Module 1: Formation, classification, rights, dividends, securities

Question 1

Types of Corporation

Answer 1

1. De Jure Corporation
2. Stock Corporation
3. Limited Liability Corporation
4. Close Corporation
5. Public Company

Question 2

Which of the following statements is not correct?

a. A corporation is a juridical person.
b. A corporation is created by operation of law.
c. A corporation can exercise only the powers expressly conferred upon it by law and its articles of incorporation, those implied from such powers expressly granted, and those that are incident to its existence.
d. A corporation is a juridical person created by operation of law and can exercise unlimited powers.

Answer 2

d. A corporation is a juridical person created by operation of law and can exercise unlimited powers.

(In reality, corporations are created by operation of law, but they are not granted unlimited powers. Instead, they can exercise only the powers expressly conferred upon them by law, their articles of incorporation, and those powers that are implied or incident to their existence. Unlimited powers would not be consistent with the legal framework that governs corporations.)

Question 3

Which of the following statements is not correct about a corporation being a juridical person?

a. The debts of the corporation are not the debts of the stockholders, nor are the debts of the stockholders the debts of the corporation.
b. In taxation, the income of the corporation is not the income of the stockholders who may be required to pay taxes on the dividends that they may derive from such income.
c. In connection with corporate property or affairs, stockholders cannot maintain actions in their own name and they have no right to recover possession of property belonging to the corporation or to recover damages for injury thereto.
d. The stockholders are the owners of assets of the corporation thus have direct interest therein.

Answer 3

d. The stockholders are the owners of assets of the corporation thus have a direct interest therein.

(In reality, while stockholders own shares of the corporation, they do not directly own the assets of the corporation. Instead, the assets are owned by the corporation itself as a separate legal entity. Shareholders have an ownership interest in the corporation through their shares, but they do not have direct ownership of the corporation’s assets.)

Question 4

Which of the following statements best
describes a de jure corporation?

a. One that is defectively created but there is an exercise of corporate rights and franchise resulting from an attempt in good faith to incorporate.
b. One which has exercised corporate powers for such a length of time without interference by the State, and which, by fiction of law, is given the status of a corporation.
c. One which is in reality not a corporation but is considered as one with respect those who are precluded by their admission or conduct denying its existence.
d. One that has been created in strict compliance with all the legal requirements and whose right to exist as a corporation cannot be successfully attacked in a direct proceeding for that purpose by the State.

Answer 4

d. One that has been created in strict compliance with all the legal requirements and whose right to exist as a corporation cannot be successfully attacked in a direct proceeding for that purpose by the State.

(A de jure corporation is one that has been properly formed according to the laws and regulations governing the creation of corporations. It has met all the legal requirements for incorporation, and its status as a corporation is legally recognized and cannot be easily challenged by the state.)

Question 5

Which of the following statements best describes a stock corporation?

a. One that has been created in strict compliance with all the legal requirements and whose right to exist as a corporation cannot bensuccessfully attacked in a direct proceeding for that purpose by the State.
b. Organized for profit which are granted a franchise by the State to perform public service.
c. One that is formed for a private purpose or end.
d. One that has capital stock divided into shares and is authorized to distribute dividends or allotments of the surplus profits on the basis of shares held by its stockholders.

Answer 5

d. One that has capital stock divided into shares and is authorized to distribute dividends or allotments of the surplus profits on the basis of shares held by its stockholders.

(A stock corporation is a type of corporation where ownership is divided into shares of stock, and shareholders are entitled to dividends or surplus profits based on the number of shares they hold.)

Question 6

As, a general rule, in a corporate form of business organization, the stockholders are not personally liable for corporate obligations and and cannot be held liable to third persons who have claims against the corporation beyond their agreed subscriptions/contributions to the corporate capital. However, this privilege may be disregarded under the ”Doctrine of Piercing the Corporate Veil.”

Answer 6

Limited Liability Company

Question 7

whose articles of incorporation provide that:

(1) All the corporation’s issued stocks of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20);
(2) All of the issued stocks of all classes shall be subject to one or more specified restrictions on transfer permitted by the Corporation Code; and
(3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. A corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its voting stocks or voting rights is owned or controlled by another corporation which is not a close corporation as defined above.

Answer 7

Close Corporation

Question 8

Means any corporation with a class of equity securities listed on an Exchange or with assets in excess of Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more holders, at least two hundred (200) of which are holding at least one hundred (100) shares of a class of its equity securities.

Answer 8

Public Company/Listed Company

Question 9

Formation of a Corporation

Answer 9

1. Articles of Incorporation
2. By-Laws
3. Certificate of Incorporation / Juridical Personality Commences
4. Powers of a Corporation

Question 10

The following statements about articles
of Incorporation are correct except:

a. The articles of Incorporation of a corporation is a contract between the parties:
(a) between the State and the corporation,
(b) between the stockholders (members in case of non-stock corporation) and the State, and
(c) between the corporation and the stockholders (members).

b. The articles of Incorporation do not become effective and binding as the charter of the corporation, unless they have been filed and registered with the SEC in accordance with the provisions of the Corporation Code.

c. The articles of incorporation shall contain substantially the following matters:
(1) The name of the corporation.
(2) The specific purpose or purposes for which the corporation is being incorporated.
(3) the place where the principal office of the corporation is located, which must be within the Philippines.
(4) the term for which the corporation is to exist.
(5) The names, nationalities and residences of the
incorporators.
(6) The number of the directors or trustees.
(7) The names, nationalities, and residences of the persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified in accordance with the Corporation Code.
(8) If it be a stock, the amount of its capital stock in lawful money of the Philippines, capital contribution if its non-stock corporation among others.

d. The articles of incorporation signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. In other words, articles of incorporation are relatively permanent and continuing rules of action adopted by the corporation for its own government and that of the individuals composing it and having the direction, in whole or in part, in the management and control of its affairs and activities.

Answer 10

a. The articles of Incorporation of a corporation is a contract between the parties:
(a) between the State and the corporation,
(b) between the stockholders (members in case of non-stock corporation) and the State, and
(c) between the corporation and the stockholders (members).

(In reality, while articles of incorporation outline the structure and purpose of a corporation, they are not considered a contract between the state and the corporation or between the corporation and the stockholders. Instead, they are a foundational document that establishes the corporation’s existence and governs its operations.)

Question 11

The by-laws differ from the articles of incorporation in that the by-laws are:

Answer 11

a. The rules of action adopted by a corporation for its internal government.
b. Adopted before or after incorporation.
c. Approved by the stockholders if adopted after incorporation.
d. A condition subsequent in the acquisition by a corporation of a juridical personality.

Question 12

When to adopt by-laws?

Answer 12

The Corporation Code requires that every corporation formed under the Corporation Code, must, within one (1) month after receipt of the official notice of the issuance of the certificate of incorporation by the SEC, adopt by-laws for its government not inconsistent with the provisions of the Code. The by-laws, however, may be adopted and filed prior to incorporation; in such case, such by-laws shall be approved and signed by all theincorporators and submitted to the SEC, together with thearticles of incorporation.

Question 13

The following statements are correct except:

a. A private corporation commences to have a corporate existence and juridical personality and is deemed incorporated from the date the SEC issues a certificate of incorporation under its official seal; and thereupon the incorporators, stockholders/members and their successors shall constitute a corporate body under the name stated in the articles of incorporation for the period of time mentioned therein.

b. While registration with the SEC vests upon a corporation the rights, powers and attributes expressly authorized by law or incident to its existence, such registration does not automatically entitle an SEC registered corporation the privilege to engage in the business or activity for which it is organized if under the law the operation thereof or the transaction to be undertaken still requires a separate permit or license or approval from other government agencies.

c. The registration of a corporation with the SEC only constitutes a grant by the government of the power to act as a corporation, but does not preclude the government from exercising its police power over such corporation whenever public interest demands it.

d. The SEC requires the annual renewal of registration of corporations under the Corporation Code of the Philippines.

Answer 13

d. The SEC requires the annual renewal of registration of corporations under the Corporation Code of the Philippines.

(In reality, while corporations in the Philippines are required to file annual reports with the SEC to maintain their registration, this process is not referred to as “annual renewal of registration.” Instead, it involves submitting annual financial statements and other relevant documents to ensure compliance with regulatory requirements.)

Question 14

Specific Express Powers of a corporation under the Corporation Code:

Answer 14

• Power to extend or shorten corporate term.
• Power to increase or decrease capital stock.
• Power to incur, create or increase bonded indebtedness
• Power to deny pre-emptive right.
• Power to sell, lease, exchange, mortgage, pledge or otherwise dispose all or substantially all of its property
• Power to acquire its own shares
• Power to invest corporate funds in another corporation or business or for any other purposes.
• Power to declare dividends
• Power to enter into management contracts

Question 15

Their names are mentioned in the articles of incorporation as originally forming the corporation and are signatories thereof.

Answer 15

a. Corporators
b. Stockholders
c. Members
d. Incorporators

Question 16

Corporate Doctrines

Answer 16

1. Doctrine or Corporate entity
2. Piecing veil of corporate fiction
3. Right of succession
4. ultra vires doctrine
5. Doctrine of Corporate opportunity

Question 17

The following statements on “Doctrine of Corporate Entity” are correct except:

a. The “separate and distinct personality” of a corporation from that of the stockholders/members is a basic attribute or privilege attached to a corporation which gives rise to fundamental principles in corporation law that under normal condition, the stockholders/members of a corporation are not the same as the corporation itself.

b. The property belonging to a corporation cannot be attached nor held answerable for the debt of the stockholders thereof.

c. Because of the separate personality of the corporation from the stockholders, personal transactions, obligations, and liabilities of a stockholder should not in any way affect the ordinary operations of the corporation.

d. The principle on separate identity of a corporation from its stockholders cannot be disregarded even when it is used to defeat public convenience, justify wrong, protect or cover fraud or defend crime or work or injustice.

Answer 17

d. The principle on the separate identity of a corporation from its stockholders cannot be disregarded even when it is used to defeat public convenience, justify wrong, protect or cover fraud or defend crime or work or injustice.

(In reality, while the doctrine of corporate entity generally protects the separate identity of a corporation from its shareholders, there are circumstances where this principle can be disregarded, such as when it is used to perpetrate fraud, evade legal obligations, or achieve unjust results. Courts have the authority to pierce the corporate veil in such cases to hold shareholders personally liable for the corporation’s actions.)

Question 18

the principle on separate identity of a corporation from its stockholders may be disregarded when it is used to defeat public convenience, justify wrong, protect or cover fraud or defend crime or work an injustice. If used in those situations, the corporation and the stockholders composing it should be treated as one and the same. Consequently, the stockholders can be held personally liable to corporate debts. However, application of said doctrine is for the proper court to decide. The proper court will not hesitate to pierce the corporate veil or corporate fiction when it would defeat the ends envisaged by law, as the theory of corporate entity was not meant to promote unfair objectives.

Answer 18

Doctrine of piercing the veil of corporate fiction

Question 19

granted by law to a registered corporation means that a corporation has a continuity of corporate life during its term of existence stated in the articles of incorporation, independent from that of its stockholders or members. Thus, its continued existence cannot be effected by any change in the stockholders, whether the change be the consequence of death of a stockholder/member or transfer of shares by a stockholder to third person.

Answer 19

Right of Succession

Question 20

No corporation under the Corporation Code shall possess or exercise any corporate powers except those conferred by the the Code or by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers as conferred.

Answer 20

Ultra vires acts of a corporation

Question 21

This is the doctrine to the effect that when a director attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, or when by virtue of his office, he acquires for himself a business opportunity which should belong to the corporation, he must account for all such profits derived by him from the said business opportunity by refunding the profits to the corporation.

Answer 21

Doctrine of Corporate Opportunity

Question 22

Capital Structure

Answer 22

1. Authorized Capital Stock
2. Pre-incorporation subscription
3. Subscribed capital stock
4. Paid-up capital
5. Additional Paid-in capital
6. Unissued/unsubsxribed capital stock
7. Outstanding capital stock

Question 23

This refers to the total amount of shares which a corporation is allowed to issue if the shares have a par value. If the shares do not have par value, the corporation does not have an authorized capital stock but it has authorized number of shares which it may issue. Once issued, the corporation shall have a capital stock but not an authorized capital stock.

Answer 23

Authorized Capital Stock

Question 24

This is the part of capital stock which is subscribed, whether paid or unpaid.

Answer 24

Subscribed capital stock

Question 25

the part of the subscribed capital stock paid to the corporation.

Answer 25

Paid-up capital stock

Question 26

That part of the capital stock which is not issued or subscribed.

Answer 26

Unissued capital stock

Question 27

This refers to the total shares of stock issued to subscribers or stockholders whether or not fully or partially paid (as long as there is a binding subscription agreement) , except treasury shares

Answer 27

Outstanding Capital Stock

Question 28

generally defined as the excess of the net assets of a corporation over its capital or stated capital. Paid-in surplus includes premium on par value stock. Thus where the par value shares are issued and a premium paid over par, a paid-in surplus results

Answer 28

Paid-in surplus

Question 29

Under this doctrine, the capital stock and assets of the corporation are held in trust for the creditors. Accordingly, there shall be no distribution of assets to shareholders until the claims of creditors have been paid or an appropriation of such assets has been made for the payment of such claims.

Answer 29

Trust Fund Doctrine

Question 30

The articles of incorporation of ABC Corporation provide for the issuance of 100,000 shares without par value and an issued price per share of P10.00. At the time of incorporation, the subscription and paid-up capital should not be less than:

1. P250,000.00 and P62,500.00 respectively.
2. P1,000,000.00 and P250,000.00, respectively.
3. P250,000.00 and P125,000.00, respectively.
4. P250,000.00 and P250,000.00, respectively.

Question 31

Which of the following subscriptions does not comply with the subscription and paid-up capital requirements at the time of incorporation?

Authorized Subscribed Paid-up
1. P1,000,000.00 P250,000.00 P62,500.00
2. 300,000.00 75,000.00 50,000.00
3. 100,000.00 100,000.00 100,000.0
4. 50,000.00 12,500.00 3,125.00

Question 32

Classification of Shares

Answer 32

1. common
2. preferred
3. founded shares
4. par value shares
5. no-par value shares
6. voting shares
7. non-voting shares
8. redeemable shares
9. retireable shares
10. treasury shares
11. watered stocks

Question 33

one of the units into which the capital stock of the corporation is divided. It represents the intangible interest or right which an owner has in the management, profits and assets of the corporation. It is property, subject to conversion.

Answer 33

Shares of stock

Question 34

Stock certificate, concept; distinguished from share of stock:

A stock certificate is the written acknowledgement by the corporation of the stockholder’s interest in the corporation and its property. It is distinguishable from shares of stock as follows:

1. Share of stock represents the rights and interest of a stockholder in the corporation. Stock Certificate is the written evidence of such right.
2. Share of stock is intangible personal property, while stock certificate is tangible personal property.
3. Share of stock may be issued even if not fully paid, except shares without par value which are deemed fully paid and non-assessable upon issuance. Stock certificate, as a rule, is issued only if the subscription is fully paid.

Question 35

The ordinary stock of a corporation which entitles the holder to a pro rata division of the dividends, without
any preference or advantage over any other stockholders

Answer 35

Common Stock

Question 36

one which entitles the holder to certain preferences over other shareholders. Such preferences may be as follows:
(a) Preferred stock as to asset
(b) Preferred as to dividends

Answer 36

Preferred stock

Question 37

One which entitles the holder to preference in the distribution of dividends over common stock upon the liquidation of the corporation.

Answer 37

Preferred stock as to asset

Question 38

One that entitles the holder to preference in the distribution of dividends over common stock

Answer 38

Preferred as to dividends

Question 39

One the nominal value of which appears on the articles of incorporation and on the stock certificate.

Answer 39

Par value stock

Question 40

One without any nominal or par value appearing in the articles of incorporation or on the stock certificate.

Answer 40

No Par value stock

Question 41

Those which grant the issuing corporation the power to redeem or purchase after a certain period.

Answer 41

Redeemable shares

Question 42

Those entitled to vote in the meetings of the corporation

Answer 42

Voting shares

Question 43

Those without voting rights, except in certain cases.

Answer 43

Non-voting shares

Question 44

Those that grant to the founders certain rights and privileges not enjoyed by other shares.

Answer 44

Founders’ Shares

Question 45

Rules on Founders Shares may be given rights and privileges not enjoyed by other shares subject to the following limitations:

Answer 45

1. If the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not exceeding 5 years subject to the approval of the SEC.
2. The five-year period begins from the approval of SEC.

Question 46

T or F. Founders shares must be classified as such in the articles of incorporation.

Answer 46

T

Question 47

Those 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 47

Treasury Shares

Question 48

Rules of Treasury Shares

Answer 48

a. They shall have no voting rights as long as they remain in the treasury.
b. Although they are part of the subscribed stock, they are not considered outstanding shares.
c. Being owned by the corporation, they are not entitled to dividends.
d. They may again be disposed of for a reasonable price fixed by the board of directors.

Question 49

The following statements are correct except:

a. Where the corporation had previously issued the entire authorized capital stock, it cannot issue additional stock in excess thereof. Where there is an over-issuance, the increase and the certificates issued are void because of the fact that it is beyond the power of the corporation to create and issue the additional stock, and therefore, holders of the certificates, whether they be the original holders or their bona fide transferees, do not become stockholders.

b. Shares of stock cannot be issued by a corporation gratuitously under an agreement that nothing at all shall be paid to the corporation for this would result in the watering of shares.

c. A corporation may issue shares of stock at any price, provided it is not less than par.

d. An agreement between the corporation and subscribers to pay the shares of stock above “par value” but below the “book value” is not valid and is in violation of trust fund doctrine.

Question 50

Consideration for the Issuance of shares

Answer 50

1. cash
2. property
3. previously incurred indebtedness
4. deposit for future subscription
5. outstanding shares of stock
6. uninterested retained earnings to stated capital
7. actual services rendered

Question 51

The following statements are correct, except:

a. The subscribers may in their own personal capacity and acting in good faith, borrow money for payment of their subscriptions. The loan agreement between the borrower and the creditor is a private contract between them of which the corporation is not a party. The moment the borrowed money is contributed and accepted as payment to subscription, the borrower- stockholder cannot, as a matter of right, demand for the return of the borrowed funds invested to answer his liability to the creditor nor can he demand the corporation to pay his debts.

b. Corporations are not restricted from receiving only money/cash in payment of subscription of capital stock. The Corporation Code allows payment in exchange for shares of stock in the form of “property.”

c. Shares of stock may be accepted as capital contributions payment in exchange of shares of stock of a corporation, provided that the same is necessary or convenient in carrying out the corporate business for which the corporation is organized,

d. Shares of stocks can be issued in exchange for future services.

Question 52

Rights of Stockholder

Answer 52

1. right to vote un the election of the board
2. right to be voted
3. right to cote in corporate acts
4. pre-emptive right/stock rights offerings
5. right of first refusal
6. right to receive dividends
7. right to insoect corporate books
8. appraisal right
9. right to dispose, designate proxy, voting trust agreement
10. derivative suit

Question 53

General Rule Voting

Answer 53

• For stock corporations, no share may be deprived of voting rights, except those classified and issued as “preferred” or ‘redeemable” shares, provided that there shall always be a class of shares or series of shares which have complete voting rights.

• Each share of stock is entitled to vote, unless denied in the articles of incorporation or declared delinquent under Section 67 of the Corporation Code.

• Only stockholders of record as of date fixed in the by-laws shall enjoy the right to vote at stockholders’ meeting.

• The stock and transfer book is the best evidence to establish the stockholders who are entitled to vote at stockholders’ meeting

• The right to vote is a stockholder’s most basic and fundamental right inherent in and incidental to the ownership of corporate shares of stock. This right should not be denied on tenuous and shallow grounds.

Question 54

Section 71 of the Corporation Code

Answer 54

Delinquent shares

Question 55

T or F. the moment a stock becomes delinquent, the holder thereof loses his right to vote.

Answer 55

T

Question 56

T or F. no delinquent stock for unpaid subscription shall not be voted or entitled to vote or represented at any stockholders’ meeting. Neither can he be voted for as
director of the corporation, nor continue seating in the board if he has been previously elected as member thereof.

Answer 56

F. no delinquent stock for unpaid subscription SHALL BE voted or entitled to vote or represented at any stockholders’ meeting. Neither can he be voted for as director of the corporation, nor continue seating in the board if he has beenpreviously elected as member thereof.

Question 57

T or F. In case of pledged or mortgaged shares in stock corporations, the pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders, unless the pledgee or mortgagee is expressly given by the pledgor or mortgagor such right in writing which is recorded in the appropriate corporate books.

Answer 57

T

Question 58

On the death of a shareholder, his __________ or ___________ becomes vested with the legal title to his stocks and entitled to vote the same at all meetings and that until a settlement and division of the estate is done, the legal title to the stocks of the deceased belongs to said _______ or _________ as his personal representative.

Answer 58

executor or administrator

Question 59

T or F. (Administrators/executors/receivers/or
other legal representatives) This finds support under Section 55 of the Corporation Code which provides
that the administrator of the estate of the deceased duly appointed by the court may attend and vote in behalf of the stockholders or members with a support of a written proxy.

Answer 59

F. This finds support under Section 55 of the Corporation Code which provides that the administrator of the estate of the deceased duly appointed by the court may attend and vote in behalf of the stockholders or members WITHOUT need of any written proxy.

Question 60

T or F. Corporate Stockholders: Shares standing in the name of another corporation may be voted by such officer, agent, or proxy as the by-laws may prescribe, or in the absence of a by-law provision, as its board of directors may determine. In the absence of a provision in the by-laws, the board of directors may authorize the stockholders to vote for said shares.

Answer 60

T

Question 61

T or F. Corporate Stockholders: It is the sole prerogative and discretion of the board of directors of the parent or holding corporation to choose its nominees in the board of directors of its subsidiaries and other corporations of which it is a stockholder; whose acts shall be under the ultimate direction of the board of directors of the appointing corporation, and the stockholders can demand, as a matter of right, for proportionate representation.

Answer 61

F. It is the sole prerogative and discretion of the board of directors of the parent or holding corporation to choose its nominees in the board of directors of its subsidiaries and other corporations of which it is a stockholder; whose acts shall be under the ultimate direction of the board of directors of the appointing corporation, and the stockholders CANNOT demand, as a matter of right, for proportionate representation.

Question 62

T or F. Corporate Stockholders: A corporation, being merely a juridical person, it can only act and contract, as in the appointment of a proxy in the corporation’s behalf, through its board of directors/trustees. Thus, in the case of corporation held stocks, it would be in order to adopt a resolution authorizing the proxy, and to exercise it in a formal corporate manner.

Answer 62

T

Question 63

T or F. Co-Owners: In case of shares of stock owned jointly by two or more persons, in order to vote the same, the consent of all the co-owners is not necessary, unless there is a written proxy, signed by all the co-owners, authorizing one or some of them or any other person to vote such share or shares: Provided, That when the shares are owned in an “and/or” capacity by the holders thereof, any one of the joint owners can vote said shares or appoint a proxy therefor.

Answer 63

F. In case of shares of stock owned jointly by two or more persons, in order to vote the same, the consent of all the co-owners SHALL BE necessary, unless there is a written proxy, signed by all the co-owners, authorizing one or some of them or any other person to vote such share or shares: Provided, That when the shares are owned in an “and/or” capacity by the holders thereof, any one of the joint owners
can vote said shares or appoint a proxy therefor.

Question 64

T or F. Co-Owners: The right to vote a co-owned share covered by a conjunctive “and/and” in the stock certificate may be exercised by both or all or any of the co-owners.

Answer 64

F. The right to vote a co-owned share covered by a conjunctive “AND/OR” in the stock certificate may be exercised by both or all or any of the co-owners.

Question 65

Trustee of voting trust agreements:

One or more stockholders of a stock corporation may create a voting trust for the purpose of ________________________________ for a period not exceeding _________ at any time: Provided, that in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding five (5) years but shall automatically expire upon full payment of the loan. The voting trustee or trustees may vote by proxy unless the agreement provides otherwise.

Answer 65

Purpose: conferring upon a trustee the right to vote and other rights pertaining to the shares

Period: five(5) years

Question 66

refers to the right granted to the stockholders to have the first option to subscribe to any issuance or disposition of shares from the capital stock in proportion to their respective shareholdings in the corporation.

Answer 66

Pre-emptive right

Question 67

T or F. Pre-emptive right; Who are entitled: Subscription deposits are included in determining the proportionate right of the stockholders in the exercise of pre-emptive right.

Answer 67

F. Subscription deposits are NOT included in determining the proportionate right of the stockholders in the exercise of pre-emptive right.

Question 68

T or F. Pre-emptive right; Who are entitled: A board resolution limiting the subscription of existing stockholders to a certain number of shares in additional issuances of shares is not enforceable. Unless denied in the articles of incorporation, the existing stockholders of record are entitled to exercise their pre-emptive right to subscribe to all issuances of shares of stock of the corporation in proportion to their present stockholdings.

Answer 68

T

Question 69

All stockholders whose name appear in the stock and transfer book of the corporation on the date of the meeting authorizing the issuance of shares are entitled to the pre emptive right under ______________ of the Corporation Code.

Answer 69

Section 39

Question 70

T or F. Right of First Refusal: In order to be valid and enforceable, any restriction on the transfer of shares requiring the transferor to first offer the same to the existing stockholders before selling it to third parties, must be explicitly provided for in the articles of incorporation and stock certificate.

Answer 70

T

Question 71

T or F. Right of First Refusal: Restrictions on transfer cannot be more oppressive than granting the existing stockholders or the corporation the option to purchase the shares of the selling stockholders under reasonable terms and conditions or period stated therein.

Answer 71

T

Question 72

T or F. Right of First Refusal: In the absence of an express provision in the articles of incorporation and stock certificate stating that the transfer of issued shares should be offered to the new stockholders, the transferor may legally dispose of or sell his shares to anybody without the need of a waiver from the remaining stockholders.

Answer 72

F. In the absence of an express provision in the articles of incorporation and stock certificate stating that the transfer of issued shares should be offered to the EXISTING stockholders, the transferor may legally dispose of or sell his shares to anybody without the need of a waiver from the remaining stockholders.

Question 73

T or F. Right of First Refusal: A provision in the articles of incorporation giving the stockholders the right of first refusal in case of sale of stock does not apply to transfer by donation.

Answer 73

T

Question 74

T or F. Appraisal right is not an inherent right of a stockholder, or a matter of absolute right, otherwise, a stockholder can easily withdraw from the corporation at anytime he desires by returning his shares and getting back his capital. Such would constitute a violation of the trust fund doctrine.

Answer 74

T

Question 75

allowed only under the instances provided in the Corporation Code, particularly in Section 37, 42, 81, and 105, the exercise of which is subject to the conditions prescribed therein. However, as a remedy in case an _______________ is not allowed, a stockholder may avail of Section 63 of the Corporation Code which allows transfer of ownership of shares.

Answer 75

appraisal right

Question 76

How appraisal right is exercised?

Answer 76

The conditions for the valid exercise of stockholders’ appraisal right may be summed-up as follows:

a. Any of the instances set forth by the law for the exercise of appraisal right by a dissenting stockholder must be present.

b. The dissenting stockholder must have voted against the proposed corporate action.

c. The demand for payment must be made by the dissenting stockholder within thirty (30) days from the date a vote is taken thereon. Failure to make such demand within such period shall be deemed a waiver of the appraisal right.

d. The price of the shares must be based on the fair value as of the day prior to the date on which the vote was taken;
and the fair value must be determined in accordance with the procedure set forth in Section 82.

e. Submission of the withdrawing stockholder of his shares to the corporation for notation of being a dissenting
stockholder within ten (10) days from written demand

f. Payment of shares must be made only when thecorporation has unrestricted retained earnings in its. books to cover such payment

g. Upon such payment by the corporation, the stockholder must transfer his shares to the corporation.

Question 77

If all the conditions have been complied with, all the rights accruing to such shares, including voting and dividend rights, shall be suspended, except the right of such stockholder to receive payment of the fair value thereof; Provided, That if the dissenting stockholder is not paid the value of his shares within ___________ after the award, his voting and dividend rights shall immediately be restored.

Answer 77

thirty (30) days (appraisal right)

Question 78

T or F. If the corporation unjustifiably refuses to pay the dissenting stockholder, despite the full compliance with the requirements for the valid exercise of appraisal right and the fact that the corporation has sufficient unrestricted retained earnings, the aggrieved stockholder may file the appropriate action before the proper Regional Trial Court of general jurisdiction.

Answer 78

T

Question 79

refers to corporate profits allocated, lawfully declared and ordered by the directors to be paid to the stockholders on
demand or at a fixed time.

Answer 79

dividend

Question 80

When a corporation earns profit over and above the amount of its capital, the stockholders are entitled to have a share in such profit in proportion to their shareholdings, and the fund set apart for this purpose is called dividends.

Answer 80

Right to dividends

Question 81

Dividends must be declared and paid out of the ________________________ of the corporation.

Answer 81

“unrestricted retained earnings”

Question 82

the accumulated profits realized out of normal and continuous operations of the business. It refers to the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt.

Answer 82

retained earnings

Question 83

T or F. Sources of dividends: Retained earnings which are not appropriated for designated purposes (such as expansion, possible future loss and other contingencies or when prohibited under a loan agreement) are what are referred to as “unrestricted retained earnings” from which dividends can be legally paid.

Answer 83

T

Question 84

The right to receive dividends is inherent in the ownership of shares, hence, only ____________________ are entitled thereto. A person who is not a _____________ cannot be a recipient of a dividend.

Answer 84

stockholders of record

Question 85

A ______________ , for purposes of determining who are entitled to dividends, is the future date specified in the resolution declaring dividends, that the dividend shall be payable to the stockholders of record on a specified future date or as of the date of meeting declaring said dividend.

Answer 85

record date

Question 86

The general rule for determining the person to whom a dividend is payable in the absence of a record date is that it belongs to the person who is recorded in the ________________ as __________ at the time of the ____________.

Answer 86

corporate books; stockholder; declaration

Question 87

Features of Dividends

Answer 87

1. Guaranteed
2. cumulative
3. participatory
4. non-cumulative and non-participatory

Question 88

payment of dividends is guaranteed

Answer 88

Guaranteed

Question 89

entitle the holder thereof to payment of current dividends as well as dividends in arrears

Answer 89

Cumulative

Question 90

entitle the holder thereof only to the payment of current and not past dividends

Answer 90

non-cumulative

Question 91

entitle the holder thereof to participate with the holders of common shares after their preferred right has been satisfied

Answer 91

Participating

Question 92

entitle the holder thereof to payment of the stipulated preferred dividends and no more

Answer 92

Non-participating

Question 93

entitle the holder thereof to payment of dividends in arrears and also, after receiving his preferred share of dividends, to participate with the holders of common stock in the remaining profits.

Answer 93

Cumulative-participating

Question 94

Post Incorporation Applications relative to equities/shares of stock

Answer 94

1. amended articles and by-laws
2. increase of authorized capital stock
3. decrease of authorized capital stock
4. stock split and reverse split
5. reclassification/conversion of shares

Question 95

Right to vote in corporate acts: Votes required for the compensation of the board

Answer 95

• MAJORITY OF THE BOARD AND
• STOCKHOLDERS REPRESENTING 2/3 OF THE OUTSTANDING CAPITAL STOCK

Question 96

Right to vote in corporate acts: Votes required for amended articles of incorporation

Answer 96

• MAJORITY VOTE OF THE BOARD AND
• STOCKHOLDERS REPRESENTING 2/3 OF THE OUTSTANDING CAPITAL STOCK

Question 97

Right to vote in corporate acts: Votes required for amded by-laws

Answer 97

• MAJORITY VOTE OF THE BOARD AND
• STOCKHOLDERS REPRESENTING MAJORITY OF THE OUTSTANDING CAPITAL STOCK

Question 98

Right to vote in corporate acts: VOtes required to remove a member of the board

Answer 98

• STOCKHOLDERS REPRESENTING 2/3 OF THE OUTSTANDING CAPITAL STOCK

Question 99

Securities

Answer 99

(a) Shares of stock, Bonds,Debentures, Notes, Evidence of Indebtedness, Asset-backed Securities;

(b) Investment Contracts, Certificate of Interest or Participation in a Profit Sharing Agreement, Certificate of Deposit for Future Subscription

(c) Fractional Undivided Interest in Oil, Gas or other Mineral
Rights;

(d) Derivatives (Option or Warrants);

(e) Certificate of Assignments; Certificate of Participation, Trust Certificates, Voting Trust Certificates or similar instruments;

(f) Proprietary or Non- proprietary membership Certificates in corporations; and

(g) Other instruments as may in the future be determined by the Commission.

Question 100

Sale of Securities
/Private Placement - sale to _________
/Public Offer– sale to ________ (generally)

Answer 100

Private: 19 or less
Public: >19 buyers

Question 101

Public offer is done through:

Answer 101

• publication in any newspaper, magazine or printed reading material which is distributed in the Philippines;
• presentation in a public or commercial place;
• advertisement or announcement on radio, TV, telephone, electronic communications, information communication technology or any other forms of communication;
•Distribution and/or making available flyers, brochures or any offering material in a public or commercial place or to prospective purchasers through the postal system, information communication technology and other means of information distribution

Question 102

Types of Offerings

Answer 102

1. Primary
2. Secondary
3. Follow-on (stock rights offering)

Question 103

Initial Public Offering (IPO)

Answer 103

Primary

Question 104

sale of previously owned securities

Answer 104

Secondary

Question 105

new shares are issued out of the capital stock of the company and are being offered to the existing shareholders who have pre-emptive rights.

Answer 105

Follow-on – (Stock Rights Offering)

Question 106

What LAW regulates the offer/sale of securities in the
Philippines?

Answer 106

Securities Regulation Code (R.A. 8799 )
* SECTION 8. Requirement of Registration of Securities.
* Rule 8.3 of the 2015 IRR (Written Communications Not Deemed Offer for Sale)
* SECTION 12. Procedure for Registration of Securities

Question 107

Securities shall not be sold or offered for sale or distribution within the Philippines, without the registration statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser.

Answer 107

SECTION 8. Requirement of Registration of Securities.

Question 108

Rule 8.3 of the 2015 IRR (Written Communications Not Deemed Offer for Sale)

8.3.1. A notice, circular, advertisement, letter or other forms of communication do not constitute an offer for sale that violates Section 8 of the Code if it is published or transmitted to any person:

Answer 108

i) AFTER the RS has been FILED; and
ii) Contains the following information:

1.Name of the Issuer
2.Full title of the Security and Amount being offered
3.Brief indication of the general type of business of the Issuer
4. Price of the Security
5. If Debt Securities with Fixed Interest provision, the yield
6. Name and address of the sender of the communication and the fact that he is participating or expects to participate
7. Names of the Underwriters
8. Approximate date when the proposed sale to the public is to commence
9. Whether the security is being offered through rights issued to existing security holders
10. With respect to any class d debt securities, any class of
convertible debt securities of any class of preferred stock, the security rating or ratings assigned to the class of securities by any CRA and name of CRA

11. For preliminary prospectus, the following statement in
    bold face:
    A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSIN, BUT HASNOTYET BECOME EFFECTIVE, THESE SECURITIES MAY NOT BE SOLD NOR OFFERS TO BUY THEM BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT IS RENDERED EFFECTIVE. THIS COMMUNICATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR BE CONSIDERED A SOLICITATION TO BUY
12. Statement whether the security is being offered in
    connection with a distribution by the Issuer or a security
    holder, or both, and whether the issue represents new
    financing or refinancing or both
13. Name[s] and address of the person[s] from whom a
    prospectus that meets the requirements of Sec. 12 may be
    obtained

Question 109

All securities required to be registered under Subsection 8.1 shall be registered through the filing by the issuer in the main office of the Commission, a sworn registration statement with respect to such securities, in such form and containing such information and documents as the Commission shall prescribe. The registration statement shall include any prospectus required or permitted to be delivered under Subsections 8.2, 8.3 and 8.4.

Answer 109

SECTION 12. Procedure for Registration of Securities.