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WorksheetsBUSLAW (RCC: Tl to Tlll)
Total questions: 195
Worksheet time: 2hrs 38mins
These are the characteristics of a corporation except:
artificial being
created by operation of law
having the right of succession
powers, attributes and properties expressly authorized by law
created by agreement of the parties
These are the conditions needed in the doctrine of piercing the corporate veil, except:
Complete Control
Commit Fraud
Proximate Cause of Injury
Lawful Corporate Purpose
Which of the following best describes the doctrine of piercing the corporate veil?
It allows shareholders to freely transfer their shares without restriction.
It disregards the separate juridical personality of a corporation to hold shareholders personally liable.
It grants perpetual succession to a corporation.
It permits a corporation to enter into contracts in its own name.
No part of their income is distributable as dividends to its members, trustees or officers subject to the provisions on dissolution.
Non-stock corporations
Stock Corporations
Partnerships
One with capital stock divided into shares and are authorized to distribute allotment of its surplus profits by way of dividends
Non-stock corporations
Stock Corporations
Partnerships
A CORPORATION IS ENTITLED TO THE AWARD OF MORAL DAMAGES
TRUE
FALSE
Statement 1: A corporation is not entitled to moral damages. Moral damages may be awarded in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, and similar injury.
Statement 2: A corporation being an artificial person existing only in contemplation of the law has No Feelings. It has No Emotions and No Senses. It cannot thus experience mental anguish and physical suffering.
Statement 3: A corporation may have a good reputation which is besmirched may also be a ground for the award of moral damages.
Statement 4: There are instances when moral damages may be awarded. A provision authorizes the recovery of moral damages in cases of libel, slander and any other form of defamation.
Statement 4: A corporation is not entitled to moral damages at all, in any circumstances.
Only statement 1, 2, and 3 are correct.
Only statement 3 and 4 are correct.
Only statement 1, 2, 3, and 4 are correct.
All statements are correct.
SEC. 3. Classes of Corporations.
stock and nonstock corporations
private and public corporation
domestic and foreign corporation
close and open corporation
Under Section 4 of the Revised Corporation Code, which of the following is TRUE about corporations created by special laws or charters?
They are formed by simply filing Articles of Incorporation with the SEC.
They derive their corporate existence directly from special laws or legislative charters.
They are the same as ordinary private corporations created under the Corporation Code.
They cannot be created by Congress or special statutes.
Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code, insofar as they are applicable.
TRUE
FALSE
Who are referred to as corporators under Sec. 5 of the Revised Corporation Code?
Only the incorporators of a corporation
Those who compose a corporation, either as stockholders or members
Only the stockholders in a stock corporation
Only the members in a nonstock corporation
Who are considered incorporators under Sec. 5?
Any person who buys shares in the corporation
All stockholders or members of a corporation
Those mentioned in the Articles of Incorporation as originally forming the corporation and who signed it
All future members of a nonstock corporation
In a stock corporation, corporators are called:
Incorporators
Stockholders or shareholders
Members
Trustees
In a nonstock corporation, corporators are referred to as:
Trustees
Directors
Members
Incorporators only
Which of the following correctly distinguishes corporators from incorporators?
Corporators are always the original signatories, while incorporators may join later.
Incorporators compose the corporation permanently, while corporators may withdraw anytime.
Corporators are all stockholders or members, while incorporators are the original ones who signed the Articles of Incorporation.
Corporators and incorporators are exactly the same with no distinction.
Which document must incorporators sign to be recognized as such under the law?
By-laws
Articles of Incorporation
Corporate Minutes
Treasurer’s Affidavit
Can incorporators also be considered corporators?
No, because they are different groups.
Yes, because incorporators are also stockholders or members of the corporation.
No, because only members are corporators.
Only if they are elected as directors.
In a newly formed corporation, who are specifically recognized as the original corporators?
The Board of Directors elected by the stockholders
The incorporators who signed the Articles of Incorporation
The future stockholders who will buy shares later
The corporate officers appointed after registration
Where must the classification of shares and their rights, privileges, or restrictions be indicated?
In the by-laws
In the Treasurer’s affidavit
In the Articles of Incorporation
In the General Information Sheet
According to Sec. 6, what must also be stated about shares, if applicable?
Their minimum selling price
Their stated par value
Their voting percentage
Their book value
What is the general rule about the equality of shares?
Preferred shares are always superior to common shares.
Each share shall be equal in all respects to every other share.
Only voting shares are considered equal.
Non-par value shares are not equal to par value shares.
Which type of share usually gives holders voting rights and entitlement to dividends?
Redeemable shares
Preferred shares
Common shares
Treasury shares
Which type of share usually gives holders preferential rights to dividends and liquidation proceeds?
Common shares
Non-voting shares
Preferred shares
Founders’ shares
What kind of shares may be deprived of voting rights except in certain matters provided by law?
Preferred or redeemable shares
Common shares only
Treasury shares
Convertible shares
What is the significance of stating the par value of a share?
It determines the market price of the share.
It is the minimum issue price of the share.
It guarantees a fixed dividend rate.
It is equal to the book value of the share.
What happens if the Articles of Incorporation do not provide any classification of shares?
The corporation cannot issue any shares.
All shares are presumed to be of one class, equal in rights and privileges.
Only preferred shares may be issued.
The Board of Directors decides the classifications later.
Statement 1: Shares of capital stock issued without par value shall be deemed fully paid and nonassessable and the holder of such shares shall not be liable to the corporation or to its creditors
Statement 2: No-par value shares must be issued for a consideration of at least Five pesos,
Statement 3: The entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends.
Only statement 1 is correct
Statement 1 and 2 are both correct
All statements are correct
All statements are incorrect
What special feature may founders’ shares be given under Sec. 7?
The right to fixed dividends
Rights and privileges not enjoyed by other stockholders
The power to issue new shares
Automatic exemption from taxes
Founders’ shares may be granted the exclusive right to vote and be voted for in the election of directors, but only for how long?
1 year from incorporation
3 years from incorporation
5 years from incorporation
10 years from incorporation
Which law prohibits foreigners from exercising control in corporations holding land, natural resources, or public utilities, affecting the grant of founders’ shares?
Corporation Code of 1980
Anti-Dummy Law (C.A. No. 108)
Securities Regulation Code
Anti-Graft and Corrupt Practices Act
What are treasury shares?
Shares that are authorized but not yet issued
Shares issued and fully paid but later reacquired by the issuing corporation
Shares that have never been subscribed
Shares issued to the government
What is the status of voting rights of treasury shares?
They carry full voting rights.
They have limited voting rights.
They have no voting rights while in the treasury.
They may vote only on dissolution.
Do treasury shares have dividend rights?
Yes, always.
Only when declared by the Board.
No, they have no dividend rights while in the treasury.
Yes, but only cash dividends.
What happens to treasury shares once reissued by the corporation?
They regain all rights of outstanding shares.
They remain without voting and dividend rights.
They become permanently canceled.
They convert into preferred shares.
What is the maximum number of incorporators allowed under Sec. 10 of the RCC?
5
10
15
20
According to SEC. 10, who may be incorporators of a corporation?
Only natural persons
Only natural persons of legal age
Any person, partnership, association, or corporation
Only stockholders
Incorporators who are natural persons must be:
At least 18 years old
Of legal age
At least 21 years old
Filipino citizens only
If a corporation has only one stockholder, what type of corporation is it considered?
Sole proprietorship
Partnership
One Person Corporation (OPC)
Close corporation
Under Sec. 11, what is the default corporate term for corporations under the RCC?
25 years
50 years
Perpetual existence
99 years
For corporations created before the effectivity of the RCC, what happens to their corporate term?
It automatically expires after 25 years.
It remains fixed as stated in their Articles of Incorporation unless they elect perpetual existence.
They automatically gain perpetual existence unless they notify the SEC to retain their specific term.
They must apply for renewal after 50 years.
Any change in corporate term that is unfavorable to some stockholders gives rise to what right?
Pre-emptive right
Appraisal right
Subscription right
Redemption right
When can a corporation extend its corporate term?
At any time after incorporation
Not earlier than 3 years before expiry date unless justified
Only after the term has expired
Only with court approval
When does the extension of the corporate term take effect?
Immediately after SEC approval
On the day of stockholders’ approval
On the day following the original or subsequent expiry date
On the day of amendment of Articles of Incorporation
If a corporation elects to shorten its corporate term, what must it do?
File a notice to creditors only
Amend its Articles of Incorporation
Secure approval of the SEC alone
Apply for liquidation immediately
What is the general rule on minimum capital stock under Sec. 12 of the RCC?
₱5,000 is required as minimum capital.
₱25,000 is required as minimum capital.
No minimum capital stock is required.
₱1,000 is required as minimum capital.
When is a stock corporation required to have a minimum capital stock?
Statement 1: Always, regardless of the nature of the business
Statement 2: Only if specified under special law
Statement 3: Only when approved by the SEC
Statement 4: Only if organized by foreign investors
Only Statement 1 is correct
Statement 2, 3, and 4 are correct
Only Statement 2 is correct
Only Statement 3 is correct
Only Statement 4 is correct
Which of the following must always appear in the Articles of Incorporation?
Corporate seal
Name of the corporation
Corporate logo
Business permits
If a corporation states multiple purposes, what must the articles of incorporation indicate?
All purposes are equal
Only the secondary purposes
The primary purpose and the secondary purposes
No distinction is needed
Where must the principal office of the corporation be located?
Anywhere in the world
Within Metro Manila only
Within the Philippines
In the incorporator’s residence
If perpetual existence is not elected, what must be stated in the Articles of Incorporation?
The reason for non-perpetual existence
The exact corporate term
The incorporators’ life span
A dissolution plan
Which of the following are included in SEC. 13. Contents of the Articles of Incorporation.
Content 1: The name of the corporation; The specific purpose or purposes for which the corporation is being formed; The place where the principal office of the corporation is to be located; The term for which the corporation is to exist.
Content 2: The names, nationalities, and residence addresses of the incorporators; The number of directors; The names, nationalities, and residence addresses of persons
Content 3: The amount of its authorized capital stock; number of shares into which it is divided; the par value of each, names, nationalities, and residence addresses of the original subscribers
Content 4: The amount of its capital; the names, nationalities, and residence addresses of the contributors; amount contributed by each
Contents 1, 2 and 3
Contents 1, 2 and 4
Contents 1, 3, and 4
All Contents are included
For stock corporations, the Articles must state the authorized capital stock and:
The number of employees to be hired
The market value of shares
The par value, subscribers, and their subscriptions
Only the incorporators’ net worth
For non-stock corporations, what must be indicated in the Articles of Incorporation?
List of investors
Amount of capital, contributors, and their contributions
Names of prospective members only
Annual membership dues
What is the maximum number of directors that can be stated in the Articles of Incorporation?
5
10
15
Unlimited
For trustees in a non-stock corporation, the Articles may provide:
No more than 15
Any number, more than 15 allowed
Exactly 12 only
Not more than 20
What optional provision stated in SEC. 13 that may be included in the Articles of Incorporation under Sec. 181?
Arbitration agreement
Anti-dummy clause
Foreign investment guarantee
Corporate merger plan
Who prescribes the form of Articles of Incorporation if not the Corporation Code?
The incorporators
The Securities and Exchange Commission (SEC)
A special law
The Department of Justice
A corporation cannot use a name which is
Identical or deceptively or confusingly similar to that of any existing corporation or to any other name protected by law
Patently deceptive, confusing or contrary to law
Both are correct
Both are incorrect
The maximum amount fixed in the articles to be subscribed and paid-in or secured to be paid by the subscribers.
Authorized capital
Subscribed capital stock
Paid-up capital stock
The total number of shares and its total value for which there are contracts for their acquisition or subscription.
Authorized capital
Subscribed capital stock
Paid-up capital stock
The actual amount or value which has been actually contributed or paid to the corporation in consideration of the subscriptions made thereon.
Authorized capital
Subscribed capital stock
Paid-up capital stock
Who has the authority to approve amendments to the Articles of Incorporation in a stock corporation?
The corporate secretary alone
A majority of the board and 2/3 of stockholders
All corporators
The SEC without corporate approval
In a nonstock corporation, who must approve amendments to the Articles of Incorporation?
Majority of incorporators and half of the members
Majority of trustees and 2/3 of members
2/3 of trustees only
All members unanimously
What must be done to clearly indicate amendments in the Articles of Incorporation?
Highlight them with color
Underscore the changes made
Place them in footnotes
Write them on a separate sheet
Who must certify the amended Articles of Incorporation under oath?
Corporate secretary and all stockholders
Corporate secretary and majority of directors/trustees
Treasurer and president
Chairman and auditor
When do amendments take effect?
Immediately after board approval
After notarization by the corporate secretary
Upon SEC approval, or after 6 months if not acted upon (without fault of corporation)
Only after ratification by all incorporators
What must the amended Articles of Incorporation contain?
Only the amendments made
Only the original provisions
Both the original and amended provisions
A summary prepared by incorporators
If the SEC does not act on the amendment filing within 6 months without fault of the corporation, the amendment shall:
Be considered disapproved
Take effect automatically from the date of filing
Expire and require refiling
Need court approval
One ground for disapproval of the Articles of Incorporation is when:
The incorporators are foreigners
The Articles are not substantially in accordance with the prescribed form
The corporate logo is missing
The incorporators reside abroad
If the purpose of the corporation is patently unconstitutional, illegal, or immoral, what may the SEC do?
Approve with conditions
Disapprove the Articles of Incorporation
Approve after amendment of bylaws
Forward it to Congress
False certification concerning which aspect is a ground for disapproval?
Corporate by-laws
Amount of capital stock subscribed and/or paid
Corporate term
Principal office address
No Articles of Incorporation of banks, pawnshops, and similar institutions shall be approved unless:
They have a minimum ₱10 million capital
Accompanied by a favorable recommendation from the appropriate government agency
Approved by Congress
Approved by the local mayor
Which of the following is a ground for disallowing a corporate name?
The name is already reserved or registered for another corporation
The name is in English
The name contains the word “company”
The name uses punctuation marks
A corporate name is NOT considered distinguishable even if it contains:
A unique invented word
Punctuations or abbreviations
A completely different phrase
A distinctive trademark
Which of the following words does NOT make a corporate name distinguishable?
Corporation
Incorporated
Limited Liability
All of the above
If a corporation fails to comply with the SEC’s order to change its name, it may be held:
Administratively, civilly, and/or criminally liable
Only civilly liable
Only administratively liable
Only criminally liable
The SEC may also impose what penalty if a corporation refuses to change its unlawful name?
Tax penalties from the BIR
Revocation of the corporation’s registration
Suspension of by-laws
Reduction of authorized capital stock
What is the first step a person or group of persons must do to incorporate?
Draft by-laws
Submit the intended corporate name for SEC verification
Pay taxes to BIR
Open a corporate bank account
When does a private corporation under the Code commence its corporate existence?
Upon drafting its by-laws
Upon SEC verification of the corporate name
From the date the SEC issues the certificate of incorporation under its official seal
When incorporators sign the Articles of Incorporation
The issuance of a certificate of incorporation signifies:
Approval of corporate by-laws only
The corporation gains juridical personality
Endorsement by the Department of Trade and Industry
Automatic listing in the stock exchange
Who constitutes the body corporate once the certificate of incorporation is issued?
The board of directors only
The incorporators, stockholders/members, and their successors
The SEC examiners
The corporate secretary and treasurer
The corporate existence continues for the period stated in the Articles of Incorporation unless:
It is extended or dissolved earlier in accordance with law
The incorporators voluntarily resign
The corporation runs out of funds
The SEC changes the period on its own
Certificate of incorporation is the official document marks the legal “birth” of a corporation. What must the SEC verify before issuing the certificate of incorporation?
That the corporation has filed tax returns
That documents and information are fully compliant with the Code and other laws
That the incorporators are all residents of Metro Manila
That the corporation already has elected officers
The period of corporate existence begins:
On the date the incorporators signed the Articles of Incorporation
On the date the corporation elects its first directors
On the date stated in the certificate of incorporation issued by the SEC
On the date the Treasurer deposits the capital
What protects a corporation claiming in good faith under this Code?
It can never be dissolved
Its due incorporation and corporate powers cannot be collaterally questioned in a private suit
It is exempt from paying taxes
Its directors are immune from liability
Who may inquire into the existence of a de facto corporation?
Any stockholder
The SEC
The Solicitor General through a quo warranto proceeding
Any private creditor
A corporation that attempted in good faith to incorporate but failed to fully comply with requirements is called:
De jure corporation
De facto corporation
Illegal association
Partnership
one w/c has complied w/ all the legal requirements for its establishment
De jure corporation
De facto corporation
Illegal association
Partnership
The term “collateral inquiry” means:
Examination in the course of an unrelated private suit
Investigation done by the SEC
Tax audit conducted by the BIR
Corporate due diligence
A de facto corporation:
Has no legal personality at all
Has limited recognition of its corporate existence until validly questioned
Can never enter into contracts
Exists only if approved by the Solicitor General
Which of the following is TRUE?
Private individuals can file a quo warranto case against a de facto corporation
Only the Solicitor General may file a quo warranto case questioning corporate existence
The SEC automatically dissolves de facto corporations
A de facto corporation is not recognized in law at all
What is the main legal effect of being a de facto corporation?
It operates with corporate powers despite defects in incorporation until properly questioned
It is automatically dissolved by law
It cannot be sued in court
Its contracts are always void
If an ostensible (fake) corporation is sued, can it use lack of corporate personality as a defense?
Yes
No
Only with SEC approval
Only in tort cases
Who bears liability when people knowingly pretend to be a corporation?
Only the incorporators
Only directors
All persons acting as such
The government, because of their strict rules
What happens if someone contracts with an ostensible (fake) corporation?
The contract is automatically void
The other party cannot resist performance by claiming no corporation existed
The other party may rescind the contract anytime
The contract needs SEC ratification
Which is TRUE about Corporation by Estoppel?
It enjoys full corporate rights without SEC registration
It protects innocent third parties dealing with a fake corporation
It makes all debts disappear if discovered
It exempts incorporators from liability
Corporation by Estoppel applies when:
There is good faith but incomplete incorporation
There is knowledge of lack of corporate authority, but persons act as a corporation
The SEC grants temporary approval
The corporation is dissolved
What doctrine prevents individuals from denying the corporate existence after dealing with an ostensible corporation?
Ultra vires doctrine
Doctrine of limited liability
Estoppel
Trust fund doctrine
Which statement BEST describes the purpose of Sec. 20 Corporation by Estoppel?
To punish stockholders for negligence
To protect the SEC from fraudulent corporations
To prevent people from escaping liability by pretending to be a corporation
To exempt promoters from liability
Under SEC. 21. Effects of Non-Use of Corporate Charter and Continuous Inoperation. If a corporation does not organize and commence business within five (5) years from incorporation, what happens?
It is placed under delinquent status
Its certificate of incorporation is deemed revoked
It pays a penalty only
It automatically converts to a non-stock corporation
If a corporation has started operations but later remains inoperative for 5 consecutive years, what can the SEC do?
Automatically dissolve it
Place it under delinquent status
Convert it into a partnership
Reduce its corporate term
How long does a corporation under delinquent status have to resume operations and comply with SEC requirements?
6 months
1 year
2 years
5 years
Before revoking or suspending a certificate of incorporation of companies under special regulatory jurisdiction, the SEC must:
Notify only the stockholders
Notify and coordinate with the appropriate regulatory agency
Get approval from the president of the corporation
Publish in the newspaper only
Who exercises the corporate powers of a corporation under Sec. 22?
Stockholders
Incorporators
The Board of Directors or Trustees
The Commission
For how long are directors elected in a stock corporation?
6 months
1 year
2 years
3 years
For how long may trustees in a nonstock corporation be elected?
Not exceeding 1 year
Not exceeding 2 years
Not exceeding 3 years
No fixed term
When does a director or trustee’s term effectively end?
On election day
On the expiration of their stated term
Only when their successor is elected and qualified
Automatically after 12 months
A director who ceases to own at least one share of stock shall:
Remain director until term expires
Automatically cease to be a director
Be suspended until shares are reacquired
Be allowed to serve as trustee instead
A trustee who ceases to be a member of a nonstock corporation shall:
Still complete his term
Be suspended until reinstated
Cease to be a trustee
Be converted to honorary trustee
At least what percentage of the board must be independent directors in corporations vested with public interest?
10%
15%
20%
25%
Under R.A. 8799, which corporations are included under Section 17.2 that require independent directors?
Corporations with assets of at least ₱50,000,000 and 200+ shareholders
Small sole proprietorships
Cooperatives
Partnerships
Which is NOT a factor the Commission may consider in determining other corporations vested with public interest?
Extent of minority ownership
Type of financial products offered
Nature of business operations
Number of incorporators
An independent director must be:
Related to the president
Independent of management
A major stockholder
Part of the incorporators
Independent directors are elected by:
Incorporators
Board of Directors
Shareholders present or entitled to vote in absentia
SEC appointees
What is the required quorum for the election of directors in stock corporations?
25% of outstanding capital stock
50% of outstanding capital stock
Majority of outstanding capital stock
Two-thirds of outstanding capital stock
In nonstock corporations, what constitutes a quorum for electing trustees?
One-fourth of members
Majority of members entitled to vote
Two-thirds of members
All members present
Stockholders or members may vote through remote communication or in absentia if:
Expressly prohibited in bylaws
Allowed in the bylaws or approved by majority of the board
SEC automatically authorizes it
Only if all stockholders agree
A stockholder voting in absentia or via remote communication is considered:
Absent
Only partially counted
Present for purposes of quorum
Disqualified from voting
If requested by any voting stockholder, the election of directors must be by:
Proxy only
Voice vote
Ballot
Show of hands
A stockholder entitled to vote may vote:
Only one vote regardless of shares owned
As many votes as there are directors, according to shares owned
Only in proportion to paid-up shares
Only in absentia
Which method of voting is allowed in stock corporations?
Straight voting
Cumulative voting
Distribution of votes among candidates
All of the above
What is the limit of votes a stockholder may cast?
Unlimited
Shares owned × Number of directors to be elected
One vote per share regardless of directors
Determined by SEC
Can delinquent stock be voted?
Yes, if partially paid
Yes, but only with board approval
No, delinquent stock cannot be voted
Yes, but limited to half its value
In nonstock corporations, how may members cast votes?
Cumulative voting
As many votes as there are trustees, but not more than one per candidate
One vote regardless of trustees
Only by proxy
When must directors formally organize and elect corporate officers?
Before incorporation
Immediately after their election
One month after incorporation
At the end of the fiscal year
The treasurer of a corporation must be:
A stockholder only
A director
A resident
A foreigner
In corporations vested with public interest, what additional officer must be elected?
Auditor
Compliance officer
Vice-president
Managing director
The corporate secretary must be:
A lawyer
A stockholder
A citizen and resident of the Philippines
A director
Can one person hold two or more positions in a corporation?
Yes, always without restriction
No, only one position per person
Yes, but not both president and secretary or president and treasurer
Only if the SEC approves
Which of the following position combinations is prohibited unless otherwise allowed by the Code?
President and Compliance Officer
President and Treasurer
Treasurer and Secretary
Vice-president and Treasurer
Within how many days after the election of directors, trustees, and officers must the report be submitted to the Commission?
7 days
15 days
30 days
60 days
Who is primarily responsible for submitting the report of election to the Commission?
The president
The treasurer
The secretary
The stockholders
When reporting the non-holding of elections, a new date must be specified. What is the maximum allowable period for the new election date?
15 days
30 days
45 days
60 days
If a director, trustee, or officer dies, resigns, or ceases to hold office, within how many days must the fact be reported to the Commission?
3 days
7 days
15 days
30 days
A person shall be disqualified from being a director, trustee, or officer if convicted by final judgment of an offense punishable by imprisonment for more than:
3 years
5 years
6 years
10
Aside from the Revised Corporation Code, conviction under which law also leads to disqualification?
Anti-Graft and Corrupt Practices Act
Securities Regulation Code (RA 8799)
National Internal Revenue Code
Intellectual Property Code
Within how many years prior to election or appointment must the disqualifying acts have occurred?
2 years
3 years
5 years
10 years
A person found administratively liable for any offense involving __________ shall be disqualified.
Breach of trust
Fraudulent acts
Breach of contract
Negligence
A person may be disqualified if found guilty of similar misconduct by:
A barangay tribunal
A municipal court
A foreign court or regulatory authority
The BIR
Question 1: Can the Commission or other regulatory agencies impose additional qualifications or disqualifications?
Question 2: Which agency may also impose sanctions affecting qualifications under this section?
Answer 1: No, only courts can do so
Answer 2: Department of Justice
Answer 1: Yes, for promotion of good corporate governance
Answer 2: Philippine Competition Commission
Answer 1: No, unless Congress passes a law
Answer 2: Department of Justice
Answer 1: Only the SEC Chairman can impose
Answer 2: Department of Finance
How many votes are required to remove a director in a stock corporation?
Majority (50% + 1) of outstanding capital stock
Two-thirds (2/3) of outstanding capital stock
Three-fourths (3/4) of outstanding capital stock
Unanimous vote of stockholders
In a nonstock corporation, how many votes are required to remove a trustee?
Simple majority of members
Two-thirds (2/3) of members entitled to vote
75% of members
Unanimous consent of all members
Removal of directors or trustees can occur:
Only at a regular meeting
Only at a special meeting
Either at a regular or special meeting
Only by SEC order
Prior notice of the intention to propose removal must be given to:
The SEC only
All directors or trustees
Stockholders or members of the corporation
The president and secretary only
Removal of directors or trustees may be:
Only with cause
Only without cause
With or without cause
Only by SEC order
Removal without cause cannot be used to:
Penalize the president
Deprive minority stockholders or members of representation rights
Change the board composition
Remove independent directors
The Commission may order the removal of a director or trustee:
Only after a stockholder petition
Motu proprio or upon verified complaint
Only after a court order
Only at the end of the term
Removal of a director elected despite disqualification is:
Without prejudice to other sanctions on the board
Effective only after 6 months
Limited to stock corporations
Automatically requires new elections
The notice of a special meeting for removal must include:
Only the time and place of the meeting
Only the reason for removal
Both the time and place of the meeting and the intention to propose removal
Only the names of directors to be removed
How is a vacancy in the board of directors or trustees (other than by removal or term expiration) filled?
By appointment of the president
By vote of at least a majority of remaining directors or trustees if quorum exists
Automatically by the SEC
By the secretary of the corporation
If the remaining directors do not constitute a quorum, how is the vacancy filled?
By the SEC
By stockholders or members in a regular or special meeting
Automatically by the president
By court appointment
When a vacancy arises due to term expiration, the election must be held:
Within 30 days after term expiration
On the day of expiration at a meeting called for that purpose
Only at the next annual meeting
Any time the board decides
If a vacancy results from removal by stockholders or members, when may the election be held?
Any time within 90 days
Only at the next annual meeting
On the same day of the meeting authorizing the removal, if stated in the notice
By unanimous board approval
In other cases of vacancy, the election must be held no later than:
30 days
45 days
60 days
90 days
A director or trustee elected to fill a vacancy serves:
A full new term
Only the unexpired term of the predecessor
Until the next SEC audit
Until a special meeting is held
When an emergency prevents a quorum, how may the vacancy be temporarily filled?
By the president alone
By unanimous vote of remaining directors or trustees from among the officers
Automatically by the SEC
By majority vote of stockholders
The term of the emergency director or trustee ends:
After 30 days automatically
Upon termination of the emergency or election of a replacement, whichever comes first
Only upon SEC approval
After a majority vote of directors
Within how many days must the corporation notify the Commission of the creation of an emergency board?
1 day
3 days
7 days
15 days
A directorship or trusteeship created due to an increase in the number of directors or trustees is filled by:
Board appointment only
SEC order
Election at a regular or special meeting of stockholders or members
Court intervention
A vacancy occurs not due to removal or expiration, and the remaining directors constitute a quorum. Who fills the vacancy?
Stockholders at a special meeting
Majority of remaining directors
SEC-appointed director
Corporate secretary
In the absence of a provision in the bylaws fixing compensation, directors or trustees:
May receive unlimited compensation
Shall not receive any compensation except for reasonable per diems
Automatically receive a fixed salary
Can decide their own compensation
Who can grant and approve compensation for directors or trustees?
The president alone
Stockholders representing at least a majority of outstanding capital stock or majority of members
The board of directors
The SEC
The total yearly compensation of directors or trustees shall not exceed:
5% of net income before tax
10% of net income before tax
15% of net income before tax
20% of net income before tax
Directors or trustees may:
Participate in determining their own compensation
Not participate in determining their own per diems or compensation
Decide compensation for the entire board
Approve compensation retroactively
Corporations vested with public interest must:
Submit an annual report of director compensation to the SEC only
Submit an annual report of director compensation to shareholders and the Commission
Publish director compensation in newspapers
Report compensation only if requested by shareholders
Directors or trustees who vote for or assent to patently unlawful acts of the corporation are:
Not liable if majority approved
Liable jointly and severally for all resulting damages
Only liable to the SEC
Only liable if shareholders sue
Liability of directors or trustees may arise from:
Gross negligence
Bad faith in directing corporate affairs
Acquiring personal or pecuniary interest in conflict with their duty
All of the above
A director, trustee, or officer shall not acquire any interest:
Only if the board approves
That is adverse to the corporation in respect of matters reposed in them in confidence
Only if stockholders are informed
If the SEC gives permission
If a director, trustee, or officer acquires an interest adverse to the corporation in breach of confidence, they:
Must pay a fine to the SEC only
Shall be liable as a trustee and must account for profits that would have accrued to the corporation
Can keep the profits if approved by other directors
Are automatically removed from office
Who may suffer damages due to the unlawful acts or gross negligence of directors or trustees?
Only the corporation
Only stockholders or members
The corporation, stockholders or members, and other persons
Only the SEC
A contract between the corporation and one of its directors, trustees, or officers is:
Always valid
Voidable at the option of the corporation unless conditions are met
Automatically ratified by the board
Only valid if approved by the SEC
Which of the following is a condition for the contract to be valid?
The director’s presence in the meeting was necessary to constitute a quorum
The director’s vote was necessary for approval
The contract is fair and reasonable under the circumstances
None of the above
In corporations vested with public interest, material contracts must be approved by:
Simple majority of the board
Two-thirds (2/3) of the entire board, with a majority of independent directors voting to approve
Only the president and treasurer
Stockholders exclusively
In case of a contract with an officer, it must be:
Automatically valid
Previously authorized by the board of directors
Approved by stockholders only
Signed by the SEC
If the first three conditions (quorum, vote, fairness) are not present, the contract may be:
Null and void
Ratified by two-thirds (2/3) of stockholders or members at a meeting called for the purpose
Approved by the president alone
Automatically valid after 30 days
Full disclosure of the adverse interest of directors or trustees must be made:
Only to the board
At the stockholders’ or members’ meeting for ratification
Only to the SEC
It is not required
Relatives of directors or trustees whose dealings with the corporation are covered include:
Only spouses
Up to the fourth civil degree of consanguinity or affinity
Only children and parents
Only siblings
A contract between two corporations with interlocking directors is:
Automatically invalid
Valid unless there is fraud and provided it is fair and reasonable
Only valid with SEC approval
Voidable by stockholders of either corporation
When does a contract between corporations with interlocking directors become subject to Sec. 31?
When both interests are nominal
When the interest in one corporation is substantial and in the other is merely nominal
When stockholders approve it
When stockholders approve it
What is considered a substantial interest for interlocking directors?
Stockholding exceeding 10% of outstanding capital stock
Stockholding exceeding 20% of outstanding capital stock
Stockholding exceeding 50% of outstanding capital stock
Any stockholding at all
Contracts between corporations with interlocking directors may be invalidated solely on the ground of:
Interlocking directors
Nominal interest
Substantial interest
Fraud
The fairness and reasonableness of a contract between corporations with interlocking directors:
Is irrelevant
Must be evaluated under the circumstances
Can be waived if directors approve
Requires SEC approval in all cases
A director who acquires a business opportunity that should belong to the corporation:
Can keep the profits if it was a personal risk
Must account for and refund all profits to the corporation
May keep the profits with board approval only
Is immune if shareholders are unaware
Profits obtained by a director to the prejudice of the corporation can be retained if:
The director acted alone
Ratified by a vote of stockholders owning or representing at least two-thirds (2/3) of outstanding capital stock
The SEC approves it
The director invested personal funds
SEC. 33. Disloyalty of a Director. – Where a director, by virtue of such office, acquires a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, the director must account for and refund to the latter all such profits, unless the act has been ratified by a vote of the stockholders owning or representing at least two thirds (2/3) of the outstanding capital stock.
This provision applies even if:
The corporation initially approved the venture
The director risked personal funds in the venture
The director informed the board in advance
The director holds a minority share
SEC. 33. Disloyalty of a Director. – Where a director, by virtue of such office, acquires a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, the director must account for and refund to the latter all such profits, unless the act has been ratified by a vote of the stockholders owning or representing at least two thirds (2/3) of the outstanding capital stock.
The primary purpose of this section is to:
Encourage directors to invest personally
Prevent directors from usurping corporate opportunities
Allow directors to take risks freely
Give the board discretion over personal ventures
SEC. 33. Disloyalty of a Director. – Where a director, by virtue of such office, acquires a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, the director must account for and refund to the latter all such profits, unless the act has been ratified by a vote of the stockholders owning or representing at least two thirds (2/3) of the outstanding capital stock.
Ratification by stockholders requires approval of:
Simple majority
Two-thirds (2/3) of the outstanding capital stock
The board of directors only
Any interested stockholder
The board may create an executive committee if:
The SEC approves
The bylaws so provide
A majority of stockholders approve
There is a quorum of directors
The executive committee must be composed of at least:
Two directors
Three directors
Four directors
Five directors
The executive committee may act on matters within the competence of the board except:
Routine administrative matters
Approval of actions requiring shareholders’ approval
Supervision of delegated projects
Recommendations on corporate policy
Which of the following is not within the powers of the executive committee?
Filling of vacancies in the board
Oversight of day-to-day operations
Monitoring delegated projects
Implementing board-approved policies
The executive committee may not amend or repeal:
Bylaws
Any resolution of the board which by its express terms is not amendable or repeatable
Routine operational policies
Delegated project approvals
The board may create special committees that are:
Only temporary
Only permanent
Temporary or permanent, with term, composition, powers, and compensation determined by the board
Advisory only
The executive committee may not approve:
Distribution of cash dividends to shareholders
Implementation of delegated projects
Day-to-day management tasks
Oversight of corporate functions
Decisions of the executive committee are made by:
Unanimous vote only
Simple majority of all its members
Board approval after every decision
Approval of stockholders
