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SEC PHASE 1 > SEC PH1: MOD 1 - MOCK TEST > Flashcards

SEC PH1: MOD 1 - MOCK TEST Flashcards

1
Q

A __________________ proprietorship is a type of business organization in which one individual, known as the sole proprietor, owns and operates the business. It is the simplest and most common form of business ownership, and it is often used by small businesses or entrepreneurs who are just starting out.

A

SOLE

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2
Q

A ____________________ is a business owned and operated by two or more individuals or entities. Partnerships are often informal, with no formal structure or organization. Partners share the profits and losses of the business, and each partner has a say in decision-making.

A

PARTNERSHIP

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3
Q

it is also called a Limited Liability Company

A

PARTNERSHIP

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4
Q

right of succession, powers, attribute, properties

A

CORPORATION

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5
Q

artificial being; juridical person; created by law

A

CORPORATION

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6
Q

if a stockholder dies, __________ continues

A

CORPORATION

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7
Q
  • 5-15 natural persons of legal age
  • Residents of PH; grandfather rule 60-40
A

FORMATION OF CORPORATION

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8
Q

▪ at the time of incorporation = at least 25% of ACS = subscribed ▪ 25% of ACS = 25% of that should be PAID upon subscription

A

25-25 rule in Capitalization

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9
Q
  • 25-25 rule
  • Php 5,000 minimum paid up capital
  • Classes of shares
A

Capitalization in Forming a Corporation

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9
Q

What’s the Difference Between Corporator and Incorporator?

A

1) Corporator = Shareholders
2) Incorporator = Original Corporators in the AOI

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10
Q

What are the TYPES OF CAPITAL?

A

1) AUTHORIZED CAPITAL STOCK
2) CAPITAL STOCK
3) PRE-INCORP SUBSCRIPTION
4) SUBSCRIBED CAPITAL STOCK
4.1) PAID-UP CAPITAL STOCK
4.2) ADDITIONAL PAID-IN CAPITAL (SURPLUS)
5) UNSUBSCRIBED/UNISSUED
6) ISSUED CAPITAL
6.1) OUTSTANDING CAPITAL STOCK
6.2) TREASURY SHARES
7) TRUST FUND DOCTRINE

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10
Q

What is the minimum paid up capital?

A

Php 5,000 minimum
*must be evidenced by: TREASURER’S AFFIDAVIT

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11
Q

What are the CLASSES OF SHARES?

A

1) COMMON
2) PREFERRED
3) FOUNDERS OF 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 STOCK

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12
Q

What are the TYPES OF CORP FORMATION?

A

1) STOCK
2) NON-STOCK
3) CLOSE CORP
4) LIMITED LIABILITY CORP
5) PUBLIC / LISTED COMPANY
5) DE JURE
6) DE FACTO

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13
Q

 NO VOTING RIGHTS
 Issued BUT NOT outstanding
 NO DIVIDENDS
 Can be disposed of for a reasonable price
 Reduces capital

A

TREASURY SHARES

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13
Q

COMMON vs PREFERRED?

A

COMMON = Has Voting Rights, Can have both PAR VALUE and NO PAR VALUE

PREFERRED = No Voting Rights, Never No Par Value, Can have Preference over ASSET & DIVIDENDS

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14
Q

Preferred is also called __________________ shares

A

REDEEMABLE

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14
Q

o Stated value
o Cannot be issued for < P5/share
o Authorized capital = authorized # of shares
o Non assessable and deemed fully paid upon issuance

A

No Par Value

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15
Q

redeemed regardless of UNRESTRICTED RETAINED EARNINGS

A

Redeemable shares

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16
Q

 Classified in AOI
 Exclusive right to vote; max period of 5 yrs (subj to SEC approval)
 HAS VOTING RIGHTS

A

FOUNDERS SHARES

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17
Q

Subscribed; paid or unpaid

A

Subscribed Capital Stock

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17
Q

max no. of shares; par value (trust fund doctrine)

A

Authorized Capital Stock

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18
Q

max no. of shares; not par value; authorized shares but not authorized capital stock

A

Capital stock

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19
Q

Subscribed; paid

A

Paid-up Capital Stock

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20
Q

Premium over par value of stock

A

Paid-in surplus

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21
Q

Unsubscribed; unissued

A

Unissued Capital Stock

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22
Q

Issued shares; par value (trust fund doctrine)

A

Issued Capital

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23
Q
  • subscribed capital stock = held in trust for creditors
  • No distribution of assets unless creditors are paid

Except: redeemable/preferred shares

A

Trust Fund Doctrine

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23
Q

Issued; outstanding; subscribed; paid or unpaid

A

Outstanding Capital

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24
Q

Issued; NOT outstanding; subscribed; fully paid

A

Treasury Shares

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25
Q

Pre-Requirement in Forming a Corp

A

ARTICLES OF INCORPORATION

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26
Q

What are the Grounds for Rejection (AOI) ?

A

o Grounds for Rejection:

  1. Failed in proper format
  2. Illegal, immoral purpose
  3. False treasurer’s affidavit
  4. Ownership by citizens
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27
Q

when does a corporation start to exist?

A

UPON ISSUANCE OF SEC CERT

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28
Q

corporation by law; w/in proper confines of law

A

DE JURE

28
Q

corporation by estoppel; no proper form

A

DE FACTO

29
Q

o All issued stocks —- issued to not >20 people
o Subject to >= 1 specified restriction/s on transfer
o Not listed publicly
o Voting stocks must be < 2/3

A

CLOSE CORPORATION

30
Q

o Class of equities – listed in an exchange
o Assets > 50MM
o Holders > 200 (with at least 100 shares of class of its equity securities)

A

PUBLIC COMPANY / LISTED COMPANY

31
Q
  • Perpetual unless AOI provides otherwise
  • OLD: max 50 yrs, extendible by another 50 yrs (cannot be made 5 years before expiration)
A

CORPORATE EXISTENCE

32
Q
  • WITHIN 2 YEARS – no formal organization from date of incorp; deemed dissolved
  • STOPPED OPS FOR 5 CONS YEARS – delinquent; within 2 YEARS resume ops; otherwise revoke certificate
A

UNUSED CORPORATE CHARTER

33
Q

POWERS OF CORPORATION

A
  • To sue and be sued in its corp name
  • Succession
  • Adopt and use a corp seal
  • Amend AOI
  • Adopt By-laws
  • Enter into merger or consolidation
  • Establish pension, retirement, and other plans
  • STOCK CORP (issue stocks subscribers); NONSTOCK (admit members)
  • Purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
  • Make reasonable donations BUT NOT to political activity
34
Q
  • Treasury shares
  • ONLY IF there is unrestricted retained earnings (after all NEEDS have been paid)
  • Scenarios:

o Eliminate fractional shares from stock dividends

o Collect or compromise an indebtedness

o Pay dissenting or withdrawing stockholders

A

ACQUIRE OWN SHARES

35
Q
  • Undistributed profits = part of equity
  • Availability of dividends = unrestricted retained earnings
  • Maximum amount allowed: 100% of CAPITAL STOCK or SHARE CAPITAL
A

RETAINED EARNINGS

36
Q

What are the exceptions in utilizing RETAINED EARNINGS

A

o Corporate expansion
o Loan covenants
o Reserve for contingencies

37
Q
  • Condition needed for incorporation
  • How a corp deals with the public/outsider
A

ARTICLES OF INCORPORATION

38
Q
  • Internal government and operations
  • Not needed to be submitted before incorporation
  • Adoption? Can be filed with AOI or 1 month after receipt of official notice of cert of incorporation
A

BY-LAWS

39
Q

What are the CORPORATE DOCTRINES?

A

1) DOCTRINE OF CORPORATE OPPORTUNITY
2) DOCTRINE OF CORPORATE ENTITY
3) PIERCING VEIL OF CORPORATE FICTION
4) RIGHT OF SUCCESSION
5) ULTRA VIRES DOCTRINE

40
Q
  • aka limited liability company
  • if company violates any law then members cannot be held liable
A

DOCTRINE OF CORPORATE VEIL

41
Q
  • disregarded when used to justify wrong or cover fraud
A

PIERCING THE CORPORATE VEIL

42
Q
  • Continuity of corporate life
  • Regardless of any change in stockholders/members
A

RIGHT OF SUCCESSION

43
Q
  • Beyond authority
  • Corp shall only exercise corp powers granted by the AOI / code
A

ULTRA VIRES ACTS OF A CORP

44
Q
  • opposite of ultra vires
  • within authority
A

intra vires

45
Q
  • Director attempts to acquire for himself a business opportunity which should belong to the corp
  • He must refund the profits to the corporation
A

DOCTRINE OF CORPORATE OPPORTUNITY

46
Q

WHAT ARE THE SPECIFICATIONS ON BEING ELECTED AS A DIRECTOR?

A
  • elected by stockholders
  • 1 year until successors are elected
  • own at least 1 share of stock
  • BAWAL MAGING DIRECTOR:
    o final judgement: > 6 yrs offense
    o committed within 5 yrs prior to appointment
    o person declared as insolvent
    o person elected as ID becomes employee, officer, consultant
    o refusal to comply with disclosure requirements
    o absence in > 50% of all regular and special mtgs
    o dismissal or termination
    o exceeds > 2% of shares
47
Q

WHAT ARE THE SPECIFICATIONS ON BEING ELECTED AS AN INDEPENDENT DIRECTOR?

A
  • independent of management; free from any business
  • not own > 2% of shares; at least 1 share of stock
  • beneficial ownership not > 2%
  • attends at least 50% board mtgs
  • not a director or officer of the covered company/ subs
  • not DOSRI
  • not employed in any executive capacity within last 2 years by the corp
48
Q
  • director
  • can never be a treasurer or secretary
A

PRESIDENT (CEO)

49
Q
  • can be foreigner
  • can also be secretary if PH resident
A

TREASURER (CFO)

50
Q
  • must be a PH resident
A

SECRETARY

51
Q

How to BECOME A STOCKHOLDER

A
  • actual cash
  • property (tangible or intangible)
  • service rendered to corp
  • prev incurred indebtedness of the corp
  • amounts transferred from URE to stated capital
  • outstanding shares exchanged for stocks
52
Q
  • NEVER BECOME CONSIDERATION IN BECOMING A STOCKHOLDER
A
  1. Future service
  2. Promissory notes
  3. Issuance of bonds
53
Q
  • ISSUANCE FOR LESS THAN CONSIDERATION
A

o aka WATERED SHARES
o violation of trust fund doctrine

53
Q

What are the Rights of Shareholders ?

A
  • To vote or be voted into the board
  • Vote in Corporate Acts
  • Right to of first refusal
  • Preemptive Right
  • Right to Inspect Corporate Books and Documents
  • Dispose, designate proxy or voting agreement
  • Receive Dividends
  • Appraisal Right
  • Derivative Suit
54
Q

What are the General Rules on Voting?

A

▪ Shares with voting shares (ordinary, founders)
▪ Delinquent shares, preferred/redeemable – non-voting
▪ Appraised rights – suspended rights except if not paid within 30 days

55
Q

When can non-voting shares vote?

A

(DAAIIIMS)

A = Adoption / Amend By-Laws

56
Q

When does majority of BOD + 2/3 shareholders vote?

A

(DAEIIIMS)

E = Extend/shorten corporate term

57
Q

When does majority 2/3 shareholders vote?

A

(RCBDSM)

▪ R = Remove directors
▪ C = Contracts with director/officer provided reasonable
▪ B = Business opportunity
▪ D = Delegation to BOD of power to amend/repeal/adopt new bylaws
▪ S = Stock dividends
▪ M = Management contract

58
Q

o Stockholders = first option to subscribe to any issuance

o right to maintain % ownership to the corp

A

Preemptive rights

59
Q
  • first offered to existing stockholders before 3rd parties
A

Right of First Refusal

60
Q

Types of Dividends

A

1) ORDINARY
2) CUMULATIVE
3) NON-CUMULATIVE
4) PARTICIPATING
5) NON-PARTICIPATING

61
Q

paid out of UNRESTRICTED RETAINED EARNINGS

A

Dividends

62
Q

guaranteed dividends

A

ORDINARY

63
Q

urrent dividends & dividends in arrears (not given in prior years)

A

CUMULATIVE

64
Q

or preferred shares; right to participate in the divs to ordinary shares

A

PARTICIPATING

65
Q

norm; only current dividends

A

NON-CUMULATIVE

66
Q

entitled to payment of the stipulated preferred dividends

A

NON-PARTICIPATING

67
Q

What is the sequence of dates for dividends?

A

1) DECLARATION DATE
2) EX DATE
3) RECORD DATE
4) PAYMENT DATE

68
Q

first business day = share will trade without its dividend

A

EX DATE

69
Q

receive divs

A

Before ex date

70
Q

will not receive divs

A

After ex date

71
Q

Not an inherent right; only if there is URE, otherwise violation of trust fund doctrine

A

Appraisal Right

72
Q

▪ Extend or shorten corp term
▪ Invest corp funds in another corp
▪ Amendment to AOI
▪ Sale, lease, exchange, transfer, mortgage, pledge
▪ Withdrawal of stockholder or dissolution of corp

A

GROUNDS FOR APPRAISAL RIGHT

73
Q

SEQUENCE OF PAYMENTS DURING VOLUNTARY CORPORATE DISSOLUTION

A
  1. Secured creditors
  2. Employees – priority creditors
  3. Suppliers
  4. Government
  5. Unsecured external creditors
  6. Shareholders
74
Q

During Dissolution – can continue to exist for 3 YEARS – settle affairs
TRUE OR FALSE

A

TRUE

75
Q

How To Raise Capital?

(DEBT SECURITIES)

A
  • issuer borrows MONEY, investor lends money (ACQUIRES CLAIM)
  • income stream: fixed
  • debtor: ranks above shareholders in cases of dissolution
  • short-term: overnight to 1 yr (TD, T-bills)
  • long-term: >1 yr (FXTNs, ROPs)
76
Q

How To Raise Capital?

(EQUITY SECURITIES)

A
  • issuer issues SHARES, investor lends money (OWNER)
  • income stream: variable (dividend is not guaranteed)
  • shareholder: receive dividend only after all other claims on the company have been met
  • indefinite tenors

SEC PHASE 1 (3 decks)

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