuance of the certificate of incorporation.
10. A delinquent stockholder is not entitled to the following rights, except the right:
a. To be voted.
b. To vote or be represented in the meetings of stockholders.
c. To dividends.
d. He is not entitled to all rights of a stockholder.
11. A, B, C, D, E, F and G are the duly elected directors for 2014 of Excellent Corporation whose articles
of incorporation provide for 7 directors. On August 1, 2014, Directors A, B, C, D and E met to fill two
vacancies in the board brought about by the valid removal of F for disloyalty to the corporation and the
death of G. In the said meeting, the remaining directors voted for X to replace F, and Y, son of G, to
replace his father. Both X and Y are owners of at least one share of stock of the corporation. The
election of X and Y by the remaining director is:
a. Valid for both X and Y.
b. Not valid for both X and Y.
c. Valid with respect to X; not valid with respect to Y.
d. Not valid with respect to X; valid with respect to Y.
12. In the meeting of the board of directors of Grand Corporation, a construction company, held on August
31, 2014, directors A, B, C, D and E were present among the 9 directors. The meeting had for its
agenda the following:
I. The appointment of a new treasure.
II. The approval of the contract for the purchase of cement worth Php 50,000 from X Construction
Supplies Co.

When the voting took place, directors A, B, C and D voted for the election of Y as the new treasurer; a
d directors A, B and C voted for the approval of the contract with X Construction Supplies.
a. Both corporate acts are valid.
b. Both corporate acts are not valid.
c. The election of Y as the new treasurer is valid; the approval of the contract with X Construction
Supplies is not valid.
d. The election of Y as the new treasurer is not valid; the approval of the contract with X Construction
Supplies is valid.
13. Under this theory, the nationality of a corporation is that of the country under whose laws it was
formed.
a. Control test.
b. Incorporation test.
c. Domiciliary test.
d. Grandfather rule.
14. A corporation 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 is a:
a. De jure corporation.
b. De facto corporation.
c. Corporation by estoppel.
d. Corporation by prescription.
15. Stock dividends differ from cash dividends in that stock dividends:
a. Do not increase the legal capital.
b. Involve disbursements of corporate funds.
c. Require the approval of both the board of directors and the stockholders.
d. Once received by the stockholders, are beyond the reach of corporate creditors.
16. The subscriber of unpaid shares which are not delinquent shall be entitled to the following rights,
except the right to:
a. Vote.
b. Inspect corporate books.
c. A stock certificate.
d. Dividends.
17. These statements pertaining to the right of a stockholder to inspect the books and records of a
corporation are presented to you for evaluation:
I. The right may be delegated to an agent.
II. The right may be denied if in the past, the stockholder improperly used the information which
he obtained from the books and records of another corporation of which he is also a
stockholder.
a. Both statements are true.
b. Both statements are false.
c. Statement I is true; Statement II is false.
d. Statement I is false; Statement II is true.
18. Under this doctrine, the separate personality of a corporation may be disregarded if it is used for
fraudulent or illegal purpose or to escape the faithful compliance of an obligation:
a. Trust fund doctrine.
b. Doctrine of piercing of veil of corporate entity.
c. Doctrine of corporate opportunity.
d. Doctrine of limited capacity.
19. Consolidation differs from merger in that consolidation:
a. The surviving corporation shall enjoy all the rights, powers and attributes of a corporation under the
Corporation Code.
 b. The existing liabilities of the constituent corporations shall be assumed by the surviving
corporation.
c. The corporate existence of all the constituent corporations shall be extinguished and a new
corporation emerges.
d. The surviving corporation shall possess all the rights, privileges, immunities and franchises of the
constituent corporations.
20. The right of a stockholder to demand payment of the fair value of his shares when he dissents from
certain corporate acts is known as:
a. Pre- emptive right.
b. Appraisal right.
c. Redemption right.
d. Appreciation right.
21. These statements pertaining to the meetings of directors are presented to you for evaluation:
I. Directors of trustees may attend or vote by proxy at board meetings.
II. The articles of incorporation or the by- laws of a corporation may provide for a greater majority
for its quorum during the meetings of the board of directors.
a. Both statements are true.
b. Both statements are false.
c. Statement I is true; Statement Ii is false.
d. Statement I is false; Statement II is true.
22. ABC Corp. increased its capital stocks from Php 10 Million to Php 15 Million and, in the process,
issued 1,000 new shares divided into Common Shares “B” and Common Shares “C”. T, a stockholder
owning 500 shares, insists on buying the newly issued shares through a right of pre- emption. The
company claims, however, that its By- laws T any right of pre- emption. Is the corporation correct?
a. No, since the By- laws cannot deny a shareholder his right of pre- emption.
b. Yes, but the denial of his pre- emptive right extends only to 500 shares.
c. Yes, since the denial of the right under the By- Laws is binding on T.
d. No, since pre- emptive rights are governed by the articles of incorporation.
23. X Corp operates a call center that received orders for pizzas on behalf of Y Corp which operates a chain
of pizza restaurants. The two companies have the same set of corporate officers. After two years, X
Corp dismissed its call center agents for no apparent reason. The agents filed a collective suit for illegal
dismissal against both X and Y Corp based on the doctrine of piercing the veil of corporate fiction. The
latter set up the defense that the agents are in the employ of X Corp, which is a separate juridical entity.
Is the defense appropriate?
a. No, since the doctrine would apply, the two companies having the same set of corporate officers.
b. No, the real employer is Y Corp, the pizza company with X Corp, serving as an arm for receiving
its outside orders for pizzas.
c. Yes, it is not shown that one company completely dominates the finances, policies and business
practices of the other.
d. Yes, since the two companies perform two distinct businesses.
24. It is settled that neither par value nor book value is an accurate indicator of the fair value of a share of
stock of a corporation. As to unpaid subscription to its shares of stock, as they are regarded as corporate
assets, they should be included in the
a. Capital value
b. Book value
c. Par value
d. Market value
25. In elections for the Board of Trustees of non- stock corporations, members may cast as many votes as
there are trustees to be elected but may not cast more than one vote for one candidate. This is true
a. Unless set aside by the members in plenary session
b. In every case even if the Board of trustees resolves otherwise
c. Unless otherwise provided in the Articles of Incorporation or in the By- Laws
d. In every case even if the majority of the members decide otherwise during the election
26. The rule is that the valuation of the shares of a stockholder who exercises his appraisal rights is
determined as of the day prior to the date on which the vote was taken. This is true
a. Regardless of any depreciation or appreciation in the share’s fair value
b. Regardless of any appreciation in the share’s fair value
c. Regardless of any depreciation in the share’s fair value
d. Only if there is no appreciation or depreciation in the share’s fair value
27. EFG Foundation Inc, a non- profit organization, scheduled an election for its six- member Board of
Trustees. X, Y and Z, who are minority members of the foundation, wish to exercise cumulative voting
in order to protect their interest, although the foundation’s Article and By- Laws are silent on the
matter. As to each of the three, what is the maximum number of votes that he/ she can cast
a. 6
b. 9
c. 12
d. 3
28. T Corp has a corporate term of 20 years under its Articles of Incorporation of from June 1, 1980 to June
1, 2000. On June 1, 1991, it amended its Articles of Incorporation to extend its life by 15years from
June 1, 1980 to June 1, 2015. The SEC approved this amendment. On June 1, 2011, however, T Corp
decided to shorten its term by 1 year or until June 1, 2014. Both the 1991 and 2011 amendments were
approved by majority vote of its Board of Directors and ratified in a special meeting by its stockholders
 representing at least 2/3 of its outstanding capital stock. The SEC however, disapproved the 2011
amendment on the ground that it cannot be made earlier than 5 years prior to the expiration date of the
corporate term, which is June 1,2014. Is this SEC disapproval correct?
a. No, since the 5-year rule on amendment of corporate term applies only to extension, not shortening
of term.
b. Yes, any amendments affecting corporate term cannot be made earlier than 5 years prior to the
corporation’s expiration date.
c. No, since a corporation can in fact have a corporate life of 50 years
d. Yes, the amendment to shorten corporate term cannot be made earlier than 5 years prior to the
corporation’s expiration date
29. X Corp whose business purpose is to manufacture and sell vehicles, invested its funds in Y Corp, an
investment firm, through a resolution of its Board of Directors. The investment grew tremendously on
account of Y Corp’s excellent business judgement. But a minority stockholder in X Corp assails the
investment as ultra vires. Is he right and if so, what is the status of the investment?
a. Yes, it is an ultra vires act of the corporation itself but voidable only, subject to stockholders’
ratification
b. Yes, it is an ultra vires act of its Board of Directors and thus void
c. Yes, it is an ultra vires act of its Board of Directors but voidable only, subject to stockholders’
ratification
d. Yes, it is an ultra vires act of the corporation itself and consequently, void.
30. The Corporation Code sanctions a contract between two or more corporations which have interlocking
directors, provided there is no fraud that attends it and it is fair and reasonable under the circumstances.
The interest of an interlocking director in one corporation may be either substantial or nominal. It is
nominal if his interest
a. Does not exceed 25% of the outstanding capital stock
b. Exceeds 25% of the outstanding capital stock
c. Exceeds 20% of the outstanding capital stock
d. Does not exceed 20% of the outstanding capital stock
31. In case of disagreement between the corporation and a withdrawing stockholder who exercises his
appraisal right regarding the fair value of his shares, a three- member group shall by majority vote
resolve the issue with finality. May the wife of the withdrawing stockholder be named to the three
member group?
a. No, the wife of the withdrawing shareholder is not a disinterested person
b. Yes, since she could best protect her husband’s shareholdings
c. Yes, since the rules do not discriminate against wives
d. No, since the stockholder himself should sit in the three- member group
32. The rule is that no stock dividend shall be issued without the approval of stockholders representing at
least 2/3 of the outstanding capital stock at a regular or special meeting called for the purpose. As to
other forms of dividends
a. A mere majority of the entire Board of Directors applies
b. A mere majority of the quorum of the Board of Directors applies
c. A mere majority of the votes of stockholders representing the outstanding capital stock applies
d. The same rule of 2/3 vote applies
33. The Board of Directors of XYZ Corp unanimously passed a resolution approving the taking of steps
that in reality amounted to willful tax evasion. On discovering this, the government filed tax evasion
charges against all the company’s members of the board of directors. The directors invoked the defense
that they have no personal liability, being mere directors of a fictional being. Are they correct?
a. No, since as a rule only natural persons like the members of the board of directors can commit
corporate crimes
b. Yes, since it is the corporation that did not pay the tax and it has a personality distinct from its
directors
c. Yes, since the directors officially and collectively performed acts that are imputable only to the
corporation
d. No, since the law makes directors of the corporation solidarily liable for gross negligence and bad
faith in the discharge of their duties
34. The articles of incorporation must be accompanied by a Treasure’s Affidavit certifying under oath,
among others, that the total subscription paid is
a. Not less that Php 25,000
b. Not more that Php 5,000
c. Not less than Php 5,000
d. Not more than Php 25,000
35. The articles of incorporation of ABC Transport Co., a public utility, provides for ten members in its
Board of Directors. What is the prescribed minimum number of Filipino citizens in its Board?
a. 10
b. 6
c. 7
d. 5
36. He shall preside at all meetings of the directors or trustees as well as of the stockholders or members,
unless the by- laws provide otherwise
a. Chairman of the board
b. President
c. Secretary
 d. Treasurer
37. Non- voting shares may vote, except
a. Increase in capital stock
b. Merger
c. Dissolution
d. Management contract
38. Which of the following statements is correct?
a. Treasury stocks sold for less than their par or issued value are considered “watered stock” and as
such is prohibited by law.
b. Five but not more than fifteen juridical and natural persons, majority of whom are residents of the
Philippines may form a private corporation
c. No par value shares of stock cannot be issued by banks, trust companies, insurance companies,
building and loan association and public utilities.
d. Membership in non- stock corporation and rights arising there from are personal and non-
transferable and therefore cannot be transferred even if provided in the articles of incorporation or
in the by- laws.
39. This group of persons may not be the incorporators of a corporation in the Philippines
a. 15 Japanese citizens who are resident of Quezon City
b. 10 Resident aliens and 5 non- resident aliens
c. 10 Americans residing in the Philippines and 5 Filipinos residing in Australia
d. 15 Filipinos who are residents of USA
40. A corporation is deemed dissolved
a. Ceased operation for at least 5 years
b. No commencement of business transaction within 2 years from issuance of certificate of
incorporation
c. A member of the board is convicted of an offense
d. Majority of the members of the board are dead
41. Every corporation whose charter expires by its own limitation, or annulled by forfeiture or otherwise, or
whose corporate existence for other purposes is terminated in any other manner shall nevertheless be
continued as a body corporate for 3 years after the time when it would have been dissolved for the
purpose of the following, except
a. Prosecuting and defending suits by or against it and enabling it to settle and close its affairs
b. To dispose and convey its property
c. To distribute its assets
d. Continuing the business for which it was established
42. Which of the following corporate acts requires the approval of the majority of the outstanding capital
stock or of the members of the private corporation?
a. To invest corporate funds in another corporation or business
b. To adopt by- laws
c. To dissolve the corporation
d. To amend the articles of incorporation
43. As a rule, pre- incorporation subscription is irrevocable for a period of at least
a. 30 days
b. 60 days
c. 6 months
d. 1 year
44. A, B, C, D and E are directors of a corporation. Two days before the meeting of the board, whereby a
unanimous vote, a resolution declaring a 50% stock dividend was passed, A, B, and C sold and
transferred all their shares. The transfers were duly registered in the books of the corporation
immediately after the sale. Is the dividend declaration legal?
a. Yes, A, B and C are still qualified to sit as members of the board in hold- over capacity until their
successors shall have been elected and qualified.
b. No, at the time the resolution was passed, A, B and C were no longer qualified to sit as directors
since they are no longer stockholders.
c. Yes, unanimous vote means all directors approved the resolution.
d. No, if the other members of the board were not informed of the transfers made.
45. Which of the following is the disadvantage of forming a corporation?
a. The free & ready transferability of ownership.
b. The shareholders are not liable for the debts of the business.
c. Because of the power of succession, the existence of the entity is not affected by the personal
vicissitudes of the individual stockholders.
d. The subservience of minority stockholders to the wishes of the majority subject only to equitable
restraints.
46. Cash dividends as distinguished from stock dividend
a. Corporate capital is increased
b. Concurrence of the stockholders is required
c. Involves disbursements to the stockholders of accumulated earning
d. Being part of corporate property, maybe reached by corporate creditors
47. J is one of the directors of Delightful Corporation. Later, she sold all her shares to K. Subsequently, a
meeting of the board of directors was held and both J and K attended said meeting, each claiming the
right to participate in the deliberation of the board. J contented that she has the right to continue as
director until the stockholders could elect her successor. On the other hand, K argued that having
 purchased all of J’s shares she has the right to take the latter’s place in the board. Which of the
following is not correct?
a. Both J and K are disqualified to sit as directors in the Board of Directors.
b. J cannot qualify as she disposed all the shares.
c. K cannot qualify as she must have to be elected by the stockholders.
d. K can qualify because a stockholder as well as the heirs and assigns of as stockholder of the same
corporation has the right of succession.
48. The articles of incorporation is required to state the name, nationalities and residence of persons who
shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified.
This requirement is intended to provide a basis by which the SEC could determine whether the articles
of incorporation has complied with the requirement that
a. At least majority of the directors or trustees are residents of the Philippines.
b. At least majority of the directors or trustees are citizens of the Philippines.
c. 2/3 of the directors or trustees are residents of the Philippines.
d. 2/3 of the directors or trustees are citizen of the Philippines.
49. At the annual meeting of stockholders, a resolution was approved empowering the president of the
corporation to enter into the contract with a New York firm. Can the president validly act by virtue of
such resolution?
1st answer- Yes, the action of the stockholders was approved during annual stockholders meeting
2nd answer- No, the power to contract for and in behalf of the corporation resides primarily in the board
of directors.

a. True, true
b. True, false
c. False, true
d. False, false
50. If there are 9 members of the board and the by- laws provide for the creation of an executive
committee, the minimum number of its members is
a. 7
b. 5
c. 4
d. 3

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