Corp Book 1-3

Question 1

Describe the types of preferred shares as to dividends.

Answer 1

Preferred shares as to dividends may be cumulative, non-cumulative, or participating, each with different characteristics regarding dividend payments.

Question 2

Define cumulative preferred shares.

Answer 2

Cumulative preferred shares ensure that any unpaid dividends accumulate and must be paid out before common shareholders receive dividends.

Question 3

How do non-cumulative preferred shares work?

Answer 3

Non-cumulative preferred shares do not accumulate unpaid dividends; if dividends are not declared for a year, the right to receive them is lost.

Question 4

Do participating preferred shares allow holders to receive additional dividends?

Answer 4

Yes, participating preferred shares enable holders to receive additional dividends beyond their fixed rate, based on an agreed-upon formula.

Question 5

Describe a scenario where a company declined to pay quarterly interest on preferred shares.

Answer 5

If a company lacks unrestricted retained earnings, it may decline to pay quarterly interest on preferred shares, as seen in the case of Company X and A.

Question 6

Can a shareholder compel the payment of quarterly interest on preferred shares if the company lacks unrestricted retained earnings?

Answer 6

No, dividends cannot be paid on preferred shares if there are no unrestricted retained earnings, even if the shares were guaranteed a quarterly dividend.

Question 7

Describe the revisions under the RCC on provision on founders’ shares.

Answer 7

RCC prohibits holders of founders’ shares from voting or being voted as directors if it violates specific laws like the Anti-Dummy Law and the Investments Act.

Question 8

Define founders’ shares.

Answer 8

Founders’ shares are shares in a corporation that come with special rights and privileges outlined in the articles of incorporation.

Question 9

How long can the exclusive right to vote and be voted for in the election of directors be granted for founders’ shares?

Answer 9

The exclusive right can be granted for a limited period not exceeding five years from the date of incorporation.

Question 10

What are some corporate acts that typically require shareholder approval under the RCC?

Answer 10

Corporate acts like sale of corporate property, incurring bonded indebtedness, mergers, investments, and dissolution usually require shareholder approval.

Question 11

Describe the significance of SEC approval in relation to founders’ shares.

Answer 11

While SEC approval is not explicitly required for granting the exclusive voting rights, approval of incorporation effectively includes approval for such rights.

Question 12

Do founders’ shares have voting rights in all corporate decisions under the RCC?

Answer 12

Founders’ shares with exclusive voting rights are typically limited to specific decisions like electing directors and may not have voting rights in all corporate matters.

Question 13

Describe the voting rights privilege of founders’ shares in a corporation as per the Articles of Incorporation.

Answer 13

Founders’ shares have a 1:10 ratio in terms of voting rights compared to common shares, meaning one founders’ share equals ten votes. All shares, whether founders’ or common, can vote on all matters.

Question 14

Define redeemable shares in a corporation.

Answer 14

Redeemable shares are shares classified in the articles of incorporation that can be repurchased by the corporation from the holders after a fixed period, as expressly provided in the articles.

Question 15

How are founders’ shares’ voting rights affected by the limited period not exceeding five years under Section 7 of the RCC?

Answer 15

The 1:10 voting rights ratio for founders’ shares is not subject to the limited period of five years under Section 7 of the RCC, as this provision only applies to the exclusive right to vote and be voted for in the election of directors.

Question 16

Describe the limitations on the exclusive voting rights of founders’ shares under certain laws.

Answer 16

The exclusive right to vote and be voted for in the election of directors for founders’ shares is subject to a limited period of five years from the date of incorporation, except when it violates specific laws like the Anti-Dummy Law and the Foreign Investments Act.

Question 17

Define the term ‘Close Holding Corporation’ as mentioned in the content.

Answer 17

A Close Holding Corporation refers to a corporation where the founder’s shares have specific voting rights, typically with a ratio of 1:10 compared to common shares.

Question 18

How are redeemable shares different from common shares in a corporation?

Answer 18

Redeemable shares, as specified in the articles of incorporation, can be repurchased by the corporation after a fixed period, while common shares do not have this repurchase provision.

Question 19

Describe the concept of redeemable shares a corporation.

Answer 19

Redeem shares can be redeemed the issuing corporation, of surplus profit, as long as there are enough assets to cover debts and liabilities.

Question 20

Describe who corporators are in a corporation.

Answer 20

Corporators are individuals who compose a corporation, either as stockholders or shareholders in a stock corporation, or as members in a nonstock corporation.

Question 21

What is the role of incorporators in a corporation?

Answer 21

Incorporators are the stockholders or individuals mentioned in the articles of incorporation as forming and composing the corporation and who are signatories thereof.

Question 22

Define the role of the Board of Directors in a corporation.

Answer 22

The Board of Directors is generally elected by the stockholders to conduct the business, control the property, and exercise corporate powers.

Question 23

How are directors elected in a corporation?

Answer 23

Directors may also be elected by their fellow directors in specific cases and under certain conditions.

Question 24

Describe the voting rights of treasury shares in a corporation.

Answer 24

Treasury shares shall have no voting right as long as they remain in the Treasury.

Question 25

What are the legitimate purposes for a corporation to acquire its own shares?

Answer 25

Legitimate purposes include eliminating fractional shares, collecting or compromising indebtedness, and paying dissenting stockholders entitled to payment.

Question 26

How is the purchase of treasury shares from stockholders viewed in a corporation?

Answer 26

It is seen as a return to the stockholders of the value of their investment and a reversion of the shares to the corporation.

Question 27

Describe the role of incorporators in a corporation.

Answer 27

Incorporators are individuals mentioned in the articles of incorporation who originally form part of the corporation and are signatories thereof.

Question 28

What is the definition of a promoter in the context of a corporation?

Answer 28

A promoter is a person who brings about the formation and organization of a corporation by bringing together the incorporators or interested parties, procuring capital, and initiating the incorporation process.

Question 29

Do incorporators usually need a promoter to form and organize a corporation?

Answer 29

In actuality, a corporation is usually formed and organized by the incorporators themselves without the need for a promoter.

Question 30

How is the promoter of a corporation viewed in terms of agency before the corporation comes into existence?

Answer 30

The promoter is not considered the agent of the corporation before its formation, as there must be a principal for an agency relationship to exist.

Question 31

Define the fiduciary relationship a promoter holds towards a corporation and its subscribers.

Answer 31

The promoter holds a fiduciary or quasi-trust relation towards the corporation when it comes into existence and towards the subscribers prior to its organization, requiring acting in good faith in all dealings on behalf of the corporation.

Question 32

What is the distinction between incorporators and corporators in a corporation?

Answer 32

Incorporators are individuals who originally form part of the corporation and are signatories, while corporators are mentioned otherwise in the corporation’s structure.

Question 33

Describe the responsibilities of officers in a corporation.

Answer 33

Officers are appointed to assist the Board of Trustees in managing the affairs of the corporation.

Question 34

What is the role of the Board of Trustees in a nonstock corporation?

Answer 34

In a nonstock corporation, the Board of Trustees is responsible for overseeing the organization’s operations and decision-making processes.

Question 35

Describe the difference between subscription of shares and purchase/transfer of shares.

Answer 35

Subscription of shares pertains to unissued shares of a corporation, while purchase/transfer of shares pertains to shares already issued by the corporation.

Question 36

What is a subscription contract in the context of business organizations?

Answer 36

A subscription contract is any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed.

Question 37

Explain the role of incorporators in a stock corporation.

Answer 37

Incorporators are individuals involved in the formation of a corporation, with their number limited to 15 in a stock corporation.

Question 38

What residency requirements exist for incorporators under the OCC and RCC?

Answer 38

Under the OCC, the majority of incorporators should be residents of the Philippines, while no such requirement is imposed on incorporators under the RCC.

Question 39

Define purchase/transfer of shares in the context of business organizations.

Answer 39

Purchase/transfer of shares pertains to shares already issued by the corporation, involving the acquisition of these shares by a buyer or transferee.

Question 40

How do the rights differ between a subscriber and a buyer/transferee of shares?

Answer 40

A subscriber is entitled to exercise stockholder rights even without full payment, while a buyer/transferee cannot exercise purchased shares’ rights without full payment, unless specified otherwise in the sale agreement.

Question 41

Describe the Trust Fund Doctrine in relation to subscription contracts with a corporation.

Answer 41

The Trust Fund Doctrine states that subscription contracts form a fund that creditors can access for payment, and the corporation cannot release original subscribers from their obligations.

Question 42

Define privity in the context of creditor enforcement in a corporation.

Answer 42

Privity refers to the direct involvement or relationship between parties in a contract, where lack of privity can prevent a creditor from enforcing payment.

Question 43

How does the acceptance of a stock subscription impact the subscriber and the corporation?

Answer 43

Upon acceptance, the stock subscription becomes a binding contract that the subscriber cannot withdraw from, and the corporation cannot release the original subscriber or cancel the subscription.

Question 44

Do subscription contracts with a corporation fall under the Trust Fund Doctrine?

Answer 44

Yes, subscription contracts are subject to the Trust Fund Doctrine, meaning creditors have a right to look to the subscription fund for payment.

Question 45

Describe the power of the board of directors in canceling subscription contracts with a corporation.

Answer 45

The board of directors cannot cancel subscription contracts without justifiable cause, as doing so would relieve an original subscriber from their contractual obligation.

Question 46

Can corporate creditors enforce payment of unpaid subscriptions?

Answer 46

Yes, corporate creditors can maintain an action to enforce payment of unpaid subscriptions and step into the shoes of the corporation for collection purposes.

Question 47

What is pre-incorporation subscription in a corporation?

Answer 47

Pre-incorporation subscription refers to subscription of shares in a corporation still to be formed.

Question 48

Describe the irrevocability period for pre-incorporation subscription.

Answer 48

Pre-incorporation subscription shall be irrevocable for at least six (6) months from the date of subscription, unless all other subscribers consent to revocation or the corporation fails to incorporate within the same period.

Question 49

Define insolvency in the context of unpaid stock subscriptions.

Answer 49

In case of insolvency, all unpaid stock subscriptions become payable on demand and are immediately recoverable.

Question 50

How can a creditor enforce payment of unpaid stock subscriptions in an insolvency scenario?

Answer 50

The creditor can enforce payment of unpaid stock subscriptions when there is an insolvency proceeding involving the corporation.

Question 51

Describe the Supreme Court’s ruling in Halley v. Printwell, Inc. regarding unpaid stock subscriptions.

Answer 51

The Supreme Court affirmed the right of the creditor to enforce payment of unpaid subscriptions even without an insolvency proceeding.

Question 52

What is the suggested remedy for enforcing payment from an unpaid subscriber when the corporation has no leviable assets?

Answer 52

The suggested remedy is to enforce the judgment against the corporation first, and only if assets are insufficient, then enforce the judgment against the unpaid subscriber.

Question 53

Describe the impact on pre-incorporation subscription if the SEC rejects the application for incorporation.

Answer 53

It should be returned, as ruled in Fong v. Duenas.

Question 54

Define the allowable forms of consideration for the issuance of shares of stock.

Answer 54

Includes cash, property, labor, indebtedness, retained earnings, stock exchange, and other accepted forms.

Question 55

How can shares of stock be issued in exchange for bonds by a corporation?

Answer 55

Using the same considerations applicable for stock issuance, except for promissory notes or future services.

Question 56

Do outstanding shares play a role in the issuance of new stocks during reclassification or conversion events?

Answer 56

Yes, outstanding shares can be exchanged for new stocks in such events.

Question 57

Describe the significance of tangible or intangible property as consideration for stock issuance.

Answer 57

It must be necessary or convenient for the corporation’s lawful purposes and valued fairly.

Question 58

Define the circumstances under which labor or services can be considered as valid consideration for stock issuance.

Answer 58

When labor is performed for or services are rendered to the corporation.

Question 59

How can amounts transferred from unrestricted retained earnings be used as consideration for stock issuance?

Answer 59

They can be transferred to stated capital for issuing new stocks.

Question 60

Describe the ruling in Fong v. Duenas regarding the rescission of a joint venture agreement for incorporating a company.

Answer 60

If not implemented within the stipulated period, it may be rescinded, requiring the return of pre-incorporation subscriptions.

Question 61

Describe the conditions under which a corporation may issue its shares of stock in consideration for the payment of debt.

Answer 61

Shares cannot be used for payment of debt but only as security for future debts. Approval is needed from the board of directors and stockholders representing at least 2/3 of outstanding capital stock if shares are issued to non-existing stockholders.

Question 62

Describe the conditions under which a corporation may accept property as consideration for the issuance of its shares of stock.

Answer 62

The property must be necessary or convenient for lawful purposes, fairly valued at least equal to the par or issued value of the stock, initially determined by stockholders or board of directors, and subject to approval by the SEC.

Question 63

Define pre-emptive right of stockholders in the context of share issuance by a corporation.

Answer 63

Pre-emptive right refers to the right of existing stockholders to maintain their proportional ownership in the company by having the first opportunity to purchase additional shares before they are offered to others.

Question 64

How should a corporation dispose of its own shares acquired by a bank in payment of a debt within what timeframe?

Answer 64

The acquisition of shares by a bank in payment of a debt must be approved by the BSP, and the shares must be disposed of within six months from acquisition.

Question 65

Describe the approval process required for the issuance of shares by a corporation to non-existing stockholders.

Answer 65

The issuance of shares to non-existing stockholders must be approved by the board of directors and by stockholders representing at least 2/3 of the outstanding capital stock to avoid violating the pre-emptive right of existing stockholders.

Question 66

What law governs the conditions and regulations surrounding the issuance of shares by corporations in the context of debt payment and property consideration?

Answer 66

The General Banking Law (R.A. No. 8791) outlines the regulations and conditions for the issuance of shares by corporations in consideration for debt payment and property acceptance.

Question 67

Describe the voting requirement for fixing the issued price of no-par value shares by the board of directors.

Answer 67

It requires a majority of the quorum of the board of directors, not the entire board.

Question 68

Do outstanding shares get exchanged for stocks in the event of reclassification or conversion? Provide an example.

Answer 68

Yes, a corporation may issue common shares in exchange for preferred redeemable convertible shares.

Question 69

Define the law’s concept of amounts transferred from unrestricted retained earnings to stated capital as consideration for the issuance of shares.

Answer 69

It refers to the payment of stock dividends, where shares are issued to stockholders in proportion to their shareholdings.

Question 70

How can the articles of incorporation be revised under the RCC?

Answer 70

An arbitration agreement may be included, and filing can be done in electronic form according to SEC rules.

Question 71

Describe the process of changing the corporate name as per the articles of incorporation.

Answer 71

The articles should include an undertaking to change the name immediately upon a specified event.

Question 72

Explain the validity of decisions made by the board of directors when constituting a quorum as per Section 52 of the RCC.

Answer 72

Unless otherwise provided, every decision of the board when constituting a quorum is valid.

Question 73

Describe the purpose of articles of incorporation a corporation.

Answer 73

The articles of are a document thatizes a corporation, defining its nature, purpose, and contractual relationships with stakeholders.

Question 74

Define the contents of articles of incorporation in a.

Answer 74

The articles of incorporation typically include the corporation’s name, date of incorporation, duration of existence, capital stock details, and other essential information as required by law.

Question 75

How do articles of incorporation establish the relationship between a corporation and the state?

Answer 75

Articles of incorporation define the legal and contractual relationship between the corporation and the state, outlining the corporation’s rights, obligations, and regulatory compliance.

Question 76

Do articles of incorporation need to specify the percentage of subscribed and paid-up capital stock in a corporation?

Answer 76

Articles of incorporation no longer need to state the percentage of subscribed and paid-up capital stock, as the double 25% requirement has been removed under the RCC.

Question 77

Describe the significance of the certification of receipt of the paid-up portion of subscription by the Corporate Treasurer.

Answer 77

The certification of receipt of the paid-up portion of subscription by the Corporate Treasurer ensures transparency and compliance with financial regulations in a corporation.

Question 78

What is the purpose of the Treasurer’s Affidavit in the context of articles of incorporation?

Answer 78

The Treasurer’s Affidavit, which has been deleted under the RCC, previously served as a formal declaration regarding the financial status and compliance of a corporation with subscription payments.

Question 79

Describe the primary and secondary purposes that may be indicated in the articles of incorporation of a corporation.

Answer 79

The articles of incorporation shall indicate the primary purpose and the secondary purpose or purposes for which the corporation is being formed.

Question 80

Define the term for which a corporation is to exist if perpetual existence is not elected.

Answer 80

The term for which the corporation is to exist must be specified if perpetual existence is not elected.

Question 81

How many directors can a corporation have according to the content?

Answer 81

The number of directors shall not be more than fifteen (15) for a corporation.

Question 82

What information must be provided about the incorporators of a corporation?

Answer 82

The names, nationalities, and residence addresses of the incorporators must be included.

Question 83

Do stock corporations need to specify the amount of authorized capital stock and other related details in the articles of incorporation?

Answer 83

Yes, stock corporations must specify the amount of authorized capital stock, number of shares, par value, original subscribers, and more in the articles of incorporation.

Question 84

Describe the information required for nonstock corporations in the articles of incorporation.

Answer 84

Nonstock corporations must provide details about their capital, contributors, and amounts contributed by each.

Question 85

Describe the importance of indicating the principal place of business in the articles of incorporation.

Answer 85

The principal place of business in the articles of incorporation determines the corporation’s residence or domicile, controlling the venue for legal filings.

Question 86

Do the articles of incorporation allow for more than one purpose for a corporation?

Answer 86

Yes, the articles of incorporation may provide for multiple purposes as long as they are not contrary to law and there is one primary purpose.

Question 87

Define the primary purpose in the articles of incorporation for a corporation.

Answer 87

The primary purpose is the main goal or objective for which the corporation’s funds and assets should be primarily devoted.

Question 88

How are disbursements and use of funds for secondary purposes in a corporation regulated?

Answer 88

Disbursements and use of funds for secondary purposes require approval from the board and a majority of stockholders representing at least 2/3 of outstanding capital stock.

Question 89

Describe the authority of the SEC regarding a corporation’s stated purposes in the articles of incorporation.

Answer 89

If the corporation’s stated purpose is lawful, the SEC cannot inquire about other purposes. However, if misrepresentation is found, the SEC may revoke the corporation’s certificate of incorporation.

Question 90

What is the significance of distinguishing primary from secondary purposes in the articles of incorporation?

Answer 90

Stockholders have the right to expect that funds and assets are primarily used to attain the corporation’s primary purpose, with secondary purposes requiring specific approvals.

Question 91

Describe the process to amend the articles of incorporation of a private corporation.

Answer 91

The articles of incorporation of a private corporation can be amended by a majority vote of the board of directors or trustees and at least two-thirds of the stockholders.

Question 92

Define the principal office of a corporation as per the articles of incorporation.

Answer 92

The principal office of a corporation is the location stated in the articles of incorporation, regardless of the actual place of operations.

Question 93

How should amendments to the articles of incorporation be indicated?

Answer 93

Amendments to the articles of incorporation should be indicated by underscoring the changes made.

Question 94

Do all provisions required by law need to be included in both the original and amended articles of incorporation?

Answer 94

Yes, the original and amended articles must contain all provisions required by law.

Question 95

Describe the voting requirements for amending the articles of incorporation of a nonstock corporation.

Answer 95

A nonstock corporation’s articles of incorporation may be amended by a majority of the trustees and at least two-thirds of its members.

Question 96

Define the venue for legal actions involving a corporation.

Answer 96

The venue for legal actions involving a corporation is typically the location stated as the principal office in the articles of incorporation.

Question 97

Describe what items in the articles of incorporation cannot be amended.

Answer 97

Matters of accomplished fact cannot be amended, such as names and addresses of the incorporators, date and place of incorporation, and the notary public before whom the articles of incorporation was acknowledged.

Question 98

How do amendments to the articles of incorporation take effect?

Answer 98

Amendments will take effect upon approval of the SEC or from the date of filing with the SEC if not acted upon within six months from the date of filing for a cause not attributable to the corporation.

Question 99

Define the grounds for disapproval of the articles of incorporation or amendments thereto.

Answer 99

The SEC may disapprove if the articles or amendments are not compliant with the requirements of the RCC, unconstitutional, illegal, immoral, contrary to regulations, false certification of capital stock, or non-compliance with Filipino ownership laws.

Question 100

Describe the process for modifying objectionable portions of the articles of incorporation after disapproval by the SEC.

Answer 100

The SEC gives a reasonable time for incorporators, directors, trustees, or officers to modify objectionable portions of the articles or amendments after disapproval.

Question 101

What is the consequence if the required percentage of Filipino ownership of the capital stock is not complied with in the articles of incorporation?

Answer 101

The SEC may disapprove the articles of incorporation or amendments if the required percentage of Filipino ownership is not complied with.

Question 102

Do incorporators have the legal right to change their names in the articles of incorporation after obtaining a marriage annulment?

Answer 102

Incorporators cannot legally change their names in the articles of incorporation after obtaining a marriage annulment, but they can request the Corporate Secretary to change their name as a stockholder.

Question 103

Describe the limitations on the adoption and of a corporate name under Section 17 the RCC.

Answer 103

Under Section 17 of the RCC, a corporate name is allowed as long as it is distinguishable from those reserved or registered, not protected by law, not contrary to existing laws, rules, and regulations, and does not include certain specific words or phrases.

Question 104

Define the disqualifications for a corporate name adoption under Section 17 of the RCC.

Answer 104

Disqualifications for a corporate name adoption under Section 17 of the RCC include being indistinguishable from reserved names, being protected by law, being contrary to existing laws, rules, and regulations, and including specific words or phrases.

Question 105

How can a corporate name be considered distinguishable under Section 17 of the RCC?

Answer 105

A corporate name can be considered distinguishable if it does not contain certain disallowed words or phrases, and if it is unique and not already in use or reserved.

Question 106

Describe the additional requirements for approval of articles of incorporation for certain financial institutions.

Answer 106

Articles of incorporation for banks, pre-need companies, insurance companies, and other financial institutions must be accompanied by a favorable recommendation from the appropriate government agency and comply with all laws and regulations.

Question 107

What are the consequences of non-compliance with SEC conditions for filing articles of incorporation?

Answer 107

Non-compliance with SEC conditions for filing articles of incorporation can lead to disapproval of the filing, rejection of the application, or other penalties imposed by the SEC.

Question 108

Define the grounds for disapproval of articles of incorporation or amendments by the SEC.

Answer 108

Grounds for disapproval by the SEC include non-compliance with SEC conditions, violation of laws and regulations, and lack of favorable recommendations from the appropriate government agency for certain financial institutions.

Question 109

Describe when a corporation may prohibit the use of a corporate name by another corporation.

Answer 109

A corporation may prohibit another corporation from adopting a corporate name if the complainant corporation acquired a prior right over the name through registration and if the proposed name is not distinguishable from the one already reserved or protected by law.

Question 110

Do the corporate names ‘GSIS Family Bank-A Thrift Bank’ and ‘BPI Family Bank’ differ significantly?

Answer 110

No, the names are not distinguishable as the only differing words are ‘GSIS,’ ‘BPI,’ and ‘Thrift,’ which are acronyms or common terms.

Question 111

Define the remedies available to a corporation against the unauthorized use of its corporate name.

Answer 111

The remedies include filing a petition with the SEC to compel a name change without court action and filing a complaint under Section 159 of the RCC for unauthorized use or infringement.

Question 112

How can a corporation enforce its rights regarding the use of its corporate name by another entity?

Answer 112

By petitioning the SEC for a name change, taking legal action if necessary, and filing complaints for unauthorized use or infringement.

Question 113

Describe the requirements for a corporation to prevent another entity from using its corporate name.

Answer 113

The complainant corporation must have acquired prior rights through registration, and the proposed name must not be distinguishable or protected by law.

Question 114

What legal actions can a corporation take if its corporate name is used without authorization?

Answer 114

Legal actions may include petitioning the SEC for a name change, filing complaints for unauthorized use, or pursuing infringement claims if the name is used as a tradename.