1 | Corporation Law Magne1. What is a corporation? 2. What are a corporation’s attributes? Explain 3. What is the Grandfather rule? 4. Explain the doctrine of piercing the veil of corporate entity? 5. What are the obligations of Directors, Officers of a corporation? 6. What are the circumstances that may be considered to justify the application of the doctrine to make the parent corporation liable for the obligations of its subsidiary? 7. Is ownership of substantial portion of the outstanding capital in a corporation enough justification to apply the doctrine? 8. What are the elements that must be present to justify the piercing of the veil of corporate fiction on the ground that the corporation is a mere alter ego? 9. Explain the right of succession? 10. Distinguish the following: a. De Jure Corporation vs. De Facto Corporation b. Stock Corporation vs. Non-stock c. Corporation vs. Partnership 11. A corporation was created by a special law. Later, the law creating it was declared invalid. May such corporation claim to be a de facto corporation? 12. Mamuhunan was invited by his friends to invest in A Corp., a newly organized firm engaged in money market financing operation. Because of his heavy investments, Mamuhunan became the firm’s president and, as such, purchased a big number of computers, typewriters and other equipment from Taktak Corp. on instalment basis. A Corp. paid the downpayment and Taktak Corp. issued the corresponding receipt. To his chagrin, Mamuhunan discovered that the Articles of Incorporation had not been filed by his friends on that date so he hurriedly attended to the matter. No sooner had the Certificate of Incorporation been issued by the SEC, A Corp. became bankcrupt after three months. Upon being sued by Taktak Corp. in his personal capacity, Mamuhunan raised among its defences the doctrines of de facto corporations and corporations by estoppel. Can the two defences be validly raised? 13. Explain who are the following: a. Incorporators b. Corporators c. Stockholders and Members d. Directors and Trustees e. Corporate Officers f. Promoter 14. Can all the stockholders in a corporation be foreigners? 15. What are the fully or partly nationalized corporations? 16. What industries are not allowed to have foreign stockholders? 17. What corporate name cannot be used? 18. What is the importance/significance of the principal place of business stated in the Articles of Incorporation? 19. What is the maximum term of a corporation? Can it be extended? 20. Determine the following terms: a. Authorized capital stock b. Subscribed capital stock c. Paid-up capital d. Outstanding capital e. Capital 21. The Articles of Incorporation to be registered in the SEC contained the following provisions: A) “First Article. The name of the corporation shall be Toho Marketing Company.” B) “Third Article. The principal office of the corporation shall be located in Region III, in such municipality therein 2 | Corporation Law Magne as its Board of Directors may designate.” C) “Seventh Article. The capital stock of the corporation is One Million Pesos (P1,000,000.00), Philippine Currency.” What are your comments and suggested changes to the proposed articles? 22. How can the Articles of Incorporation be amended? 23. When can SEC suspend or cancel certificate of registration? 24. What is a by-law and it’s valid requisites? 25. What is the binding effect of the provisions of the by-laws? 26. What are the kinds of powers of a corporation? 27. What is ultra vires? 28. Who may exercise the powers of the corporation? 29. IAI Inc. (IAI) by a stock purchase agreement sold to AI Inc (AI) for the sum of P19.5M all its outstanding shares of stocks in “F” Corp. The agreement was signed by LG and JV, presidents of IAI and AI respectively. IAI expressly warranted in the agreement that the networth of “F” Corp. is P12M. IAI agreed that if the networth is less than P12M, IAI will pay AI the deficiency. AI paid IAI P12M and retained the amount of P7.5M to answer for any deficiency in the net worth. Instead of reflecting a net worth, it turned out that “F” had a deficiency of P1.2M. Hence, IAI is obligated to reimburse AI the amount of P13.2M (P12M plus the deficiency of P1.2M). However, considering that AI retained P7.5M, the balance to be reimbursed is only P5.2M. Later, LG, the president of IAI proposed in writing that AI’s claim for refund be reduced to P4.09M but he promised to pay the costs of certain superstructures in behalf of AI. AI accepted the proposal. Later IAI’s Board refused to implement the accepted proposal on the ground that while the board authorized LG to purchase the shares, it did not authorize LG to make the last proposal. Is the position of IAI’s Board tenable? 30. In what instances is concurrence of the stockholders necessary for the exercise of the powers of the corporations? 31. What are the instances when corporation may acquire its own shares? 32. Can the board be compelled to declare dividends every year? 33. What is the trust fund doctrine? 34. What can be included in unrestricted retained earning? 35. What items cannot be used for dividend distribution? 36. Can gain from sale of real property be considered part of unrestricted retained earnings? 37. Can treasury shares be distributed by way of dividends? 38. What are the requisites of a sale of all or substantially all properties? 39. X corporation is engaged in selling pencils on wholesale basis. It is merely renting a bodega and 90% of its assets consists of its stocks of pencil. “A”, a school supply dealer, purchased all the stocks of X Corp. Is the transaction a sale of substantially all of the assets of the corporation requiring concurrence of stockholders representing 2/3 of the outstanding capital stock? 40. AA Corporation is engaged in the business of printing books. Around 70 of its assets consists of cash in the bank, 25% printing machine and the remaining office equipment and supplies. AA Corporation plans to sell the machine. Can it be considered sale od substantially all of the assets of the corporation? 41. What are the ways of increasing and decreasing the capital stock? 42. What are the qualifications of directors? 43. What is the business judgement rule? 44. What is the doctrine of corporate opportunity? 45. Who is an interlocking director? 46. Are corporate agents such as directors, trustees or officers of a corporation solidarily liable with the corporation they represent? 47. Answer the following: a. Who are self-dealing directors/trustees/officers? b. What are the rules when there is a self-dealing director/trustee/officer in a corporation? 48. Who are the corporate officers of a corporation? 3 | Corporation Law Magne 49. Is service of summons on a secretary of the president of a domestic private corporation binding on the corporation? 50. “A”, as owner of a certain number of shares of stock in X Corporation, entered into a voting trust agreement with B. On the basis of the voting trust agreement, B announced his desire to run for a seat in the board of directors of X Corporation. C, another stockholder, objected and questioned the eligibility of B to be a director of X Corporation. Is C’s contention correct? Why? 51. Who can appoint and remove the officers of the corporation? 52. FLAD Corporation was originally with an authorized capital stock of P500,000.00 shares with the members of the “T” family owning P450,200.00 shares representing the outstanding capital. The “T” family invited members of the “O” family to invest in FLADC as stockholders necessitating an increase of the authorized capital stock to give each group equal(50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. Pursuant to the said subscription agreement, the authorized capital stock was thus increased from P500,000.00 shares to P2,000,000.00 shares with a par value of P100.00 each, with the “O” family subscribing to P1,000,000.00 shares and the “T” to P549,800.00 more shares in addition to their P450,200.00 shares to complete P1,000,000.00 shares. The Pre-Subscription Agreement likewise provides that the “T” family shall nominate the Vice-President and Treasurer and five directors while the “O” Family is supposed to manage the mall owned by FLADC. Later, alleging non-compliance with the obligation under the agreement(the members of the “T” family were allegedly prevented from acting as Vice-President and Treasurer), the “T” family filed an action for rescission of the Pre-Subscription Agreement and asked for the liquidation of the assets of FLADC. Will the action prosper? Explain. 53. How does one become a shareholder in a corporation? 54. What is an underwriting agreement? 55. What is the doctrine of individuality and indivisibility of subscription? 56. Distinguish share of stock from certificate of stock. 57. What is your understanding of “treasury shares”? Are said shares considered: (a) issued; (b) fully paid (c) outstanding (d) entitled to dividends? (e) may such shares be distributed to the stockholders by way of dividends? If yes, how would you classify the dividend – cash or stock dividend? 58. What are the instances when non-voting shares may vote? 59. What are the limitations on the issuance of “no par value” shares? 60. What is the doctrine of equality of shares? 61. What are watered stocks? 62. What is a certificate of stock? 63. When certificate of stock may be issued? 64. How are shares of stocks transferred? 65. May a stockholder bring suit to compel the corporate secretary to register valid transfer of stocks? To be valid and binding on the corporation and third parties, is the attachment or mortgage of shares of stock required to be registered in the corporation’s stock and transfer books? 66. FG is an incorporator of VC Corporation having subscribed to and fully paid 239,500 shares. However no certificate of stock was issued to FG. In 1968, VCP and FG signed a document entitled “Undertaking and Indorsement” which states: “UNDERTAKING: I, VCP, is the owner of the total subscription of FG with VC Corporation in the amount of TWO HUNDRED THIRTY-NINE THOUSAND FIVE HUNDRED(P239,500.00) PESOS and that FG does not have any liability whatsoever on the subscription agreement in favour of VC Corporation. (SGD) VCP, CONFORME: (SGD) FG. INDORSEMENT: I, FG is indorsing the total amount of TWO HUNDRED THIRTY-NINE THOUSAND FIVE HUNDRED(P239,500.00) stocks of VC Corporation to VCP. (SGD) FG a. However, FG remains to be the stockholder in the books of the corporation and it is undisputed that VCP had not made a request upon the corporate secretary of VC Corporation to record the alleged transfer of stocks. In 1996, VCP made a demand for the issuance of certificates of stock in his name. The demand was denied and VCP filed petition for mandamus for the issuance of the certificates. Will the action prosper? 4 | Corporation Law Magne b. In the problem above, VCP argued that it is precisely the duty of the corporate secretary, when presented with the document of fully paid shares, to effect the transfer by recording the transfer in the stock and transfer book and to issue stock certificates in the name of the transferee. Is the contention tenable? c. Assume that VCP can validly file the petition for mandamus. Can such petition be dismissed on the ground of prescription considering that it was filed only 24 years after the execution of the undertaking and indorsement? 67. What are the basic rights of shareholders? 68. What are the obligations of a stockholder? 69. What is a derivative action and it’s requisites? 70. What is a pre-emptive right? 71. Explain the appraisal right and where it may be exercised? 72. What are the remedies of corporations to enforce payment of stocks? 73. What does the term unpaid claim mean(for purposes of declaring the shareholder delinquent)? 74. What is the procedure for collection and delinquency sale? 75. What are the effects of stock delinquency? 76. What books are required to be maintained by the corporation? 77. What is the probative value of the stock and transfer book? 78. What are the requirements for the exercise of the right of inspection? 79. Distinguish a. Merger from Consolidation b. Estoppel from subsequent compliance 80. What is the effect of non-use of corporate charter and continuous inoperation of Corporation? 81. In the articles of incorporation of T Corporation, eleven members were named to constitute the board of directors. These eleven elected from among themselves a secretary-treasurer but did not elect a president. The board used to hold meetings to transact business, which was done through the secretary-treasurer. In a proceeding to forfeit its charter, the question was posed as to whether the corporation may be considered to have formally organized. Resolve the question. 82. How may a corporation dissolve? And what are the modes of dissolution? What are the effects? 83. What is liquidation? 84. What constitutes “doing business” in the Philippines for foreign corporations? 85. Does an “isolated transaction” by a foreign corporation qualify as “doing business” in the Philippines? 86. Explain the Contract Test of “doing business” in the Philippines 87. What are the requirements for close corporations? 88. Can a non-stock corporation offset unused contributions of members against the balance of receivables from the same members?