Since 1977
BUSINESS LAW
BL -Drill 1 - Corporation
1. 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 2 years, X Corp. dismissed its call
agents for no apparent reason. The agents filed a collective
suit for illegal dismissal against both X Corp. 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 this
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.
e.
2. T Corp. has a corporate term of 20 years under its Articles of
Incorporation or from June 1, 1980 to June 1, 2000. On June
1, 1991 it amended its Articles of Incorporation to extend its
life by 15 years 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? (2011 Bar)
a. No, since the 5-year rule on amendment of corporate
term applies only to extension, not to shortening, of
term.
b. Yes, any amendment 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.
3. 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? (2011 Bar)
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.
4. 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
judgment. 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? (2011 Bar)
a. Yes, it is an ultra vires act of the corporation itself but
voidable only, subject to stockholders’ ratification.
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OCT 2016
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.
5. 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 –
(2011 Bar)
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.
6. 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: (2011 Bar)
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.
7. Corporation X has a statement of capital stock in its articles of
incorporation but it was stated in the same articles that
dividends are not supposed to be declared, that is, there is no
distribution of retained earnings. Corporation X is:
a. Stock corporation
b. Corporation by estoppel
c. Non stock corporation
d. Corporation by prescription
8. B is the owner of 75% of the shares in Bentong Corporation.
On one occasion, Bentong Corporation, as represented by B
as the President and General Manager, entered into a contract
to sell with K involving a townhouse. For failure of Bentong
Corporation to build the townhouse, K filed a case of
recession and damages against B and Bentong Corporation.
Which is correct?
a. The action filed against B will not prosper because
Bentong Corporation has a separate and distinct
personality from the former and that when B entered into
a contract with K, he was only acting in behalf of the
company.
b. The action filed against Bentong Corporation will prosper
because this pertain to the company and the company
alone should be held liable unless B acted maliciously or
in bad faith.
c. The action filed against Bentong Corporation and B will
prosper because the latter owns a majority of the shares
in former and as such B is personally liable for all the
transactions entered into by the corporation.
d. a and b only
9. Mrs. Baby owns a substantial portion of the outstanding
capital of X corporation. Is the mere ownership of substantial
portion alone of the outstanding capital in a corporation
justify the application of doctrine of piercing the veil of
corporate entity?
a. No. Mere ownership by a single stockholder or by any
corporation of all or substantially all of the capital stock of
the corporation does not justify the application of the
doctrine of piercing the veil of corporate entity. There
must be other circumstances that must be present.
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EXCEL PROFESSIONAL SERVICES, INC.
b. No. It requires that the stockholders must own at least
more than 50% of the outstanding capital stock to justify
the application of piercing the veil of corporate entity.
c. Yes. A substantial ownership of the outstanding capital
stock alone is sufficient for the application of piercing the
veil of corporate entity.
d. Yes. Piercing the veil of corporate entity applies
whenever there is parent subsidiary relationship which
means that the parent own at least more than 50% of the
outstanding capital stock of the subsidiary.
1. Which oh the following corporation commences to have
corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange
Commission issues a certificate of incorporation under its
official seal:
I. Public corporation
II. Private corporation
III. Foreign corporation
IV. Corporation sole
a. I and II c. II only
b. II and III d. II and IV
10. Which of the following are not powers that can be exercised
by the corporation?
a. Express power c. Incidental power
b. Implied power d. Residual power
11. In 2006, Corporation "A" passed a board resolution removing
"X" from his position as manager of said corporation. The by-
laws of "A" corporation provides that the officers are the
president, general-manager, treasurer and secretary. Upon
complaint filed with the SEC, it held that the general manager
could be removed by mere resolution of the board of director
On motion for reconsideration, "X" alleged that he could only
be removed by the affirmative vote of the stockholders
representing 2/3 of the outstanding capital stock. Is "X's"
contention legally tenable.
a. No, the vote required is majority of the board and 2/3
OCS consenting
b. Yes, the voting requirement is only 2/3 of the outstanding
capital stock.
c. No, the required vote is MBD consented by MOCS.
d. No, the voting requirement is only majority of the Board
of Directors.
12. 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:(2011 Bar)
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.
13. ABC Corp. increased its capital stocks from Php10 Million to
Php15 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 deny T any right of pre-
emption. Is the corporation correct? (2011 Bar)
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.
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14. An auditing firm composed of Certified Public Accountants
may validly form:
I. a partnership
II. a corporation
a. The statement is true with respect to both business
organizations.
b. The statement is false with respect to both business
organizations.
c. The statement is false with respect to partnership; true
with respect to corporation.
d. The statement is true with respect to partnership; false
with respect to corporation.
15. Under the law, the amount of the capital stock to be
subscribed and paid the purpose of subscription - “at least
twenty-five (25%) of the authorized capital stock as stated in
the articles of incorporation must be subscribed at the time of
incorporation, and at least twenty-five (25%) percent of the
_________________ must be paid upon subscription, the
balance to be payable on the date or dates fixed in the
contract of subscription without need of call, or in the absence
of the fixed date or dates, upon call payment of the board of
directors.”
a. Unissued capital stock
b. Outstanding capital stock
c. Total subscription
d. Legal capital
e. Subscribed capital stock
16. Is a by-law provision of "X" Corporation "rendering ineligible if
elected, subject to removal, a director if he is also a director
in a corporation whose business is in competition with
antagonistic to said corporation" valid and legal?
a. Yes, under the principle of "corporate opportunity’”.
b. No, under the principle of "separate entity”.
c. Yes, provided it is approved by 2/3 of the outstanding
capital stock.
d. Yes, under the principle of "vested interest"
17. A, B, C, D and E distributed calling cards identifying
themselves as directors of Summit Corporation, to several
individuals during a business conference. In reality, however,
no such corporation is registered with the Securities and
Exchange Commission. X, who received a calling card granted
credit amounting to P50.000.00 to "Summit Corporation"
believing that such a corporation really existed. When the
supposed corporation was unable to pay, X brought a court
action against it. At that time, "Summit Corporation" had
assets of P30,000.00.
a. "Summit Corporation" is liable only up to P30,000.00, its
remaining assets, since it is different from A, B, C, D
and E who are not liable in their individual capacities.
b. X can go after the separate assets of A, B, C, D, and E
after exhausting the assets of "Summit Corporation.
c. A, B, C, D and E can move for the dismissal of the court
action because "Summit Corporation" has no personality
of its own.
d. X cannot allege the lack of juridical personality on the
part of "Summit Corporation" because he is stopped from
doing so.
BL.2102