LAW ON CORPORATION. General provisions

Question 1

They are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means.

Answer 1

treasury shares

Question 2

It refers to a fund set-up by the corporation where the cash is gradually set aside in order to accumulate the amount necessary to meet the redemption price of redeemable shares of specified dates in the future.

Answer 2

sinking fund

Question 3

What are the classes of corporations? (Sec.3)

Answer 3

Section 3 states that corporations may be stock or nonstock corporations. Stock corporations capital stock divided into shares and authorized to distribute dividends of the holders.

Question 4

True or False. Founder’s shares classified as such in the articles of incorporation may not be given certain rights and privileges enjoyed by the owners of other stocks.

Answer 4

False

Question 5

True or False. The redeemable shares may not be purchased by the corporation upon its expiration, regardless of the existence of unrestricted retained earnings in the books of the corporation.

Answer 5

FALSE. The redeemable shares may be purchased by the corporation upon the expiration of the fixed period.

Question 6

True or False. Treasury shares have voting rights or rights as to dividends or distributions.

Answer 6

FALSE. Treasury shares have no voting rights, dividends, or distributions.

Question 7

TRUE or FALSE. Treasury shares are not owned by the corporation having been reacquired by the issuing corporation by “purchase, redemption, donation, or through some other lawful means.”

Answer 7

FALSE. Treasury shares are owned by the corporation having been reacquired by the issuing corporation.

Question 8

True or False. Redeemable shares may be issued by a corporation even when not expressly provided in the articles of the incorporation.

Answer 8

FALSE. Redeemable shares may be issued when expressly provided in the articles of the incorporation.

Question 9

Can the owners of the founders’ shares be given certain rights and privileges?

Answer 9

Yes, founders’ shares which are in the articles of incorporation may be given certain rights and privileges not enjoyed by other owners of other stocks given that they may have the right to vote and be voted for the election of directors, it must be for a limited period not exceeding 5 years subject to the approval of SEC and shall commence from the date of the aforesaid approval by SEC.

Question 10

It is usually preferred and frequently issued subject to redemption at the option of either the corporation, or the shareholder, or both, at a definite price representing a premium above the amount originally paid.

Answer 10

redeemable “callable” shares of stocks

Question 11

A stock or a share of stock represents the interest or right that the holder of a stock has in the corporation.

Answer 11

stock

Question 12

True or false. A stock certificate is not mere documentary evidence of the holder’s ownership of shares and a convenient instrument for the transfer of title.

Answer 12

False

Question 13

They are generally known as common stock, which is given to the founders or promoters of a corporation in payment of money expended in the promotion of it.

Answer 13

founders’ shares

Question 14

TRUE OR FALSE. Share of capital stocks issued without par value shall be deemed fully paid and nonassessable and the holder shall not be liable to the corporation provided that the shares issued without par value may not be issued for a consideration less than 5 pesos unless the entire consideration shall be treated as capital and shall not be available for distribution as dividends.

Answer 14

TRUE

Question 15

TRUE OR FALSE. Banks, trust companies, insurance companies, public utilities, and building, and loan associations shall not be permitted to issue no-par value shares of stocks.

Answer 15

TRUE

Question 16

It certifies that the holder is the owner of a certain number of shares of stock in the corporation.

Answer 16

stock certificate

Question 17

It is an artificial being created by law or operation of the law with rights of successions, powers, attributes, and properties expressly authorized by law to its existence.

Answer 17

corporation

Question 18

What are the advantages of the corporate form of business organization?

Answer 18

1. Capacity to act as a legal entity.
2. Continuity of life.
3. The liability of the stockholders for the debts of the corporation is limited to their fully paid investment in the corporation.
4. There is better management as the best service may be extracted from the bigger membership of a corporation.
5. There is a more unified form of control that is reposed in the Board of Directors.
6. Transferability of shares even without the consent of the other stockholders.
7. There is a greater source of capital.

Question 19

What are the disadvantages of a corporation?

Answer 19

1. subject to greater governmental control.
2. Frequent and varied reports are required of corporations.
3. They may not engage in any other business other than the business specified in the Articles of Incorporation.
4. Minority stockholders may be at the mercy of majority stockholders.
5. They cannot transact business in another state unless it obtains a license for that purpose.
6. It involves double taxation.
7. Outstanding stock cannot be more than the authorized capital stock.
8. Credit availability to pay the corporate debt is limited because shareholders’ liability to 3rd parties is limited as well.
9. There is a greater possibility of abuse of power.

Question 20

Tests of nationality or citizenship of a corporation

Answer 20

1. Incorporation test -As a general rule, a corporation is a citizen of the state or country by or under the laws of which it was created and exists without regard to the citizenship of its stockholders or members
2. Control test- The nationality of a private corporation is determined by the character or citizenship of its controlling stockholders
3. Center of Management test or Business domicile test - A corporation has the nationality of the state where it has its business domicile.

Question 21

Does a corporation a citizen of the country with regards to the shareholders ‘citizenship?

Answer 21

No, the general rule is a corporation is a citizen of the state under the laws it was created and exists without regard to the citizenship of the shareholders.

Question 22

What are the other kinds of corporations? ( Sec 3)

Answer 22

1. Stock and nonstock
2. Ecclesiastical and lay
3. Aggregate and sole
4. De Jure and De facto
5. Eleemosynary and civil
6. Public and Private
7. Domestic and Foreign
8. Open and Close
9. Parent and Subsidiary
10. Wasting assets corporation
11. Affiliated corporation
12. Government-owned or controlled corporations
13. Corporation by Prescription
14. Corporation by Estoppel
15. quasi-public corporations
16. Quasi corporations
17. Trading corporation
18. Tramp corporation

Question 23

It is one in which the stockholders or members are limited to a few persons such as members of a family.

Answer 23

Close Corporation

Question 24

It is one created to secure the public worship of God (1 Bouvier’s Law Dict. 683), such as the Roman Catholic Church.

Answer 24

Ecclesiastical corporation

Question 25

one established for temporal purposes and is comprised of laymen (18 C.J.S. 393), such as the Toyota Motor Corporation.

Answer 25

Lay corporation

Question 26

Those which are created to facilitate the transaction of business

Answer 26

Civil corporations

Question 27

it is organized in one state without any intention of doing business in that state, but instead, it will carry its business operations in other states.

Answer 27

Tramp corporation

Question 28

It is private corporations that have accepted from the state the grant of a franchise or contract involving the performance of public duties.

Answer 28

quasi-public corporations

Question 29

associations and government or political institutions or officers which are not corporations in the full sense, but which are invested by law with some of the attributes of a corporation, as the capacity to sue or to be sued as a corporate body, to have a continued existence

Answer 29

Quasi corporations

Question 30

It is one related to another by owning or being owned by common management.

Answer 30

Affiliated corporation

Question 31

It is one where corporate powers have been exercised by a body of men for such a length of time as to raise a presumption of the grant of an ancient charter to their predecessor.

Answer 31

Corporation by Prescription

Question 32

It is one the sole purpose of which is to invest its capital in a specific property and afterward to consume that property or extract its value at a profit, such as mining property, oil or gas well.

Answer 32

Wasting assets corporation

Question 33

What are the components of a corporation? (Sec 5)

Answer 33

1. Incorporators - stockholders or members mentioned in the Articles of Incorporation as originally forming and composing the corporation and who are signatories thereof.
2. Corporators- those who compose the corporation whether stockholders or members.
3. Stockholders- owners of shares in a corporation that has capital stock.
4. Members- Corporators of a corporation that has no capital stock.
5. Promoter- one who alone or with others undertakes to form a corporation and to procure for it the rights
6. Subscriber- one who has agreed to take stock from the corporation on the original issue of such stock.
7. Underwriter- one who, under an agreement, made before corporate shares are bought before the public, and in the event, the public will not take them, the underwriter will be the one to take them.

Question 34

True or False. Corporations are bound by any agreement made by a promoter.

Answer 34

FALSE (SEC5) - CORPORATION IS NOT BOUND

Question 35

When can a promoter bound the corporation to him?

Answer 35

The corporation approves the agreement.

Question 36

What are the attributes of a corporation?

Answer 36

1. It is an artificial being
2. It is created by operation of law
3. It has the right of succession
4. It has only the powers, attributes, and properties expressly authorized by law/ incident to its existence.

Question 37

What are the similarities between partnership and corporation? (Sec.2)

Answer 37

1. They both have juridical personalities distinct and separate from the stockholders and partners.
2. They act only through its agent.
3. They are formed by the formation of individuals.
4. They both distribute profits to members who contribute to capital.
5. They may be organized when the law authorizes it.
6. They are both subject to income tax.

Question 38

What are the differences between Partnership and Corporation?

Answer 38

1. IN TERMS OF CREATION - Partnership is created by mere agreement of the partners while Corporations are formed by law or operation of the law.
2. IN TERMS OF NUMBERS OF PARTIES - PS involves a minimum of 2 persons while CORP requires at least 5 incorporators.
3. IN TERMS OF COMMENCEMENT OF JURIDICAL PERSONALITY -PS commence from the moment of execution of the contract while the corporations, from the date of the issuance of the certificate of incorporation.
4. IN TERMS OF POWERS - PS may exercise the rights authorized by partners as long as it is not contrary to law, good morals, goods customs, public policy, or public order while corporations can only exercise the powers granted by law or incidents of its existence.
5. IN TERMS OF MANAGEMENT - when it is not agreed upon, all partners are agents of the partnership while the corporation, the board of directors, or trustees.
6. IN TERMS OF RIGHT OF SUCCESSION - PS has no right of succession while the corporation has the right to continue the operation despite the conditions of the shareholders.
7. IN TERMS OF EXTENT OF THE LIABILITY TO 3RD PARTY - All partners are liable except the limited partners up to the extent of their separate ownership while the shareholders are liable up to their shares.
8. IN TERMS OF TRANSFERABILITY OF INTEREST - partners cannot transfer their interest without the consent of all partners while shareholders may transfer theirs without the consent of other shareholders.
9. IN TERMS OF EXISTENCE - partnership may last in any period stipulated while the corporation has perpetual life.
10. IN TERMS OF PARTNERSHIP NAME - limited partnership shall have LTD attached to the firm name while the corporation may adopt a firm name as long as it does not have a similar existing firm name.
11. IN TERMS OF GOVERNING LAWS - partnership is governed by civil code while the corporation is corporation code.

Question 39

Disregard of legal fiction or ”Piercing the veil of corporate entity.

Answer 39

The members or stockholders of the corporation will be considered the same as the corporation.

Question 40

What are the classes or series of shares?

Answer 40

• Voting and Non-voting shares
  
  • *General Rule:** Every share has a right to be present and vote at all corporate meetings such as the members of the non-stock corporations and every legal owner of shares in stock corporations.
  • *Exception to the rule:** Unless otherwise stipulated.
• Par Value and No-Par Value sharesPar value is the given fixed or definite value of a share in the articles
• Common and Preferred sharesPreferred shares may be preferred as to assets, preferred as to dividends. Preferred as to dividends may either be cumulative or noncumulative, participating or non-participating.
• Promotion sharesstocks issued to those who may originally own the mining ground or valuable rights connected therewith, issued to promoters.
• Shares of EscrowThese shares are subject to an escrow agreement, which is an agreement under which shares are deposited by the grantor or his agent with 3rd person, to be delivered by the depositary to the vendee or subscriber-only upon the happening of certain conditions.
• Founder’s shares
• Redeemable “callable” shares
• treasury shares
• other shares classified to comply with constitutional requirements.

Question 41

The doctrine of a separate entity

Answer 41

shareholders and members are not the same as the corporation.

Question 42

Exemption to the general rule that a corporation has a juridical personality distinct and separate from the shareholders:

Answer 42

1. used to evade the obligation to employees or used as a pretext to dismiss employees.
2. used to evade lawful obligation or money judgment
3. dominated by officers or shareholders who control or by the entity to the extent that the corporation is a mere alter ego, adjunct, or business conduit.
4. used to defeat public convenience
5. used to justify wrong
6. used to protect fraud
7. used to defend crime
8. used to confuse legitimate legal or judicial issues
9. used to perpetrate deception or otherwise circumvent the law.

Question 43

Instances where fiction is disregarded

Answer 43

the corporation is organized by an insolvent debtor to defraud his creditors and transfers his properties to it in furtherance of such fraudulent purpose.

Question 44

TRUE OR FALSE. A corporation has continuity of existence depends on that of its members or shareholders.

Answer 44

FALSE

Question 45

TRUE OR FALSE. The corporate life of a corporation under RCCP shall be perpetual or unless sooner dissolved for other causes in accordance with the law.

Answer 45

TRUE

Question 46

TRUE OR FALSE. The corporation shall continue to exist for the period stated in the Articles of Incorporation, and the death of any stockholder or director shall dissolve the corporation.

Answer 46

FALSE

Question 47

It is a principle in the creation of corporations, under which a corporation is an artificial creature without any existence until it has received the imprimatur of the states acting according to law, through the SEC.

Answer 47

Concession Theory

Question 48

Sec 16. Grounds when articles of incorporation or amendment may be disapproved

Answer 48

1. the articles of incorporation or any amendment there is not substantially in accordance with the form prescribed herein.
2. the purpose of the corporation is patently unconstitutional, illegal, immoral, or contrary to government rules and regulations.
3. the certification concerning the amount of capital stock subscribed or and paid.
4. the required % of Filipino ownership of the capital stock under existing laws or constitution has not been complied with.