LAW ON PARTNERSHIP

Multiple Choice Questions

Group #1 (Alfornon - Labrado)
Class No. 3172
1. A contract where to or more persons bind themselves to contribute money, property or industry
to a common fund with the intention of dividing the profits among themselves.
a. corporation
b. partnership
c. sole proprietorship
d. cooperative

Answer B: According to Art. 1767, by the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.

2. Statement 1: Partnership does not acquire personality despite failure to comply with the
requirements of execution of public instrument and registration of name in SEC.
Statement 2: Partnership with immovable property contributed, if without requisite inventory,
signed and attached to public instrument, shall not acquire any juridical personality because the
contract itself is void.
a. Both statements are true
b. Statement 1 is true, Statement 2 is false
c. Statement 1 is false, Statement 2 is true
d. Both statements are false

Answer C: Under Art. 1172, a partnership STILL acquires personality despite failure to comply
with the requirements of execution of public instrument and registration of name in SEC.

3. It is a characteristic element of partnership wherein it does not depend upon some other
contract for its existence/validity.
a. Onerous
b. Consensual
c. Principal
d. Bilateral

Answer C: In article 1767, particularly in characteristic elements of partnership (c) Principal is

defined as a contract of partnership where it does not depend for its existence or validity upon
some other contract. Meanwhile, consensual is defined as perfected by mere consent, upon the
express or implied agreement of members. Moreover, the contract of partnership where each of
the parties aspires to procure a benefit through the giving of something is called Onerous. Lastly,
Bilateral is a contract entered into a two or more parties, the rights and obligations arising
therefrom are always reciprocal.

4. Which of the following applies in determining the existence of partnership?

a. Co-ownership or co-possession does not of itself establish a partnership, whether such co-
ownership or co-possessors do not share any profits made by the use of the property
b. Co-ownership or co-possession does not of itself establish a partnership, whether such co-
ownership or co-possessors do or do not share any profits made by the use of the property
c. Co-ownership or co-possession establish a partnership, whether such co-ownership or co-
possessors do or do not share any profits made by the use of the property
d. Co-ownership or co-possession establish a partnership, when co-ownership or co-possessors
shares any profits made by the use of the property

Answer B: Under Art. 1769. In determining whether a partnership exists, this rule shall apply: Co-
ownership or co-possession DOES NOT OF ITSELF establish a partnership, whether such co-
ownership or co-possessors DO OR DO NOT SHARE any profits made by the use of the property;

5. FIRST: A contract of partnership is both a consensual and nominate but not an onerous
contract.
SECOND: In a partnership, there must be a contribution of money, property or industry to a
common fund. The property may be real, personal and tangible. However, a limited partner cannot
contribute cash or other property but services only.
a. FIRST: FALSE, SECOND: TRUE
b. FIRST: TRUE, SECOND: TRUE
c. FIRST: FALSE, SECOND: FALSE
d. FIRST: TRUE, SECOND: FALSE

Answer C: A contract of partnership is also a nominate contract since it has a special name given
to it by law. (Art. 1767)
Art. 1845 states property that may be contributed may be real or personal, tangible or
INTANGIBLE. Industry may be physical manual efforts or intellectual industry. However, a limited
partner MAY contribute cash or other property, but NOT services.

6. The minimum capital in money or property except when immovable property or real rights
thereto are contributed, that will require the contract of partnership to be in a public instrument
and be registered with the Securities and Exchange Commission (SEC). If the partnership has
the minimum capital mentioned above, but the contract is not in public instrument or not recorded
with SEC, the partnership is:
a. P5000.00, partnership is void
b. P3000.00, partnership still acquires juridical personality
c. P3000.00, partnership is void
d. P3000.00, partnership does not acquire juridical personality

Answer B: Art. 1772. Every contract of partnership having a capital of three thousand pesos or
more, in money or property, shall appear in a public instrument, which must be recorded in the
Office of the Securities and Exchange Commission.

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of
the partnership and the members thereof to third persons.

7. What could be the effect of an unlawful partnership?

a. the profits shall not be confiscated in favor of the government
b. the contract is void ab initio and the partnership still exists in the eyes of the law
c. the profits shall be confiscated in favor of the government
d. the instruments or tools and proceeds of the crime shall not be forfeited

Answer C: A partnership must have a lawful object or purpose, and must be established for the
common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial
decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of
the Penal Code governing the confiscation of the instruments and effects of a crime.

8. A partnership can have an unlawful object or purpose.

a. The statement is false.
b. The statement is true.
c. None of the above.
d. The statement is somewhat true.

Answer A: (Under Article 1770, a partnership must have a lawful object or purpose, and must be
established for the common benefit or interest of the partners. When an unlawful partnership is
discovered by a judicial decree, the profits shall be confiscated in favor of the State, without
prejudice to the provisions of the Penal Code governing the confiscation of the instruments and
effects of a crime.)

9. An unlawful partnership which constitutes a crime procedure which of the following effects?
a. The partnership is void.
b. The proceeds of the crime and instruments or tools through which it was committed shall be
confiscated in favor of the government.
c. The partners will be criminally prosecuted.
d. All of the above.
Answer D: (Under Article 1770, it is stated that when an unlawful partnership constitutes a crime,
the partnership is void, the partners will be criminally prosecuted and the proceeds of the crime
and the instruments or tools with which it was committed shall be forfeited in favor of the
government. Therefore, all are the effects of an unlawful partnership constituting a crime
procedure.)

10. I. A general partnership is the one in which all of the partners are general partners, each of
whom is liable to the extent of their separate properties.
II. Limited partners do not participate in the management of the business, and it does have
personal liability more than the amount of their capital investment for the partnership obligations.
a. Both statements are true.
b. Both statements are false.
c. Statement I is true and statement II is false
d. Statement I is false and statement II is true.

Answer C: (Under Article 1776 the classification of partnership as to the liability of the partners
General Partnership is a partnership in which all of the partners are general partners who are
liable to the extent of their separate properties. Classification of partnership as to the kinds of
partners Under the Civil Code, Limited partners do not participate in the management of the
business and are only liable for the partnership obligations up to the amount of their capital
investment.)

11. SAL Partnership was formed by three colleagues named Sarah, Anna, and Lila. Although
Anna and her husband are on an emergency leave, Sarah and Lila are meeting with their friend
Rose in a cafe to represent Jade that they are all partners in the said partnership. Sarah and Lila
were the only ones who agreed to such representation. As a result, Jade extended credit to Rose.
a. Secret partnership
b. Particular Partnership
c. Partnership by estoppel
d. Partner by estoppel

Answer D: (Classification of partnership as to the kinds of partners Under the Civil Code when
liability to pro-rata not all of the partners of an existing partnership consented to the
representation, then, the liability of the person who represented himself to be a partner or who
consented to his being represented as partner, and all those who made and consented to such
representation, is joint or pro rata. (par.1[2].) Since only Sarah and Lila gave Rose their consent
on the said partnership, and not Anna, Sarah, Lila, and Rose are jointly or pro-rata liable to Jade.)

12. What kind of universal partnership is entered into by the partners if there is no specification
as to its nature?
a. Universal partnership of all present property.
b. Universal partnership of profits.
c. Either of the two at the option of the partners.
d. None, because the partnership is void since there is no meeting of minds among the partners.

Answer B: (Article 1781 provides that, articles of universal partnership, entered into without
specification of its nature, only constitute a universal partnership of profits. This is considering
that the universal partnership of profits is less onerous than universal partnership of all present
properties.)

13. The following are disqualified to form a universal partnership, except:

a. Husband and wife.
b. Man and woman living together as husband and wife without the benefit of marriage.
c. Brother and sister.
d. Those guilty of adultery or concubinage.

Answer C: (Article 1782 states that persons who are prohibited from giving each other any
donation or advantage cannot enter into universal partnership. As such, all of the other choices
mentioned are prohibited to enter into universal partnership. Therefore, not being enumerated
therein, brother and sister are not disqualified in forming a universal partnership.)

14. Smile and Frown entered into a contract of partnership having an initial capital of P650,000.
How much is the contribution of Smile?
a. 320,000
b. 525,000
c. 325,000
d. None of the above, it did not mention the separate contribution of the partners.

Answer C: Obviously, the facts of the case did not mention the separate contribution of partners
Smile and Frown. Hence, using the disputable presumption mentioned in the article 1790, Unless
there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of
the partnership. Thus, Smile contributed P325,000 (650,000/2=P325,000).

15. Cardo and Alyanna entered into a contract of partnership on December 1, 2020. However,
Cardo and Alyanna agreed that the commencement of their contract of partnership will be on
January 1, 2021. Which of the following the life of their partnership begins?
a. January 1, 2021
b. Sometime in the month of December.
c. December 1, 2020
d. None of the choices.

Answer A: As a general rule, a partnership begins from the moment of the execution of the
contract. However, there is an exception to that rule. The partners can agree on some other date
for the start of the partnership. Here, the life of Cardo and Alyanna partnership begins on January
1, 2021 as agreed upon and not on December 1, 2020.
16. Ana, Elsa, and Kristoff put up a partnership to engage in graphics design and layout business.
Ana and Elsa contributed P300,000.00 and P200,000.00 respectively, while Kristoff contributed
his services. Ana intends to put up a bakery on a vacant stall on the left side of the partnership's
shop. Elsa plans to put up a convenience store next to Ana's bakery. Kristoff plans to put up a
bakery on a vacant stall on the right side of the partnership's shop. Who of the three may validly
establish their own businesses without the consents of the other partners?
a. Ana, Elsa, and Kristoff
b. Ana and Kristoff
c. Elsa and Kristoff
d. Ana and Elsa

Answer D: Only Ana and Elsa are allowed to establish their own businesses even without the
consents of other partners because they are capitalist partners. A capitalist partner may engage
in other business provided that it is not the same with the business of the partnership she is
involved in. Kristoff is not allowed to establish his own business because he is an industrialist
partner. Article 1789 states that an industrial partner cannot engage in business for himself,
unless the partnership expressly permits him to do so. The prohibition is absolute whether or
not the business is related to the business of the partnership.

17. Belle owes Beast P6,000.00. She also owes P10,000.00 to RoSe Co., a partnership which
Beast is the one authorized to collect the credits of the partnership. Both debts are due. Belle
gives Beast P6,000 informing him that the amount is in payment to her debt to Beast. Beast issued
a receipt. To which credit will the payment be applied?
a. to the credit of Beast alone
b. to the credit of Beast and RoSe Co. at P4,000.00 and P2,000.00 respectively
c. to the credit of Beast and RoSe Co. equally at P3,000.00
d. To the credit of Beast and RoSe Co. proportionately at P2,250.00 and P3,750.00 respectively.

Answer D: Article 1792 states that, if a partner authorized to manage collects a demandable
sum which was owed to him in his own name, from a person who owed the partnership another
sums also demandable, the sum thus collected shall be applied to the two credits in
proportion to their amounts, even though he may have given a receipt for his own credit only.
This rule applies even if the debtor expressly stated that the payment shall be applied to the
obligation owing to the partner in his personal capacity.
Amount Given: 6,000

CREDITOR AMOUNT FRACTION AMOUNT

Beast P6,000.00 6/16 P2,250.00

RoSe Co. P10,000.00 10/16 P3,750.00

P16,000.00 P6,000.00

18. Miya, Natalia and Nana are partners in M&Ns Co. and Miya being the managing partner
collected the sum of P3, 000 from Freya who is indebted to the partnership for an amount of P4,
000. Freya is also indebted to Miya for the amount of P3,000 with an interest of 10%. May Freya
prefer the payment be applied to her debt to Miya?
a. Yes, the debtor has the right to choose to pay her debt to Miya because she was the one who
collected
b. No, the payment should be applied to the two credits – P2,000 to the partnership and P1,000
to Miya
c. Yes, the debtor has the right to choose to pay her debt to Miya if it should be more burdensome
to her
d. No, payment should be applied to the partnership, applying the debt to Miya alone prejudiced
the other partners

Answer C: Under the second paragraph of Article 1793, if a partner authorized to manage collects
a demandable sum which was owed to him in his own name, from a person who owed the
partnership another sums also demandable, the sum thus collected shall be applied to the two
credits in proportion to their amounts, even though he may have given a receipt for his own credit
only. This rule applies even if the debtor expressly stated that the payment shall be applied to the
obligation owing to the partner in his personal capacity.
The provisions of this article are understood to be without prejudice to the right granted to the
debtor by Article 1252, but only if the personal credit of the partner should be more onerous to
him.

19. Which of the following statement is incorrect when no one among the partners was appointed
as an agent or manager?
a. In case of a tie in a voting, the decision shall be chosen to those partners owning the control
interest.
b. All member will be considered as an agent or manager of the partnership.
c. Any of the members may make an important alteration in the immovable property of the
partnership without the other partners’ consent.
d. In case the act of one partner is opposed by another, the decision of the majority of the partners
shall prevail.

Answer C: (ARTICLE 1803. When the manner of management has not been agreed upon, the
following rules shall be observed: (2) None of the partners may, without the consent of the others,
make any important alteration in the immovable property of the partnership, even if it may be
useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudicial
to the interest of the partnership, the court’s intervention may be sought.)

20. Odette owes P10, 000 to the Moniyan Co. and before she was insolvent, she paid P6,000 to
Lance, his exact share. The other partners Guin and Gusion were collecting from Odette but the
latter was already insolvent. Is Lance obliged to share what he has received from the debtor?
a. Yes, he is obliged to share what he has received for it will be unjust to the other partners if he
will not share with the loss.
b. No, he is not obliged to share what he has received for the amount paid by the debtor was the
exact amount of his share.
c. Yes, he is obliged to share for he has not given a receipt for his share only.
d. No, it is unjust for him because he has received the payment ahead.

Answer A: Article 1793: A partner who has received, in whole or in part, his share of a partnership
credit, when the other partners have not collected theirs, shall be obliged, if the debtor should
thereafter become insolvent, to bring to the partnership capital what he received even though he
may have given receipt for his share only.

21. Kyle, Nikka, and Rose are partners of Rock N Roll Enterprise with capital contributions of PHP
70,000, PHP 60,000, and PHP 50,000, respectively. The partners agreed that they would share
in the profits in the ratio of 5:3:2. During the year, the partnership sustained a loss of PHP 15,000.
How shall this loss be divided among the partners?
a. Equally at PHP 5,000 each.
b. Kyle, PHP 7,500; Nikka, PHP 4,500; and Vina, PHP 3,000.
c. Kyle, PHP 5,833; Nikka PHP 5,000; and Vina, PHP 4,167.
d. The partners must first establish a loss-sharing agreement before the loss can be divided.

ANSWER B: (Art. 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon, the share of
each in the losses shall be in the same proportion.)

22. Amy, Gina, Rosa, Jake, Charles, Holt, Michael, and Norm are partners of Brooklyn
Enterprises, a grocery store, with Amy contributing PHP 60,000; Gina, PHP 50,000; and Rosa,
PHP 80,000. The rest are industrial partners and have been appointed as managers without any
specification of their respective duties. During the month of May, Jake proposed to buy goods
from New York Enterprise, but Michael opposed his proposal. In a votation among the managing
partners,
Charles and Holt sided with Jake, while Norm sided with Michael. Based on the foregoing
information, which of the following statements is true?
a. The group of Jake, Charles, and Holt will prevail because they constitute the majority, i.e., 3
over 2.
b. The group of Michael and Norm will prevail because they own the controlling interest.
c. None of them would prevail because the managers' responsibilities aren't well defined.
d. The partners must first classify each manager's duty to resolve the conflict.

ANSWER: A. (Art. 1801. If two or more partners have been entrusted with the management of
the partnership without specification of their respective duties, each one may separately execute
all acts of administration, but if any one of them should oppose the acts of the others, the decision
of the majority shall prevail. In case of tie, the matter shall be decided by the partners owning the
controlling interest.)

23. In a partnership, a partner can engage in other business for himself without the consent of his
co-partners if he is:
a. Industrial Partner; the business he will engage in is of a kind different from the partnership
business.
b. Capitalist partner; the business he will engage in is of a kind different from the partnership
business.
c. Capitalist Partner; Whether or not the business he will engage in is of the same kind as or
different from the partnership business.
d. Industrial Partner; Whether or not the business he will engage in is of the same kind as or
different from the partnership business.
Answer B: ((Article 1808. Whether or not the business he will engage in is of the same kind as or
different from the partnership business.)

24. Ken, Jig, Jorge, and Jim are partners in K&J’s Company which is engaged in the buying and
selling of appliances. Each partner’s contributions are the following: Ken, 100,000; Jig, 150,000;
Jorge, 150,000; Jim, 200,000. The partners did not designate who among themselves shall be
the manager. Which of the following is true;
a. Jim, having the highest contribution, will be the appointed manager of the company.
b. Jim can solely decide who will be the appointed manager of the company
c. All partners will be the appointed managers in the company
d. None of the partners will be the appointed manager of the company.

Answer: C. (ARTICLE 1803. When the manner of management has not been agreed upon, the
following rules shall be observed: (1) All the partners shall be considered agents and whatever
any one of them may do alone shall bind the partnership, without prejudice to the provisions of
article 1801.)

25. PAKPAK Chickenhub is a partnership composed of Lucky Zoe, Sira Yu, and Bo Sanchez.
Lucky Zoe has the highest contribution to the capital, and the rest have the same amount of
money contributed.
I. Given that Sira Yu and Bo Sanchez, having a lesser amount of capital, do not have rights in
specific partnership property.
II. All of the partners have the right to participate in the management regardless of their capital
contribution.
In your evaluation of the preceding statements:
a. Statement I is false; Statement II is true.
b. Statement I is true; Statement II is false.
c. Both statements are true.
d. Both statements are false.
Answer A: Statement I is false because it contradicts the statement under Art. 1810. The partner's
property rights are his rights in specific partnership property, his interest in the partnership, and
his right to participate in the management.
26. Faye and Orimaco have been partners of Right Path Rehabilitation Centre for more than a
decade. In the succeeding years, Faye decided to assigned her interest to Ellie, but Orimaco
opposed that she did not want Ellie to be her partner.
a. The partnership between Faye and Orimaco was automatically terminated when Faye
assigned his interest to Ellie.
b. Faye continues as a partner of Orimaco with all the rights and obligations of a partner.
c. Faye, without Orimaco’s consent, cannot convey his interest to Ellie or any other person.
d. Ellie automatically became Orimaco’s partner when Faye assigned his interest in the
partnership to him.

Answer B: Under Article 1813, A conveyance by a partner of his whole interest in the partnership
does not of itself dissolve the partnership, or, as against the other partners in the absence of
agreement, entitle the assignee, during the continuance of the partnership, to interfere in the
management or administration of the partnership business or affairs, or to require any information
or account of partnership transactions, or to inspect the partnership books; but it merely entitles
the assignee to receive by his contract the profits to which the assigning partner would otherwise
be entitled. However, in case of fraud in the management of the partnership, the assignee may
avail himself of the usual remedies. In case of a dissolution of the partnership, the assignee is
entitled to receive his assignor’s interest and may require an account from the date only of the
last account agreed to by all the partners. (n)

27. The following statements are presented to you:

I. The partners enjoy the utmost freedom in the selection of the partnership name. As a
general rule, they may adopt any firm name desired.
II. They partners may use a name that is identical or similar to that of any existing
partnership or corporation or which was previously adopted by any other entity as they
may adopt any name as they wish.
III. Retaining the use of names of deceased partners is restricted when forming another
partnership or when continuing the partnership.
IV. Those who, not being members of the partnership, include their names in the firm
name, shall be subject to the liability of the partner.
a. All of the statements are true.
b. Only statement II is false.
c. Only statement III is false.
d. Only statements I and IV are true.

Answer B: According to article 1815, “Every partnership shall operate under a firm name, which
may or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm name, shall be
subject to the liability of a partner.” In the rights of partners to choose firm names, the partners
enjoy the utmost freedom in the selection of the partnership name. As a general rule, they may
adopt any firm name desired. However, the use of misleading names is restricted. It may adopt
any name as it wishes as long as it is not identical with or deceptively similar to name which was
previously adopted by any other entity, or interfere with the rights of others, or is contrary to law.
The use of names of deceased partners is restricted as well.

28. CSS Company is owned by partners Polo, Carla, Lu, and Nadia which imports and trades
computer parts. Polo contributed 250,000, Carla, 150,000, Lu, 95,000, and Nadia 50,000. The
partners were unable to agree who would manage the partnership.
a. The partnership is void because of the failure to designate manager among them thus no one
can manage the partnership.
b. Polo shall be the manager because he contributed the biggest amount, owning the controlling
interest.
c. All the partners excluding Nadia will be considered managers for the latter has the least
significant contribution to the partnership thus does not give her the entitlement to act as an agent
for the partnership.
d. All the partners will be considered managers or agents of the partnership.
Answer D: In accordance to Article 1818 which states, “Every partner is an agent of the
partnership for the purpose of its business...” Therefore, regardless of how substantial a partner’s
or vice-versa’s contribution is, it entitles him/her to serve as an agent for the partnership unless
otherwise there is a stipulation on who will act for the partnership.

29. Which of the following is an act that is not for apparently carrying n in the usual way the
business of the partnership?
a. Disposing of the good-will of the business
b. Confessing a judgment
c. Submitting a partnership claim or liability to arbitration
d. All of the foregoing

Answer D: All of the foregoing is considered an act that is not for apparently carrying in the usual
way the business of the partnership since the stated choices are included in the acts that the
partners are not authorized to do so that is stipulated in the Article 1818 which states that:
“Except when authorized by the other partners or unless they have abandoned the business, one
or more but less than all the partners have no authority to:
(1) Assign the partnership property in trust for creditors or on the assignee’s promise to pay
the debts of the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on the ordinary business of a
partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership”

30. JS partnership is formed by John, Josh and Jovie with capital contribution of P150,000 each.
On February 23, Jade was admitted as a new partner and contributed P100,000. JS company
incurred a loan of 800,000 on February 25 of the same year from Greg. In payment of the loan,
after exhaustion of the partnership’s net asset;
a. Greg can go against the separate property of John, Josh and Jovie for the balance of 250,000
b. Greg can go against the separate property of all the partners for the balance.
c. Greg cannot go against the separate property of the partners.
d. Greg can go against the separate property of Jade only for he is the newly admitted partner.

Answer B: In this case, the loan was incurred after the date of admission which means that the
creditor can collect from the separate property of all the partners including the newly admitted
partner after the partnership’s net assets are exhausted. Article 1826 states that a newly admitted
partner is liable for the partnership’s obligation incurred before his admission but this liability shall
be satisfied only out of partnership property. However, the said article cannot be applied in the
situation for the reason that the loan was incurred after the admission.
31. Em, En and Pee formed a partnership and the nature of their business is merchandising. One
day, Pee was driving the company vehicle to pick up the goods from the supplier. On his way
home, he bumped into the parked car of Ow causing damages. Who are liable?
a. Pee only because he was the one driving the car
b. The partners Em, En and Pee are jointly liable for the damages.
c. The partnership alone is liable because Pee was acting for the business.
d. Em, En, Pee and the partnership are solidary liable.

Answer D: Article 1822 provides that any wrongful act or omission of any partner acting in the
ordinary course of business of the partnership causing loss or injury to any person, the partnership
is liable to the same extent as the partner so acting. Em, En and the partnership are solidary liable
with Pee. The other partners and the partnership can recover the amount paid from Pee.

32. ABC partnership is formed by Ann, Ben and Carl. Ann’s friend, Dex, represented to Rose that
they are all partners in the said partnership with the consent of Ann and Ben. As a result, Rose
lent an amount of 200,000 to D. Who shall be liable to Rose?
a. ABC partnership is liable solely.
b. Only Dex is liable because he was the one who represented the partnership.
c. Ann, Ben and Dex are liable jointly or pro rata to Rose.
d. All of the partners including Dex are jointly liable.

Answer C: The situation presented is an example of partner by estoppel under Article 1825. There
is no partnership liability because not all of the partners consented to such representation.
Therefore, the person who represents himself (Dex) and the partners consenting to the contract
of representation (Ann and Ben) shall be liable jointly or pro rata.

33. The following are the effects of the dissolution of the Partnership, except:

a. Partnership continues for a limited purpose

b. Partnership is automatically terminated
c. Transaction of new business is prohibited
 d. Partnership is not terminated

Answer B: Based on Article 1829, On dissolution the partnership is not terminated, but continues
until the winding up of partnership affairs is completed. Dissolution of partnership does not
automatically result in termination of the legal personality of the partnership, nor the relation of
the partners among themselves who remains as co-partners until the partnership is terminated.

34. Which of the following is not a cause of dissolution without the violation of the agreement
between the partners?
a. By the expulsion of any partner
b. By the express will of any partner who acts in bad faith
c. By the express will of all the partners
d. Termination of the definite term or particular undertaking
Answer B: Based on article 1830, A partnership at will may be dissolved at any time by any partner
without the consent of his co-partners without the breach of contract provided the said partner
acts in good faith. If there is bad faith, the dissolution is wrongful. So, the dissolution of the
partnership by the express will of any partner who acts in bad faith is a contravention of the
agreement.

35.What is the process of settling the business or partnership affairs after the dissolution?
a. Termination
b. Dissolution
c. Winding up
d. Admission

Answer C: Winding up a partnership refers to procedures that are taken to distribute or liquidate
any remaining partnership property and assets that are remaining after dissolution of a
partnership business. The answer is "winding up" since Article 1828 distinguished the difference
between dissolution, winding up, and termination. The dissolution of the partnership is the change
in the relation of the partners caused by any partner ceasing to be associated in the carrying on
of the business while winding up is the process of settling the business or partnership affairs after
the dissolution. Lastly, article 1828 defines termination as the point in time when all the partnership
affairs are completely wound up and finally settled.
36. HD partnership’s business has been in the industry for three years and shows no signs of
success in making a profit. What action will the court do?
a. Extend their partnership
b. Decree a dissolution
c. Terminate their partnership
d. None of the above

Answer B: According to Article 1831 on application by or for a partner, the court shall decree a
dissolution whenever the business of the partnership can only be carried on at a loss because it
is assumed that the purpose of the partnership is to carry a business for profit.

37. The following are grounds for dissolution by decree of court, except:
a. Incapacity
b. Insolvency of partner
c. Insanity of a partner
d. Breach of partnership agreement

Answer B: According to the Article 1831 the court shall decree a dissolution whenever: (1) a
partner has been declared insane in any judicial proceeding or is shown to be of unsound mind
(2) a partner becomes in any way incapable of performing his part of the partnership contract (3)
a partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the
business (4) a partner willfully or persistently commits a breach of the partnership agreement (5)
the business of the partnership can only be carried on at a loss (6) other circumstances render
a dissolution equitable.

38. XYZ partnership is held for dissolution because of insanity of one of its partners yet Y
transacted to J for a tract of land. Does this transaction made by Y be bind in the partnership?
a. Yes, because Y is not knowledgeable about the dissolution
b. No, because it is transacted upon dissolution
c. Yes, because it is for the partnership
d. No, because it will be bind to Y

Answer B: According to the General rule that upon dissolution, the partnership ceases to be an
on-going concern and the partner’s power of representation is confined only to acts incident to
winding up or completing transactions begun but not then finished. In addition, the scenario is
not included in the exceptions stated in Article 1834 third paragraph.

39. All are concepts of limited partnership, except:

a. Share in profits of a business without risk of personal liability.
b. May be constituted in any form by contract or conduct of the parties.
c. Partners must contribute cash or property, not services.
d. Composed of general and limited partners.

Answer B: All are concepts relating to limited partnership excluding letter B. According to Article
1844 regarding limited partnership requirements: (Par 1) Two or more persons desiring to form
a limited partnership shall sign and swear to a certificate, among which shall state:
For letter A, share in profits of a business without risk of personal liability, which is true since
liability only extends to the partner’s capital contribution. In accord to the provision under limited
partnership requirement of Art. 1844, par 1, (i.) The share of the profits or the other compensation
by way of income which has limited partner shall receive by reason of his contribution.
Letter B is definitely not a concept of limited partnership, rather pertains to a general partnership.
As covered in Article 1844: (Par 2) File for record the certificate in the Office of the Securities
and Exchange Commission. A limited partnership is formed if there has been substantial
compliance in good faith with the foregoing requirements. (in par 1, Art 1844) – In conclusion,
the creation of a limited partnership is a formal proceeding and is not a mere voluntary
agreement, as in the case of general partnership. Thus, it is created by the members or partners
after compliance with the requirements set forth by law. Limited partnership requirements must
be followed accordingly as to the statute, otherwise, it will be the same as that of general
partnership.
In letter C, in accordance to Art. 1845: The contributions of a limited partner may be cash or
property, but not services.
Letter D is a concept of limited partnership. A general rule providing the definition of limited
partnership in Article 1843: A limited partnership is one formed by two or more persons under
the provisions of the following article, having as members one or more general partners and one
or more limited partners. The limited partners as such shall not be bound by the obligations of
the partnership. Hence, it must be composed both of general and limited partners.

40. Identify which of the following is not a characteristic of limited partnership.

a. The partnership debts are paid out in common fund and the individual properties of the general
partners.
b. One or more general partners control the business and are personally liable to creditors.
c. When the manner of management has not agreed upon, all of the general partners have an
equal right in the management of the business.
d. The limited partners may ask for the return of their capital contributions under the conditions
prescribed by law.

Answer C: Excluding C, all are characteristics of limited partnership. It is a principle under

general partnership since limited partnership has a general rule of “no share in management”. If
a limited partner takes part in control of business, he becomes liable as a general partner. In
accordance to Articles of Limited Partnership, characteristics of limited partnership includes: (a)
formed by compliance with statutory requirements; (b) one or more general partners control the
business and are personally liable to creditors; (c) one or more limited partners contribute to the
capital and share in the profits but do not participate in the management of the business and are
not personally liable for partnership obligations beyond the amount of their capital contributions;
(d) the limited partners may ask for the return of their capital contributions under the conditions
prescribed by law; and (e) the partnership debts are paid out of common fund and the individual
properties of the general partners.

41. Which of the following rights of a general partner is/are also the rights of a limited partner?
a. Right to inspect and copy partnership books at a reasonable hour
b. Right to have on demand true and full information of all things affecting the partnership
c. Right to have dissolution and winding up by decree of court
d. All of the foregoing

Answer D: Article 1851 enumerates the rights of a limited partner, such as the right to inspect
and copy partnership books at a reasonable hour; the right to have on demand true and full
information of all things affecting the partnership; and the right to have dissolution and winding
up by decree of court. Therefore, all of the foregoing statements above are also the rights of a
limited partner.

42. These statements are presented to you:

Statement 1: A limited partner cannot receive or hold as collateral security any partnership
property
Statement 2: A limited partner cannot receive from general partner or the partnership any
conveyance or release from liability, if partnership assets are not sufficient to discharge
partnership liabilities to outside creditors.
a. Both statements are true
b. Both statements are false
c. Only Statement I is true
d. Only Statement II is true

Answer A: According to Article 1854, limited partners are prohibited on account of their claims
against the partnership from receiving or holding as collateral security any partnership property.
It is also not allowed to receive from general partner or the partnership any conveyance or
release from liability, if partnership assets are not sufficient to discharge partnership liabilities
to outside creditors. The receiving of collateral security, or of conveyance, or release from
liability in violation of this provision is a fraud on the partnership creditors who may seek the
rescission of the transaction.

43. Statement 1: The individual property of a deceased partner shall be liable for his share of
the contributions necessary to satisfy the liabilities of the partnership incurred while he was a
partner. Statement 2: If a partner of a partnership is insolvent, his individual property shall be
distributed to the partnership’s liabilities and to his heirs. Which statement is false.
a. Statement 1 is False
b. Both statements are True
c. Both statements are False
d. Statement 2 is False

Answer D: Statement 2 is false because according to the Distribution of property of insolvent

partner, of a partner is insolvent, his individual property shall be distributed to; those owing to
separate creditors, those owing to partnership creditors, and those owing to partners by way
of contribution. Heirs of the insolvent property is not included in the distribution of property
because the heir are not part of the partnership.

44. Partnership ABC was dissolved. C promised to sign the last and final statement of accounts
as soon as he receives his shares as shown in said statement. C accepted such share without
 any reservation but he refused to sign the statement. Is C still entitled to liquidation?
a. No, the statement was approved from the beginning.
b. Yes, since he did not sign any statement.
c. No, the statement was deemed approved when C received his share without any reservation.
d. Yes, the share he received was not in agreement to what shall be received.

Answer C: Letter C, because the signing became a mere formality to be complied with by C
exclusively and his refusal to sign, after receiving his shares, amounted to a waiver of that
formality. This approval precludes any right on the part of C to a further liquidation unless he
can show that there was fraud, deceit, error, or mistake in said approval. As stated in the
general rule. When a partnership is dissolved, a partner or his legal representative is entitled
to the payment of what may be due after liquidation. But no liquidation is required or necessary
when there is already a settlement or an agreement as to what he shall receive.

45. Amanda and Amalia are limited partners in their laundry business. It was stated in the
certificate of partnership that Amanda contributed an amount of P50, 000. But actually, she only
contributed half of it. It was also stipulated that Amalia promised to provide an additional
contribution of P15, 000 at a specified date. What would be the necessary actions to be done by
both partners?
a. Amanda and Amalia are not liable to change anything because they are both limited partners.
b. Amanda should claim P25, 000 from the partnership and used it to pay Amalia’s promised
contribution of P15, 000.
c. Amanda should pay the difference of P25, 000 and Amalia should contribute what she promised
which is an additional amount of P15, 000.
d. Both limited partners can waive such liability.

Answer C: Under the first paragraph of Article 1858, the limited partner is liable not only for the
difference between the amount of her actual contributions and from what is stated in the certificate
of partnership as having been made but as well as for any unpaid contribution by which she
agreed to make at a specified time.

46. Hernan and Partners Law Office is operating for some time as a limited partnership, composed
of Emilio, Paul, and Lupin, as general partners, who contributed P60, 000 each, and Cecil and
Ellis, as limited partners, who contributed P50, 000 each. The partnership has a total assets of
P280, 000 and the following liabilities:

(1) For return of contributions of limited partners Cecil and Ellis – P50, 000
(2) Due to third party creditors -----------------------------------------------P80, 000
(3) For loan extended by Lupin------------------------------------------------P45, 000
(4) For loan extended by Cecil-------------------------------------------------P50, 000
(5) For taxes------------------------------------------------------------------------P35, 000
(6) For indemnity to Paul for damages suffered in consequence
of management---------------------------------------------------------P40, 000
Total----------------------------------------------------------------------------P300, 000

Can Ellis legally demand the return of his contribution, supposing that all the general partners and
limited partners have given their consent and are willing to have the certificate amended as to set
forth the withdrawal?
a. Yes. Since the total assets of P280, 000 are well over the amount of P165, 000, the total amount
of the liabilities mentioned in Nos. (2), (4) and (5). However, the other liabilities are not considered
in determining whether the contribution of Ellis can be returned to him.
b. No. Only Emilio, Paul and Lupin are allowed to legally demand the return because they have
the biggest contribution in the partnership.
c. Yes. Ellis can demand regardless of whether the partners provided their consent or not.
d. No. Because all the liabilities of the partnership shall be paid first through the assets acquired
that are much sufficient to pay such liabilities.

Answer A: Under the second paragraph of the stipulated provision in Article 1857, which states
that a limited partner may legally demand for the return of his contribution. As a matter of right in
accordance with the provided conditions in the legal provision and also considering the consent
provided by all partners.

47. If the limited partners are not principals in the partnership transactions, their liability as a
general rule, is to the partnership not to the creditors of the partnership. Do they have the right of
action against third persons whom the partnership has any enforceable claim?
a. Yes. They have the right of action since they are also part of the partnership.
b. No. The limited partners have no right of action since they are only a contributor.
c. Yes. Considering the action at law which may be maintained by creditors of a firm against a
limited partner.
d. None of the choices are correct.

Answer B: In the Article 1866, a limited partner is referred to as a mere contributor. These limited
partners are usually a stranger in the limited partnership whose liability is only limited to his
interest in the firm and holds no right in the management and control of the entity.

48. Juliana and Nichole want to put up a café and restaurant business. Juliana is a graduate of
Bachelor of Science in Information Technology and has no funds to contribute in the investment.
However, Nichole who is a graduate of Bachelor of Science in Nursing, knows nothing about
internet and computer stuff but she is willing to contribute the funds and property needed. If
Juliana and Nichole decide to enter into a limited partnership, between the two of them, who will
be the limited partner?
a. Juliana only.
b. Nichole only.
c. Both Juliana and Nichole.
d. Neither Juliana nor Nichole; hence, they cannot enter into a limited partnership.

Answer B: Nichole is the only one who will be the limited partner because in accordance to Article
1845, the contribution of a limited partner may be cash or other property, but not services. From
the foregoing, it is clear that a pure industrial partner CANNOT become a limited partner. Since
Juliana is a pure industrial partner since her contribution in the partnership is services only, Juliana
cannot become a limited partner in the partnership.

49. Which of the following will not cause the automatic dissolution of a limited partnership?
a. Insanity of a general partner
b. Civil interdiction of a limited partner
c. Death of a general partner
d. Insolvency of a general partner

Answer B: The retirement, death, insolvency, insanity, or civil interdiction of a general partner
dissolves the partnership while the retirement, death, insolvency, insanity, or civil interdiction of a
limited partner does not dissolve the partnership except when there is no more limited partner.
50. The following statements are presented to you:
I. A limited partnership is one composed of at least one limited partner and at least one
general partner.
II. A limited partner may contribute money or property but not services.
III. The death of a limited partner dissolves the partnership.

In your evaluation of the foregoing statements:

a. I. and II are true
b. I and III are true
c. II and III are true
d. All are true

Answer A: A limited partnership is one formed by two or more persons having as members at
least one general partner and at least one limited partner (Article 1843). Moreover, a limited
partner may contribute cash or other property, but not services (Article 1845).

The death of a limited partner will not automatically dissolve the partnership since the estate of
the said Limited partner will be substituted as the limited partner in accordance with Article 1861
which provides, thus:

“On the death of a limited partner his executor or administrator shall have all the rights of a limited
partner for the purpose of setting his estate, and such power as the deceased had to constitute
his assignee a substituted limited partner.

The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner.”

Therefore, only statements I and II are true.

Revised Corporation Code of
the Philippines

Multiple Choice Questions

Group #2 (Lambojo - Ylagan)
Class No. 3172
 Revised Corporation Code of the Philippines

Multiple Choice Questions

Group #2 (Lambojo - Ylagan)

Class No. 3172

1. I. Corporators are those who compose a corporation, whether as stockholders or as

members.

II. Incorporators are those stockholders or members mentioned in the articles of

incorporation as

originally forming and composing the corporation and who are not signatories thereof.

A. Only statement I is true.

B. Only statement II is true.

C. Both statements are true.

D. Both statements are false.

Answer: A. Under Title I, Section 5 of the Revised Corporation Code of the Philippines,
Corporators are those who compose a corporation, whether as stockholders or as members.
Incorporators are those stockholders or members mentioned in the articles of incorporation as
originally forming and composing the corporation and who are signatories thereof.

2. Corporators in a stock corporation are called:

A. Members

B. Shareholders

C. Trustees

D. Board of Directors

ANSWER: B. Sec. 5. Corporators and incorporators, stockholders and members. - Corporators

are those who compose a corporation, whether as stockholders or as members. Corporators in a
stock corporation are called stockholders or shareholders. Corporators in a non-stock corporation
are called members.

3. The following are the attributes of a corporation EXCEPT:

A. It is an artificial being with separate and distinct personality

B. Limited Life
 C. It enjoys the right of Succession

D. It is created by operation of law

Answer: B. Title I, Section II of the Revised Corporation Code of the Philippines defined
corporation as 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.
Also, a corporation has an unlimited life. Because the corporation is a separate legal entity, the
corporation will continue to exist even if the shareholders die, directors or officers leave the
business, or if the ownership of the business changes.

4. It may be issued by the corporation when expressly so provided in the articles of

incorporation.

A. Treasury shares

B. Redeemable shares

C. Founders shares

D. Corporation shares

Answer: B. The above is the definition of Redeemable shares in accordance with Section. 8 of
the Revised Corporation Code of the Philippines stating that redeemable shares may be issued
by the corporation when expressly provided in the articles of incorporation.

5. Treasury shares are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation EXCEPT:

A. purchase

B. redemption

C. donation

D. through some other unlawful means

Answer: D. Title I, Section 9 of the Revised Corporation Code of the Philippines defined Treasury
shares as 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. Such shares may again be disposed of for a reasonable price fixed by the board of
directors.

6. I. The filing of articles of incorporation and the issuance of the certificate of incorporation
are not

essential for the existence of a de facto corporation.

II. For one to qualify as de facto corporation, there must be no attempt in good faith to

incorporate.
 A. Only statement I is true
B. Only statement II is true
C. Both are true
D. Both are false

Answer: D. Section 19 of the Revised Corporation Code provided that, the due of any corporation
claiming in good faith to be a corporation under this Code, and its right to exercise corporate
powers, shall not be inquired into collaterally in any private suit to which such corporation may be
a party. Such inquiry may be made by the Solicitor General in quo warranto proceeding.

And the requirements before one can qualify as de facto corporation:

● The existence of a valid law under which it may be incorporated

● An attempt in good faith to incorporate; and
● Assumption of corporate powers

The filing of articles of incorporation and the issuance of the certificate of incorporation are
essential for the existence of de facto corporation

7. I. Generally corporations must have a name by which it is to sue and be sued and do all
legal acts.

II. It is the certificate of incorporation that gives juridical personality to a corporation.

A. Only statement 1 is true

B. Only statement 2 is true
C. Both are true
D. Both are false

Answer: C. Section 17 of the Revised Corporation Code states that, no corporate name shall be
allowed by the Commission if it is not distinguishable from that already reserved or registered for
the use of another corporation, or if such name is already protected by law, or when its use is
contrary to existing law, rules and regulations.

Under Section 18 of the Revised Corporation Code, a private corporation commences its
corporate existence and juridical personality and is deemed incorporated from the date the
Securities and Exchange Commission issues certificate of incorporation under its official seal.

8. A stock corporation having an authorized capital stock of P100,000 divided into 1,000 shares
with par value of P100 per share. The subscribed shares are 280, out of the subscribed shares
55% of which is paid-up, how much is the paid-up capital?

A. P8,000
B. P15,400
C. P12,000
D. P7,000
Answer: B. Section 12 states that Stock corporations shall not be required to have a minimum
capital stock, except as otherwise specifically provided by special law. Section 13 states that if it
be a stock corporation, the amount of its authorized capital stock, number of shares into which it
is divided, the par value of each, names, nationalities, and residence addresses of the original
subscribers, amount subscribed and paid by each on the subscription, and a statement that some
or all of the shares are without par value, if applicable.

9. The following are limitations in the amendment of the articles of incorporation, except:

a. The original and amended articles together shall contain all provisions required by law
to be set out in the articles of incorporation.

b. The amendment must be for legitimate purposes and must not be contrary to the
Corporation Code and special laws.

c. The amendment must be approved by a majority of or board of trustees.

d. The amendment requires the vote or written assent of stockholders representing

majority of the outstanding capital stock or majority members if it be a non stock
corporation.

Answer: D. Under section 15 of the Revised Corporation Code of the Philippines, the vote or
written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital
stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the
provisions of this code. The articles of incorporation of a non-stock corporation may be amended
by the vote or written assent of majority of the trustees and at least two-thirds of the members.

10. No corporate name shall be allowed by the SEC if it is not distinguishable from that already
reserved or registered for the use of another corporation. A name is not distinguishable even if it
contains one or more of the following:

I. The word "corporation, "company", "incorporated", "limited", "limited liability", or an abbreviation

of one of such words.

II. A name that consists solely of special symbols, punctuation marks, or specially designated
characters.

a. Only I is true

b. Only II is true

c. Both our true

d. Both are false

Answer: A. Under the Revised Corporation Code of the Philippines, Section 17- Corporation
Name, second paragraph, a name is not distinguishable even if it contains one or more of the
following:
(a.)The word "corporation, "company", "incorporated", "limited", "limited liability", or an
abbreviation of one of such words; and

(b.) Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different

tenses, spacing, or number of the same word or phrase.

Note: The number I in the question can be registered whereas the II shall not be registered.

11. The following are the requirements for the election of directors/trustees, except:

A. The election must be by ballot, if requested by any voting stockholder or member.

B. In stock corporations, the total number of votes shall exceed the number of shares
owned by the stockholder as shown in the books of the corporation multiplied by
the whole number of directors to be elected. Provided, that no delinquent stock
shall be voted.

C. The owners of majority of the outstanding capital stock or if there be no capital

stock, a majority of the members entitled to vote, of the corporation must be
present, either in person or through a representative authorized to act by written
proxy.

D. Nominees for directors or trustees receiving the highest number of votes shall be
declared elected.

Answer: B. The other three choices are the requirements for the election of directors/trustees. It
excludes B wherein Section 23 of the Revised Corporation Code provides that the total number
of votes shall not exceed the number of shares owned by the stockholders as shown in the books
of the corporation multiplied by the whole number of directors to be elected: Provided, however,
That no delinquent stock shall be voted.

12. These statements are presented to you:

I. Directors or Trustees shall not receive any compensation, as such directors or trustees,
except for reasonable per diems.

II. A contract of corporation with one or more of its directors or trustees, officers or their
spouses and relatives within the fourth civil degree of consanguinity or affinity is void, at
the option of such corporation.

In your evaluation of the foregoing statements:

A. Both statements are true.

B. Both statements are false.

C. Only statement I is true.

 D. Only statement II is true.

Answer: C. Statement I is correct. According to Section 29 of the Revised Corporation Code, in

the absence of any provision in the by-laws fixing their compensation, the directors or trustees
shall not receive any compensation in their capacity as such, except for reasonable per diems.

Statement II is false. According to Section 31 of the Revised Corporation Code, a contract of the
corporation with (1) one or more of its directors, trustees, officers or their spouses and relatives
within the fourth civil degree of consanguinity or affinity is voidable, at the option of such
corporation

13. Which of the following are not the qualifications of a corporate president?

A. Must be a director

B. Must be a stockholder on record of at least 1 share

C. Must be a Filipino citizen

D. Need not be a resident of the Philippines

Answer: C. Section 24 of Revised Corporation Code provides that immediately after their
election, the directors of a corporation must formally organize and elect: (a) a president, who must
be a director. Hence, supporting that the president must be a stockholder on record of at least 1
share, need not be a Filipino citizen, and need not be a resident of the Philippines.

14. The following are the exceptions to the general rule that the corporate powers of the
corporation shall be exercised, all business conducted and all property of such corporation
controlled and held by the board of directors or trustee, except:

A. In case of an Executive Committee duly authorized in the by-laws

B. In case of close corporations, the stockholders may manage the business of the
corporation instead by a board of directors, if the incorporation so provide
C. In case of an Executive Committee not duly authorized in the by-laws
D. In case of a contracted manager which may be an individual, a partnership, or
another corporation except insofar that in case the contracted manager is another
corporation in which the special rule in Sec. 43 applies.

Answer: C. According to Section 22 of the Revised Corporation Code, the only exceptions to the
general rule that the corporate powers of the corporation shall be exercised, all business
conducted and all property of such corporation controlled and held by the board of directors or
trustee are the following:

1. In case of an Executive Committee duly authorized in the by-laws;

 2. In case of a contracted manager which may be an individual, a partnership, or
another corporation except insofar that in case the contracted manager is another
corporation in which the special rule in Sec. 43 applies; and
3. In case of close corporations, the stockholders may manage the business of the
corporation instead by a board of directors, if the incorporation so provide

The Executive Committee must be duly authorized in the by-laws.

15. When the director of the company is involved in a prejudicial action of obtaining profits, he/she
must be asked to refund the corporation's profits, unless:

A. The act has been ratified by a vote of the stockholders owning or representing at
least two- thirds (2/3) of the outstanding capital stock.
B. The director himself/herself will write an apology letter and be signed by all of the
members of the board
C. The director will be asked to resign by the stockholders that represent at least two-
thirds (2/3) through voting
D. The act has been ratified by a vote of the stockholders owning or representing at
least two- sixth (2/6) of the outstanding capital stock.

Answer: A. According to the Revised Corporation Code, SEC. 33. Disloyalty of a Director. –
Where a director, by virtue of such office, acquires a business opportunity which should belong
to the corporation, thereby obtaining profits to the prejudice of such corporation, the director must
account for and refund to the latter all such profits, unless the act has been ratified by a vote of
the stockholders owning or representing at least two- thirds (2/3) of the outstanding capital
stock. This provision shall be applicable, notwithstanding the fact that the director risked one’s
own funds in the venture.

16. The following are the instances where corporation may acquire its own shares except:

A. Redeemable shares regardless of the existence of retained earnings.

B. To collect or compromise indebtedness to the corporation, arising out of paid
subscription, in a delinquency sale and to purchase delinquent shares sold during said
sale.
C. To acquire treasury shares.
D. To pay dissenting or withdrawing stockholders (in the exercise of the stockholder’s
appraisal right).

Answer: B. Title IX, Section 40 of the Revised Corporation Code provided that a stock corporation
shall have the power to purchase or acquire its own shares for a legitimate corporate purpose/s,
including the following cases:
1. To eliminate fractional shares out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of
unpaid subscription, in a delinquency sale and to purchase delinquent shares sold
during said sale;
 3. To pay dissenting or withdrawing stockholders (in the exercise of the
stockholder’s appraisal right);
4. To acquire treasury shares;
5. Redeemable shares regardless of existence of retained earnings;
6. To effect a decrease of capital stock;
7. In close corporations, when there is a deadlock in the management of the
business.

17. Suppose that Cassano Corporation has already issued the 2000 originally authorized shares
of the corporation so that its Board of Directors and stockholders wish to increase Cassano's
authorized capital stock. After complying with the requirements of the law on increase of capital
stock, Cassano Corporation issued an additional 2000 shares of the same value. Assume that
stockholder Babel presently holds 300 out of the 2000 original shares. Would Babel have a pre‐
emptive right to 300 of the new issue of 2000 shares?
A. No, Babel will not have any pre-emptive right to 300 shares since it is a new issue
of 2000 shares and its right will only be applicable to the original one and not to
the newly issued shares.
B. Maybe, if Babel insists its right to the newly issued 2000 shares.
C. Neither of the choices.
D. Yes, Babel would have a pre‐emptive right to 300 of the new issue of 2000 shares
because Babel is a stockholder of record holding 300 shares in Cassano
Corporation.

Answer: D. According to Title IV of the Revised Corporation Code under Section 38, each
stockholder has the pre‐emptive right to all issues of shares made by the corporation in proportion
to the number of shares he holds on record in the corporation, unless such right is denied by the
articles of incorporation or an amendment.

18. I. The declaration of dividends is dependent upon the availability of surplus profit or
unrestricted
retained earnings.
II. Payment of dividends to a stockholder is not a matter of right but a matter of consensus.
A. Only I is true
B. Only II is true
C. Both are false
D. Both are true

Answer: D. I. Title IV, Section 42 of the Revised Corporation Code provides that the board of
directors of a stock corporation may declare dividends out of unrestricted retained earnings.
Section 42, adopting the change made in accounting terminology, substituted the phrase
“unrestricted retained earnings,” which may be a more precise term in place of “surplus profits
arising from its business”in the former law. In a nutshell, the declaration of dividends is dependent
upon the availability of surplus profit or unrestricted retained earnings. Preferences granted to
preferred stockholders do not give them a lien upon the property of the corporation nor make them
creditors for the corporation, the right of the former being always subordinate to the latter.
Dividends are thus payable only when there are profits earned by the corporation and as a general
rule, even if there are existing profits, the board of directors has the discretion to determine
whether or not dividends are to be declared.
II. Under Title IV, SEC. 42, the Corporation Code prohibits the issuance of any stock dividend
without the approval of stockholders, representing not less than two- thirds (2/3) of the outstanding
capital stock at a regular or special meeting duly called for the purpose. These provisions
underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter
of consensus.

19. The following statements pertain to the express power of a corporation

I. A corporation may make donations for the benefit of a political party or candidate or for
purposes of partisan political activity provided the donations are reasonable.
II. A corporation has the capacity to enter into a partnership, joint venture, merger,
consolidation, or any other commercial agreement with natural and juridical persons
a. Both are TRUE
b. Both are FALSE
c. Statement I is TRUE; Statement II is FALSE
d. Statement I is FALSE; Statement II is TRUE

Answer: D. Statement I is FALSE; Statement II is TRUE. Title IV, Section 35 of the Revised
Corporation Code stated that every corporation incorporated under this code has the power and
capacity (i) to make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no foreign corporation
shall give donations in aid of any political party or candidate or for purposes of partisan political
activity.

20. It is an act as one outside the powers conferred by the Code or by the Article of Incorporation
or beyond what is necessary or incidental to the exercise of the power so conferred.
A. Ultra vires act
B. De jure act
C. Conferrential act
D. Condominium act

Answer: A. Ultra vires act. According in TItle IV, Section 44 of the Revised Corporation Code,
Ultra Vires act of Corporations is an act where no corporation shall possess or exercise corporate
powers other than those conferred by this Code or by its articles of incorporation and except as
necessary or incidental to the exercise of the powers conferred.

21. A private corporation may provide the following in its bylaws, except:
A. The directors’ or trustees’ qualifications, duties, and responsibilities, the guidelines
for setting the compensation of directors or trustees and officers, and the maximum
number of other board representations that an independent director or trustee may
 have which shall, in no case be more than the number prescribed by the
Commission.
B. The form for proxies of stockholders and members and the manner of voting them.
C. The time, place and manner of calling and conducting regular or special meetings
of the directors or trustees should not be provided in its bylaws.
D. None of the above.

Answer: C. According to Section 46 of the Revised Corporation Code of the Philippines, a private
corporation may provide in its bylaws the time, place and manner of calling and conducting regular
or special meetings of the directors.

22. I. A majority of the board of directors or trustees, and the owners of at least a majority of
the outstanding capital stock, or at least a majority of the members of a nonstock
corporation, at a regular or special meetings duly called for the purpose, may amend or
repeal the bylaws or adopt new bylaws.
II.The amended or new bylaws may be effective upon the issuance by the Commission of
a
certification that is not necessarily in accordance with this Code and other relevant laws.
A. I is true, II is true
B. I is false, II is false
C. I is false, II is true
D. I is true, II is false

Answer: D. I is true, II is false. Paragraph 3 of Sections 47 of the Revised Corporation Code of

the Philippines states that the amended or new bylaws shall only be effective upon the issuance
by the commission of a certification that the same is in accordance with this Code and other
relevant laws.

23. This document conferring authority to vote stock in a corporate meeting.

A. Power of attorney
B. Capital Stock
C. Shares of stock
D. Proxy

Answer: D. Stockholders and members may vote in person or by proxy in all meeting of
stockholders or members. Proxy, as the term is used, designates the formal written authority given
by the owner or holder of the stock, who has a right to vote for it, or by a member, as principal, to
another person, as agent, to exercise the voting rights of the former (Sec. 57, RA No. 11232)

24. The Board of Directors of Gold Technologies, Inc. approved its plan of merger with
Apachespace Corp. A special meeting for the stockholders was scheduled for the approval of the
merger. Due to time constraint, a notice was only sent via email three days prior to the scheduled
meeting on May 30, 2021 in Cebu Hilltop Hotel located in Metro Cebu. Yasmine, a stockholder,
personally attended the meeting without manifesting his objection. It was only after three days
that she opposed the approval of merger made by the stockholders. She questioned the validity
of the meeting and argued that the principal office of the corporation is located at Lapu-Lapu City
and the urgent notice was sent through an electronic data message. Is the stockholder’s meeting
for the approval of the plan of merger valid and in compliance with the law?

A. No, the notice for a special meeting of stockholders should be written and made one
week prior to the scheduled day of meeting.

B. Yes, the notice of meeting can be made thru electronic message at any time prior to
the scheduled date.

C. Yes, the notice of meeting can be waived when the stockholder attended the meeting
without raising her objection and the meeting held in Cebu Hilltop Hotel is valid since it
was held within Metro Cebu.

D. No, the meeting was not held at the principal office of the corporation.

Answer: C. Under Section 49, attendance at a meeting shall constitute a waiver of notice of the
meeting, except when the person attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or convened. Written
notices of stockholders’ or members’ meetings may now be sent through electronic mail or such
other manner as the Commission shall allow under its guidelines. Section 50 also states that
meetings can be held in the city or municipality where the principal office of the corporation is
located if the principal office of the corporation is not practicable. Metropolitan areas such as
Metro Cebu are considered a city or municipality. Since Yasmine waived her rights to receive
formal notices by attending the meeting without expressly objecting the transaction of the
business and the location is within the city where the principal office of the corporation is located,
the plan of merger is valid and in compliance with the law.

25.All of these sentences are true, except:

A. Directors or trustees can vote through remote communication at board meetings.

B. Stockholders and members may vote in person.
C. Directors or trustees can vote by proxy at board meetings.
D. Stockholders of a stock corporation may create a voting trust for the purpose of conferring
upon a trustee the right to vote.

Answer: C. Under Section 52, Directors or trustees who cannot physically attend or vote at board
meetings can participate and vote through remote communication such as videoconferencing,
teleconferencing, or other alternative modes of communication that allow them reasonable
opportunities to participate. Directors or trustees cannot attend or vote by proxy at board
meetings. Therefore, Letter C is false.

According to Section 57, stockholders or members, on the other hand, may vote in person
or by proxy in all meetings of stockholders or members. When so authorized in the bylaws or by
a majority of the board of directors, the stockholders or members of corporations may also vote
through remote communication. Under Section 58, one or more stockholders of a stock
corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the
right to vote.

26. Which of the following statements is incorrect?

A. Special meetings of stockholders or members shall be held at any time deemed

necessary or as provided in the bylaws.

B. Notice of special meetings of directors and trustees must be sent to every director or
trustee at least one week prior to the scheduled meeting.

C. Regular meetings of stockholders or members shall be held annually on a date fixed in

the bylaws, or if not so fixed, on any date after April 15 of every year as determined by the
board of directors and trustees.

D. Notice of regular meetings of directors or trustees of corporations stating the date, time
and place of the meeting must be sent to every director or trustee at least two days prior
to the scheduled meeting.

Answer: B. Under Section 52, both notice of regular and special meetings of directors and
trustees stating the date, time and place of the meeting must be sent to every director or trustee
at least two days prior to the scheduled meeting. At least one week written notice is for special
meetings of stockholders or members as stated in Section 49.

27. The following statements are presented to you:

I. The president shall preside at all meetings of the directors or trustee as well as of the
stockholders or members, unless the bylaws provide otherwise.
II. The quorum shall consist of the stockholders representing a majority of the outstanding
capital stock or a majority of the members in the case of nonstock corporations.
III. In case of postponement of stockholders’ or members’ regular meetings, written notice
thereof and the reason therefore shall be sent to all stockholders or members of record at
least two weeks prior to the date of the meeting.
A. I and II are true.
B. II and III are false.
C. I and III are false.
D. II and III are true.

Answer: D. Statement I is false because it is based from the old Corporation Code. In the Revised
Corporation Code under Section 53, the chairman or, in his absence, the president shall
preside at all meetings of the directors or trustees as well as of the stockholders or members,
unless the bylaws provide otherwise.
 Under Section 51, unless otherwise provided in this Code or in the bylaws, a quorum
shall consist of the stockholders representing a majority of the outstanding capital stock
or a majority of the members in the case of nonstock corporations. Thus, Statement II is true.

Section 49 states that In case of postponement of stockholders’ or members’

regular meetings, written notice thereof and the reason therefor shall be sent to all stockholders
or members of record at least two (2) weeks prior to the date of the meeting, unless a different
period is required under the bylaws, law or regulation. Hence, Statement III is true.

28. Determine whether the following statements are true or false:

I - A pre-incorporation subscription is revocable for a period of at least 6 months from the
date of subscription.
II – Pre-incorporation subscription is still revocable after the articles of incorporation are
submitted to the SEC.
III – A subscriber will not become a stockholder if he has not paid for his shares even
though he already perfected the subscription contract.
A. All statements are true
B. Statement I and II is true while statement III is false
C. Statement III is true
D. All statements are false

Answer: D – All statements are false

The pre-incorporation subscription and post-incorporation subscription are 2 kinds of subscription

which is discussed in Republic Act No. 11232 or the Revised Corporation Code of the Philippines,
Section 60. The rules that apply to the pre-incorporation subscription are as follows: (1) A pre-
incorporation subscription is irrevocable for a period of at least 6 months from the date of
subscription, and (2) No pre-incorporation subscription may be revoked after the submission of
the articles of incorporation to the SEC. In regards to the post-incorporation subscription, one of
its rules states that a subscriber becomes a stockholder upon perfection of the subscription
contract even though he has not paid for his shares.

29. In case a stockholder has lost their certificate of stocks, these following procedures can be
followed in issuing new certificates of stocks, EXCEPT for:

A. The registered owner of the certificate shall file with the corporation an affidavit in
triplicate setting forth, if possible, the information in regards to how the certificate
was lost, stolen/destroyed, the number of shares represented by such certificate,
and the name of the corporation which issued the same.
B. The owner of the certificate of stocks that was lost will not be required to submit
information and evidence for such loss due to privacy purposes/reasons.
C. After verifying the affidavit and other information, the corporation shall publish a
notice in a newspaper of general circulation in the place where the corporation has
its principal office, once a week for three consecutive weeks.
 D. After a year of publication and no contest has been presented to the corporation
regarding the certificate of stock, the right to make such contest shall be barred
and the corporation shall cancel the lost, destroyed, or stolen certificate of stock in
its books

Answer: B – The owner of the certificate that was lost will not be required to submit information
and evidence for such lost due to privacy purposes/reasons.

In Section 72 of the Revised Corporation Code of the Philippines, it is stated there the following
procedures in regards to issuing new certificates of stock to lost, stolen, or destroyed contacts.
One procedure stated there is that the owner of such certificated stocks that was deemed to be
lost, stolen, or destroyed, shall render information or evidence as it is necessary. Such information
of the owner is also needed when the corporation will publish a notice to the newspaper in regards
to the lost, stolen, or destroyed contract. With the given procedures above, it will then be decided
whether a corporation shall issue a new certificate of stocks as long as it is not related to cases
like fraud, negligence, or in bad faith.

30. Which of the following definitions defines a class suit?

A. It is a remedy designed by equity and has been the principal defense of the minority
shareholders against abuses by the majority.
B. The wrong is done to the stockholder personally and not the other stockholders or the
corporation
C. The preferred stockholder’s rights are violated and the wrong is done to a group of
stockholders.
D. The wrong is done to the corporation itself and the cause of the action belongs to the
corporation and not to the individual stockholders of the corporation.

Answer: C – The preferred stockholder’s rights are violated and the wrong is done to a group of
stockholders.

In title VII of the Revised Corporation Code of the Philippines, it is discussed there the derivative
suit, Individual Suit, and the Class Suit. It is stated there the comparison of the 3 suits, in which a
Class suit is defined as, “Where the wrong is done to a group of stockholders, as where preferred
stockholders’ rights are violated.”

31. How can a person become a shareholder in a stock corporation?

A. All subscribers consent to its revocation.

B. By subscription contract with an existing corporation for the acquisition of unissued
shares.
C. Labor performed for or services actually rendered to the corporation.
D. Amounts shares exchanged for stock in the event.

Answer: B- By subscription contract with an existing corporation for the acquisition of unissued
shares.
As stated in Section 59, Title VII of the Revised Corporation Code of the Philippines, that any
contract for the acquisition of unissued stock in an existing corporation or a corporation still to be
formed shall be be deemed a subscription within the meaning of this Title, notwithstanding the
fact that the parties refer to it as a purchase or some other contract.

32. Consideration for issuance of stock may be any or any combination of any two or more of the
following, EXCEPT:

A. Property- tangible or intangible

B. Cash
C. Outstanding shares exchanged for stock in the event of reclassification or
conversion
D. It is invalid as against creditors of the transferor without notice of the transfer

Answer: D - Under Section 61 of the Revised Corporation of the Philippines states that,
Considerations for the issuance of stocks may be: (a) actual cash paid to the corporation; (b)
property, tangible or intangible, actually received by the corporation; (c) labor performed for or
services actually rendered to the corporation; (d) previously incurred indebtedness of the
corporation; (e) amounts transferred from unrestricted retained earnings to stated capital; (f)
outstanding shares exchanged for stocks in the event of reclassification or conversion; (g) shares
of stocks in another corporation; and/or (h) other generally accepted form of consideration.

33. Determine the Following Statements if it is true or false:

I. A requesting party who is not a stockholder or member of record, or is a competitor,
director, officer, controlling stockholder or otherwise represents the interests of a
competitor shall have the right to inspect or demand reproduction of corporate records.
II. Corporate records, regardless of the form in which they are stored, shall be open to
inspection by any director, trustee, stockholder or member of the corporation in person or
by a representative at reasonable hours on business days, and a demand in writing may
be made by such director, trustee or stockholder at their expense, for copies of such
records or excerpts from said records.
A. Both Statements are true
B. Statement I. is false and Statement II. is true
C. Statement I. is true and Statement II. is false
D. Both Statements are false

Answer: B Statement I. is false and Statement II. is true, These statements fall under the new
revised corporate code of the Philippines Sec.73 Books to be Kept; Stock Transfer Agent.Under
this section the requesting party who is not a stockholder or a member of record, or is a
competitor,director,officer, controlling stockholder or otherwise represents the interests of a
competitor shall have no right to inspect or demand reproduction of corporate records. Which
proves that the first statement is false. The second statement on the other hand, is true under
Sec. 73 that corporate records, regardless of the form in which they are stored, shall be open to
inspection by any director, trustee, stockholder or member of the corporation in person or by a
representative at reasonable hours on business days, and a demand in writing may be made by
such director, trustee or stockholder at their expense, for copies of such records or excerpts from
said records. In addition to that, the inspecting or reproducing party shall remain bound by
confidentiality rules under prevailing laws, such as the rules on trade secrets or processes under
Republic Act No. 8293, otherwise known as the “Intellectual Property Code of the Philippines”, as
amended, Republic Act No. 10173, otherwise known as the “Data Privacy Act of 2012”, Republic
Act No. 8799, otherwise known as “The Securities Regulation Code”, and the Rules of Court.

34. Determine the following statements if it is true or false:

I. A corporation shall furnish a stockholder or member, within ten (10) days from receipt of
their written request, its most recent financial statement, in the form and substance of the
financial reporting required by the Commission.
II. At the regular meeting of stockholders or members, the board of directors or trustees shall
not present to such stockholders or members a financial report of the operations of the
corporation for the preceding year, which shall include financial statements, duly signed
and certified in accordance with this Code, and the rules the Commission may prescribe.
a. Both statements are true
b. Statement I. is false and Statement II. is true
c. Statement I. is true and statement II. is false
d. Both statements are false

Answer: C Statement I is true and Statement II. is false, since according to Sec. 74 in the revised
Corporation code of the Philippines which is right to financial statements a corporation shall
furnish a stockholder or member, within ten (10) days from receipt of their written request, its most
recent financial statement, in the form and substance of the financial reporting required by the
Commission. Which renders the first statement true. However, the second statement shows that
the board of directors or trustees shall not present to such stockholders or members a financial
report of the operations of the corporation for the preceding year, which shall include financial
statements, duly signed and certified in accordance with this Code, and the rules the Commission
may prescribe. Which in contrast the board of directors or trustees shall present financial reports
of the operation of the corporation to its stockholders or members. This proves the second
statement is false.

35. Any amendment to the plan of merger or consolidation shall be:

A. Approved by majority vote of the respective boards of directors or trustees of all the
constituent corporations
B. Ratified by the affirmative vote of stockholders representing at least two-thirds (2/3) of the
outstanding capital stock
C. Ratified by two-thirds (2/3) of the members of each of the constituent corporations.
D. All of the above

Answer: D. TITLE IX, Paragraph 2 of Section 76 states that, any amendment to the plan of
merger or consolidation may be made, provided such amendment is approved by majority vote
of the respective boards of directors or trustees of all the constituent corporations and ratified by
the affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital
stock or of two-thirds (2/3) of the members of each of the constituent corporations. Such plan,
together with any amendment, shall be considered as the agreement of merger or consolidation.

36. Which of the following statements is FALSE?

A. The constituent corporations shall become a single corporation which, in case of
merger, shall be the surviving corporation designated in the plan of merger.
B. Articles of merger or articles of consolidation shall be executed by the President or Vice
President of the constituent corporation.
C. The separate existence of the constituent corporations shall cease, except that of the
surviving or the consolidated corporation.
D. Two or more corporations may consolidate into a new single corporation which shall be
the consolidated corporation.

Answer: B. TITLE IX, Sec. 77 of the Revised Corporation Code states that, after the approval by
the stockholders or members as required by the preceding section, articles of merger or articles
of consolidation shall be executed by each of the constituent corporations, to be signed by the
president or vice-president and certified by the secretary or assistant secretary of each
corporation.

37. I. Within thirty (30) days after demanding payment for shares held, a dissenting stockholder
shall submit the certificates of stock representing the shares to the corporation for notation that
such shares are dissenting shares.
II. If, within sixty (60) days from the approval of the corporate action by the stockholders,
the withdrawing stockholder and the corporation can agree on the fair value of the shares,
it shall be determined and appraised by three (3) disinterested persons, one of whom shall
be named by the stockholder, another by the corporation, and third by the two (2) thus
chosen.

a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

Answer: D. I. Title X, SEC. 85 of the Revised Corporation Code states that it is within ten (10)
days after demanding payment for shares held, a dissenting stockholder shall submit the
certificates of stock representing the shares to the corporation for notation that such shares are
dissenting shares.
II. Under Title X, SEC. 81 of the Revised Corporation Code, the withdrawing
stockholder and corporation cannot agree on the fair value of the shares. It shall be
determined and appraised by three (3) disinterested persons, one of whom shall be
named by the stockholder, another by the corporation, and third by the two (2) thus
chosen.
38. When does the effect of transfer of dissenting shares take place?

A. If the dissenting stockholder is able to submit the certificates of stock representing

it as dissenting shares to the corporation for notation.
B. If the dissenting stockholder fails to submit the certificates of stock representing it
as dissenting shares to the corporation for notation.
C. If the corporation is able to submit the certificates of stock representing it as
dissenting shares to the dissenting stockholder for notation.
D. If the corporation fails to submit the certificates of stock representing it as dissenting
shares to the dissenting stockholder for notation.

Answer: A. According to Title X, SEC. 85 of the Revised Corporation Code, It is the dissenting
stockholder who shall submit the certificates of stock representing the shares to the corporation
for notation that such shares are dissenting shares. Failure to do so shall, at the option of the
corporation, terminate the rights under this title, which is referred to as the Rights of Transferee.

39. FIRST: A non-stock corporation is a kind of corporation where all of its income is distributable
as dividends to its members, trustees and officers. SECOND: Any profit which a non-stock
corporation may obtain incidental to its operations shall, whenever necessary or proper, be used
for the furtherance of the purpose or purposes for which the corporation was organized.

a. Both statements are true.

b. Both statements are false.
c. Only the FIRST is true.
d. Only the SECOND is true.

Answer: D. SEC. 86. Definition. - For purposes of this Code and subject to its provisions on
dissolution, a non- stock corporation is one where no part of its income is distributable as
dividends to its members, trustees, or officers: Provided, That any profit which a non - stock
corporation may obtain incidental to its operations shall, whenever necessary or proper, be used
for the furtherance of the purpose or purposes for which the corporation was organized, subject
to the provisions of this Title.

40. Which of the following statements of the Election and Terms of Trustees under a non-stock
corporation is correct?

a. Trustees elected to fill vacancies occurring before the expiration of a particular

term shall hold office only for the expired period.
b. The number of trustees shall be fixed in the articles of incorporation or bylaws
which may or may not be more than ten (10).
c. The latter shall hold office for not more than three (3) years until their successors
are elected and qualified.
d. All of the statements are incorrect.
Answer: C. Under SEC.91. Election and Terms of Trustees. - The number of trustees shall be
fixed in the articles of incorporation or bylaws which may or may not be more than fifteen (15).
They shall hold office for not more than three (3) years until their successors are elected and
qualified. Trustees elected to fill vacancies occurring before the expiration of a particular term
shall hold office for the unexpired period.

41. Which of the following may not be incorporated as a close corporation?

A. Insurance companies
B. Educational institutions
C. Stock exchanges
D. All of the above
Answer: D. Title XII, Section 95, Paragraph 2 of the Revised Corporation Code of the Philippines
states that, any corporation may be incorporated as a close corporation, except mining or oil
companies, stock exchanges, banks, insurance companies, public utilities, educational
institutions and corporations declared to be vested with public interest in accordance with the
provisions of this Code.

42. The following statements are presented to you:

I. The articles of incorporation of a close corporation may provide that the business of the
corporation shall be managed by the stockholders of the corporation rather than by a
board of directors.
II. So long as this provision continues in effect, a meeting of stockholders are need to be
called to elect directors.
III. The articles of incorporation may likewise provide that all officers or employers or that
specified officers or employees shall be elected or appointed by the board of directors,
instead of by the stockholders.
IV. In case of deadlock, the Securities and Exchange Commission, upon written petition by
any stockholder, shall have no power to arbitrate the dispute.

In your evaluation of the foregoing statements:

A. I, II and III are false

B. I and II are true
C. III and IV are false
D. Only statement I is true

Answer: D. Under Section 96, the articles of incorporation of a close corporation may provide
that the business of the corporation shall be managed by the stockholders of the corporation
rather than by a board of directors. So long as this provision continues in effect, NO meeting of
stockholders need be called to elect directors: Provided, That the stockholders of the corporation
shall be deemed to be directors for the purposes of applying the provisions of this Code, unless
the context clearly requires otherwise. Provided, further, That the stockholders of the corporation
shall be subject to all liabilities of directors. Moreover, the articles of incorporation may likewise
provide that all officers or employers or that specified officers or employees shall be elected or
appointed by the stockholders, instead of by the board of directors.

Under Section 103. Deadlocks - Notwithstanding any contrary provision in the close corporation's
articles of incorporation, bylaws, or stockholders' agreement, if the directors or stockholders are
so divided on the management of the corporation’s business and affairs that the votes required
for a corporate action cannot be obtained, with the consequence that the business and affairs of
the corporation can no longer be conducted to the advantage of the stockholders generally, the
Commission, upon written petition by any stockholder, shall have the power to arbitrate the
dispute.

43. Statement 1: The board of trustees for non-stock educational corporation and stock
educational corporation shall not be less than 5 and not more than 15 trustees. Therefore, both
corporations can have 8 members in the board of trustees.

Statement 2: In religious corporations, the place where the principal office of the corporation
sole is to be established and located can be anywhere and beyond the territory of the
Philippines, as long as the corporation is registered in the Philippines.

A. Only statement 1 is false

B. Only statement 2 is false
C. Both statements are false
D. Both statements are true

Answer: C. Under Title XIII, Section 106 of the Revised Corporation of the Philippines,
Educational institutions that are organized as nonstock corporation shall have not less than five
nor more than fifteen trustees provided that the number of trustees shall be in multiples of 5 which
means it can only be either 5 or 10 or 15 trustees only.

Under Title XIII, Section 109 of the Revised Corporation of the Philippines, In order to become a
corporation sole, the chief archbishop, bishop, priest, minister, rabbi or presiding elder of any
religious denomination, sect or church must file with the Commission articles of incorporation
setting forth the following:

(a) That the applicant chief archbishop, bishop, priest, minister, rabbi, or presiding
elder represents the religious denomination, sect, or church which desires to
become a corporation sole;
(b) That the rules, regulations and discipline of the religious denomination, sect or
church are consistent with becoming a corporation sole and do not forbid it;
(c) That such chief archbishop, bishop, priest, minister, rabbi, or presiding elder is
charged with the administration of the temporalities and the management of the
 affairs, estate and properties of the religious denomination, sect or church within
the territorial jurisdiction, so described succinctly in the articles of incorporation;
(d) The manner by which any vacancy occurring in the office of chief archbishop,
bishop, priest, minister, rabbi, or presiding elder is required to be filled, according
to the rules, regulations or discipline of the religious denomination, sect or church;
and
(e) The place where the principal office of the corporation sole is to be established
and located, which place must be within the territory of the Philippines.

The articles of incorporation may include any other provision not contrary to law for the regulation
of the affairs of the corporation.

44. Statement 1: The minimum authorized capital stock for a One Person Corporation is Php
5,000 and is required to submit its corporate bylaws.

Statement 2: An Ordinary Corporation can be converted into a One Person Corporation

when a single stockholder acquires all the stock.

a. Only statement 1 is false

b. Only statement 2 is false
c. Both statements are false
d. Both statements are true

Answer: A. Under Title XIII, Section 117 of the Revised Corporation of the Philippines, A One
Person Corporation shall not be required to have a minimum authorized capital stock except as
otherwise provided by special law. Moreover, in Section 119, it states that the One Person
Corporation is not required to submit and file corporate bylaws. Therefore, only the Articles of
Incorporation is needed.

Under Title XIII, Section 131 of the Revised Corporation of the Philippines, when
a single stockholder acquires all the stocks of an ordinary stock corporation, the latter may apply
for conversion into a One Person Corporation, subject to the submission of such documents as
the Commission may require. If the application for conversion is approved, the Commission shall
issue a certificate of filing of amended articles of incorporation reflecting the conversion. The One
Person Corporation converted from an ordinary stock corporation shall succeed the latter and be
legally responsible for all the latter’s outstanding liabilities as of the date of conversion

45. What is the voting proportion required for the voluntary dissolution of the corporation?

A. Signed by majority of the board of directors and majority vote of the outstanding capital
stock.
B. Signed by majority of the board of directors and vote of stockholders representing
at least 2/3 of the outstanding capital stock.
C. Signed by majority of the board of directors and majority vote of the stockholders.
D. Signed by majority vote of the board of directors and 2/3 vote of the stockholders.
Answer: B Under Sec. 135 Of the Corporation Code, if dissolution of a corporation may prejudice
the rights of any creditor, a verified petition for dissolution shall be filed with the Commission. The
petition shall be signed by a majority of the corporation’s board of directors or trustees,
verified by its president or secretary or one of its directors or trustees, and shall set forth all claims
and demands against it, and that its dissolution was resolved upon by the affirmative vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock or at
least two-thirds (2/3) of the members at a meeting of its stockholders or members called for that
purpose. The petition shall likewise state: (a) the reason for the dissolution; (b) the form, manner,
and time when the notices were given; and (c) the date, place, and time of the meeting in which
the vote was made. The corporation shall submit to the Commission the following: (1) a copy of
the resolution authorizing the dissolution, certified by a majority of the board of directors or
trustees and countersigned by the secretary of the corporation; and (2) a list of all its creditors.

46. Involuntary dissolution of the corporation is caused by

A. upon receipt of a lawful court order dissolving the corporation.

B. upon finding by final judgment that the corporation procured its incorporation through
fraud.
C. upon finding by final judgment that the corporation committed or aided in the
commission of securities violations, smuggling, tax evasion, money laundering, or graft
and corrupt practices, and its stockholders knew.
D. All of the above

Answer D: SEC. 138. Involuntary Dissolution. – A corporation may be dissolved by the

Commission motu proprio or upon filing of a verified complaint by any interested party. The
following may be grounds for dissolution of the corporation:

(a) Non-use of corporate charter as provided under Section 21 of this Code;

(b) Continuous in operation of a corporation as provided under Section 21 of this Code;
(c) Upon receipt of a lawful court order dissolving the corporation;
(d) Upon finding by final judgment that the corporation procured its incorporation through fraud;
(e) Upon finding by final judgment that the corporation:
(1) Was created for the purpose of committing, concealing or aiding the commission of securities
violations, smuggling, tax evasion, money laundering, or graft and corrupt practices;
(2) Committed or aided in the commission of securities violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices, and its stockholders knew; and
(3) Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other
fraudulent or illegal acts by its directors, trustees, officers, or employees.

47. Statement 1: A resident agent may be either an individual residing in the Philippines or a
domestic corporation lawfully transacting business in the Philippines.

Statement 2: An individual resident agent must only be of good moral character.

a. Both Statements are true
 b. Only the First statement is true.
c. Only the Second statement is true.
d. Both statements are false.

Answer: B - Revised Corporation Code of the Philippines, SEC. 144. Who May be a Resident
Agent. – A resident agent may be either an individual residing in the Philippines or a domestic
corporation lawfully transacting business in the Philippines: Provided, That an individual resident
agent must be of good moral character and of sound financial standing: Provided, further, That in
case of a domestic corporation who will act as a resident agent, it must likewise be of sound
financial standing and must show proof that it is in good standing as certified by the Commission.

48. The license of a foreign corporation to transact business in the Philippines may be revoked or
suspended by the Commission upon what grounds?

a. A misrepresentation of any material matter in any application, report, affidavit or other

document not submitted by such corporation pursuant to this Title.
b. Transacting business in the Philippines within the purpose or purposes for which such
corporation is authorized under its license.
c. Failure to appoint and maintain a resident agent in the Philippines as required by this Title.
d. None of the Above.

Answer: C. Revised Corporation Code of the Philippines, SEC. 151. Revocation of License. –
Without prejudice to other grounds provided under special laws, the license of a foreign
corporation to transact business in the Philippines may be revoked or suspended by the
Commission upon any of the following grounds:
(a) Failure to file its annual report or pay any fees as required by this Code;
(b) Failure to appoint and maintain a resident agent in the Philippines as required by this Title;
(c) Failure, after change of its resident agent or address, to submit to the Commission a statement
of such change as required by this Title;
(d) Failure to submit to the Commission an authenticated copy of any amendment to its articles
of incorporation or bylaws or of any articles of merger or consolidation within the time prescribed
by this Title;
(e) A misrepresentation of any material matter in any application, report, affidavit or other
document submitted by such corporation pursuant to this Title;
(f) Failure to pay any and all taxes, imposts, assessments or penalties, if any, lawfully due to the
Philippine Government or any of its agencies or political subdivisions;
(g) Transacting business in the Philippines outside of the purpose or purposes for which such
corporation is authorized under its license;
(h) Transacting business in the Philippines as agent of or acting on behalf of any foreign
corporation or entity not duly licensed to do business in the Philippines; or
(i) Any other ground would render it unfit to transact business in the Philippines.
49. Statement 1: The cease and desist order ex parte shall be valid for a maximum period of
ten (10) days, without prejudice to the order being made permanent after due notice and hearing.
Statement 2: Any person who, without justifiable cause, fails or refuses to comply with
any lawful order, decision, or subpoena issued by the Commission shall, after due notice and
hearing, be held in contempt and fined in an amount not exceeding Thirty thousand pesos
(₱30,000.00).

a. Both Statements are true

b. Only the First statement is true.
c. Only the Second statement is true.
d. Both statements are false.

Answer: C. Only the second statement is true.

Section 156. Cease and Desist Orders. - Whenever the Commission has reasonable basis to
believe that a person has violated, or is about to violate this Code, a rule, regulation, or order of
the Commission, it may direct such person to desist from committing the act constituting the
violation. The Commission may issue a cease and desist order ex parte to enjoin an act or practice
which is fraudulent or can be reasonably expected to cause significant, imminent, and irreparable
danger or injury to public safety or welfare. The ex parte order shall be valid for a maximum period
of twenty (20) days, without prejudice to the order being made permanent after due notice and
hearing.

Section 157. Contempt. - Any person who, without justifiable cause, fails or refuses to comply
with any lawful order, decision, or subpoena issued by the Commission shall, after due notice and
hearing, be held in contempt and fined in an amount not exceeding Thirty thousand pesos
(₱30,000.00). When the refusal amounts to clear and open defiance of the Commission's order,
decision, or subpoena, the Commission may impose a daily fine of One thousand pesos
(₱1,000.00) until the order, decision, or subpoena is complied with.

50. If after due notice and hearing, the Commission finds that any provision of this Code,
rules or regulations, or any of the Commission's orders has been violated, which of the following
administrative sanctions the commission may impose?

A. Issuance of the permanent cease and desist order.

B. Suspension or revocation of the certificate of incorporation.

C. Dissolution of the corporation and forfeiture of its assets under the conditions in Title
XIV of this Code.

D. All of the above.

Answer: D. All of the above. Section 158. Administrative Sanctions. - If, after due notice and
hearing, the Commission finds that any provision of this Code, rules or regulations, or any of the
Commission's orders has been violated, the Commission may impose any or all of the following
sanctions, taking into consideration the extent of participation, nature, effects, frequency and
seriousness of the violation:

(a) Imposition of a fine ranging from Five thousand pesos (₱5,000.00) to Two million pesos
(₱2,000,000.00), and not more that One thousand pesos (₱1,000.00) for each day of
continuing violation but in no case to exceed Two million pesos (₱2,000,000.00);

(b) Issuance of the permanent cease and desist order;

(c) Suspension or revocation of the certificate of incorporation; and

(d) Dissolution of the corporation and forfeiture of its assets under the conditions in Title
XIV of this Code.