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Corporation Reviewer
Corporation Reviewer
Sources: Law on Partnerships and Private Corporations by H.S. De Leon (2005 Edition)
Notes in Business Law by F.R. Soriano (2011 Edition)
Chan Robles Virtual Law Library (http://www.chanrobles.com/legal5cc.htm)
Corporation Law (http://www.angelfire.com/me4/francute/corplaw.htm)
Corporation defined. A corporation is an artificial being created by operation of law, having the right of succession and
the powers, attributes and properties expressly authorized by law or incident to its existence.
Classification of Corporations
1. Stock Corporation. Corporations which have capital stock divided into shares and are authorized to distribute to
the holders of shares dividends or allotments of the surplus profits on the basis of the shares.
2. Non Stock Corporation. Corporations where no part of its income is distributable as dividends to its members,
trustees or officers.
7. Public Corporation. One that is organized for the government of a portion of the State [ex. Caloocan City]
8. Private Corporation. One that is formed for a private purpose. [ex. San Miguel Corporation]
9. Ecclesiastical Corporation. One formed for a religious purpose [ex. Iglesiani Cristo]
10. Lay Corporation. One formed for a purpose other than religious.
13. De Jure Corporation. One that has been created in strict compliance with all the legal requirements of the law.
14. De Facto Corporation. One that is defectively created but there is an exercise of corporate rights and franchise
resulting from an attempt in good faith to incorporate on the part of its partners.
15. Parent Corporation. One who owns shares of another corporation and having power (control) over the latter
including the election of officers thereof.
16. Subsidiary Corporation. One whose shares are owned by another corporation.
17. Close Corporation. One whose shares is limited to a few people and not listed in any stock exchange.
18. Open Corporation. One whose shares are offered to public and is listed to any stock exchange.
19. Corporation by Prescription. One who has exercised corporate powers for such a length of time without
interference by the State.
20. Corporation by Estoppel. One which is in reality not a corporation but is considered as one with respect to those
who are precluded by their admission from denying its existence.
Corporations may be also formed by virtue of special laws or charters, and shall be governed primarily by the provisions
applicable to them.
Examples: Social Security System (SSS), a government-owned and controlled corporation is formed by
virtue by Republic Act 1161 (Social Security Law), and as amended by Republic Act 8282 (Social
Security Act of 1997), and is not covered by the Corporation Code of the Philippines
Components of a Corporation
1. Corporators. Those who comprise thecorporation, including stockholders, members, incorporators, et cetera.
2. Incorporators. Those stockholders or members mentioned in the articles of incorporation as originally forming and
composing the corporation and who are signatories thereof.
3. Stockholders. Corporators of a stock corporation.
4. Members. Corporators of a non-stock corporation.
5. Promoters. A person (juridical or natural) who usually discovers a prospective business and brings persons
interested to invest in it through formation of a corporation.
Example Problem:
The articles of incorporation of Pol Corporation provide for an authorized capital stock of PHP 10,000,000 divided into
10,000 shares each. At the time of incorporation, 25% of the authorized capital stock was subscribed of which 25% was
paid.
Find for:
1. Authorized capital stock – PHP 10,000,000
2. Subscribed capital stock – PHP 2,500,000 (10M x 25%)
3. Outstanding capital stock – PHP 2,500,000
4. Unissued capital stock – PHP 7,500,000 (10M – 2.5M)
5. Paid up capital stock – PHP 625,000 (10M x 25% x 25%)
6. Legal capital – PHP 2,500,000
Shares of Stock.One of the units into which the capital stock of the corporation is divided.
Stock Certificate.Written acknowledgement by the corporation of the stockholder’s interest in the corporation.
Par Value Stock. Nominal value of which appears to the stock certificate.
No Par Value Stock. One without any nominal or par value appearing of stock certificates
Book Value is arrived by dividing the net value of the total corporate assets, meaning the capital in the surplus, dividing
that by the number of shares issued or outstanding.
Redeemable Shares.Those which grant the issuing corporation the power to redeem or purchase them after a certain
period.
Founder’s Shares. Those which grant to the founders certain rights and privileges not enjoyed by other shares.
Treasury Shares. Those which have been issued and fully paid for but subsequently reacquired by the issuing corporation
by purchase, redemption, donation, or throught some other lawful means.
Watered Shares. Those issued without compensation or with no adequate consideration.
Voting Shares. Those entitled to vote in the meetings of the corporation.
Non-voting Shares.Those without voting rights, except in certain cases.
Steps in Incorporation
1. Verification with SEC of the name to be used. No corporate name shall be allowed if the proposed name is:
a. Identical or deceptively similar to any existing corporation or any other name protected by law
b. Patently deceptive, confusing or contrary to existing laws.
2. Drafting and execution of articles of incorporation signed by the incorporators.
1. The contracts between a corporation and third persons must be made by or under the authority of its
a. Board of directors
b. Stockholders
c. President
d. General manager
3. Statement 1: Treasury shares have no right to vote in the meetings of the corporation
Statement 2: The Board of Trustees is the body which controls the corporate affairs of a stock corporation
a. True, True
b. True, False
c. False, True
d. False, False
4. Statement 1: What is the minimum requirement of shares of stock of a certain corporation that must be owned
and controlled by Filipino citizens under the 1987 Constitution?
a. 25%
b. 50%
c. 60%
d. 70%
6. A proposed corporation may be legally incorporated if in relation to its authorized capital stock,
a. 25% of the authorized capital stock shall be subscribed, and 25% thereof should be paid
b. 25% of the authorized capital stock shall be subscribed, and 20% thereof should be paid
c. 20% of the authorized capital stock shall be subscribed, and 25% thereof should be paid
d. 20% of the authorized capital stock shall be subscribed, and 20% thereof should be paid
11. Statement 1: Watered stocks are those which were not issued with adequate consideration.
Statement 2: The outstanding capital stock is the total shares of stock issued and fully paid to the stockholders.
a. True, True
b. True, False
c. False, True
d. False, False
12. Statement 1: The due existence of a de facto corporation may be attacked collaterally in a proceeding
Statement 2: A corporation may be formed for more than one purpose.
a. True, True
b. True, False
c. False, True
d. False, False
13. The articles of incorporation of JoyceCorporation provide for an authorized capital stock of PHP 8,000,000with a
par value of P10.00 per share. At the time of incorporation, 25% of the authorized capital stock was subscribed of
which 25% was paid. How many shares were unissued after the subscription and payment of the stocks?
a. 0
b. 200,000
c. 600,000
d. 800,000
14. The articles of incorporation of Mariz Corporation provide for an authorized capital stock of PHP 5,000,000 with a
par value of P25.00 per share. At the time of incorporation, 25% of the authorized capital stock was subscribed of
which 25% was paid. How many shares were considered part of the paid-in capital?
a. 0
b. 12,500
c. 37,500
d. 50,000
15. These are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing
corporation by purchase, redemption, donation, and through some other lawful means.
a. Voting shares
b. Non-voting shares
c. Founder’s shares
d. Treasury shares
17. Which of the following will not cause the automatic dissolution of a general partnership?
a. Death of a capitalist partner
b. Insolvency of a capitalist partner
c. Insanity of an industrial partner
d. Civil interdiction of an industrial partner
18. The change in the relation of the partners caused by any ceasing to be associated in the carrying on the business
is known as
a. Termination of the partnership
b. Liquidation of the partnership business
c. Dissolution of the partnership
d. Winding up of partnership affairs
19. Statement 1: A limited partner may assign his interest to another person.
Statement 2: As a rule, a limited partner shall be liable as a general partner if he allows the use of his surname to
be included in the partnership name
a. True, True
b. True, False
c. False, True
d. False, False
20. Diana, Audree, Katchiek and Karl have formed a limited partnership. Which of the following situations is incorrect?
a. Diana, a limited partner, contributed land worth PHP 4,000,000.00
b. Audree, also a limited partner, contributed her expertise in accounting into the partnership.
c. The name of Diana and Audree has not been included in the partnership name because they are limited
partners.
d. Katchiek is a general partner and at the same time, a limited partner.
22. If a partner is insolvent, what will be the correct order of the distribution of his individual property?
I. To those owing to partnership creditors
II. To those owing to partners by way of contribution
III. To those owing to his/her separate creditors
a. I, II, III
b. II, I, III
c. II, III, I
d. III, I, II
23. It is the stage where in all the business or affairs of the partnership are completely wound up.
a. Dissolution
b. Winding up
c. Termination
d. None of the above
24. The following are the causes of dissolution without violation of the agreement of the partners. Which of the
following does not belong to the group?
a. By the termination of the definite term or particular undertaking specified in the agreement
b. By the express will of any partner who must act in good faith, when no definite term or particular
undertaking is specified
c. By the expulsion of any partner from the business bonafide in accordance with such a power conferred by
the agreement between partners
d. None of the above
25. Statement 1: A limited partnership is one which has one or more general partners and one or more limited partners
Statement 2: A partnership intended to be formed as a limited partnership but without the word “Limited” or “Ltd.”
appended to its name shall still be considered as a limited partnership.
a. True, True
b. True, False
c. False, True
d. False, False
SUGGESTED ANSWERS WITH EXPLANATIONS: