I. A Corporation Inc.

, a corporation wholly owned by Filipino citizens, is a food manufacturing company that owns a factory in Cavite and a 5-hectare parcel of land on which the factory stands. To raise additional equity to pay maturing debt, the corporation agrees to issue new shares to Ma Ling, a Chinese national, equivalent to 45% of the company. 1. One of the Filipino shareholders questioned the subscription of Ma Ling as being violative of the Constitution. Is he correct? [ 5 points] 2. The same shareholder claimed that the approval by the corporation of the subscription of Ma Ling is ultra vires because the corporation is not authorized to issue any of its shares to foreigners and thus void. Is he correct? [ 5 points] 3. Do the existing shareholders have a pre-emptive right to the shares issued to Ma Ling? If yes, and they were denied such right, what is their remedy? [ 5 points] II. At the regular board meeting of the Board of Directors of B Corp. Inc., the directors present at the meeting i) passed a resolution authorizing the sale of a parcel of land that is no longer needed for the corporations business and authorized the President as signatory to the sale and ii) elected a new director to replace a director who had resigned. There was no quorum at the said directors meeting since 3 of the remaining 6 directors were out of the country at the time of the meeting. 1. Pursuant to the said resolution, the President executed a deed of sale with the X Realty Corporation. Is the sale valid? [ 5 points] 2. Is the election of the new director valid? If not, is an action for quo warranto available to question the validity of the election of the new director? [ 5 points] III. C Corp. Inc. has an authorized capital stock of P1,000,000.00 divided into 100,000 shares with a par value of P10.00 each. All the shares are issued and outstanding. Under the companys by-laws, a shareholder can be elected a director only if i) he has at least 1000 shares in his own name, ii) that he has owned such shares for at least 6 months prior to the date of the election , and iii) must have been pre-qualified by a Nomination Committee created by the Board of Directors. The by-laws also forbid any nomination submitted or made on the floor during the annual meeting.

1. Shareholder A owns 23,450 shares of C Corp. Inc. At the annual meeting, A nominates himself as a director but the Corporate Secretary disqualified him on the basis of the above by-law provisions. A argues that as shareholder, he has both the qualifications and the shares to have himself elected as a director. Is the disqualification of A valid? [ 5 points] 2. Due to his disqualification, A hired counsel to sue the corporation for violation of his rights as shareholder, and the lawyer promptly requested for copies of the minutes of the annual meetings for the last three years to prove that As disqualification is arbitrary. The Corporate Secretary refused to furnish the minutes. Is the Corporate Secretary correct? [ 5 points] 3. If all the shares of A are covered by a voting trust agreement, is A qualified to be a director assuming the by-laws do not disqualify him? [ 5 points] IV. D Sugar Corp. Inc. is a domestic corporation engaged in the business of operating a sugar refinery in South Cotabato . At a regular meeting, the Board of Directors approved the investment of P65 Million to purchase 15% of the outstanding capital stock of Selective Ice Cream Manufacturing Inc., a domestic company engaged in the business of ice cream manufacturing. 1. Is the vote of shareholders required to approve the investment in the shares of Ice Cream Manufacturing Inc.? If yes, what vote is required? [ 5 points] 2. Assuming no shareholders vote is taken before the proposed investment is made, does a shareholder who objects to the investment have appraisal right? [ 5 points] V. A owns of the outstanding capital stock of E Corporation, a company engaged in the property leasing business. He sits in the 5-member board as Chairman, together with 3 directors holding nominal shares and the minority director representing the remaining of the outstanding capital stock of the corporation. A likewise owns with his family the Reliable Manpower Services Inc. At a meeting of the board of directors in which A was NOT present, the board of directors of the corporation approved a contract with Reliable Manpower Services to provide E Corporation all its janitorial and security services in all its properties for lease.

1. Is the contract by E Corporation with Reliable Manpower Services Inc. valid? [ 5 points] 2. At one of the meetings of the board of directors of E Corporation, the minority director suggested that in view of the substantial manpower needs of the corporation, the corporation study the possibility of investing in a manpower services company. A, who was present at the meeting, did not object to such a study. In the light of these facts, does the contract with Reliable Manpower Services Inc. violate the business opportunity rule? [ 5 points] VI. Define the following terms under the Securities Regulation Code: 1. 2. 3. 4. 5. A prospectus; An underwriter; A pre-need plan; An insider; A public company.

[ 2 points each] VII. OFW Services Ltd. is a corporation organized and existing under Hongkong law. It is 100% owned by Filipino expatriates living in Hongkong, and is engaged in the business of providing relocation assistance mainly to other Filipino expatriate who arrive in Hongkong to assume employment there. It is represented in the Philippines by A who maintains an office in Makati City , where expatriates planning their relocation receive advice and information on living in Hongkong. 1. Does OFW Services Ltd. need to secure a license to do business in the Philippines ? [ 5 points] 2. Some funds received from Philippine-based clients were misappropriated by A. Assuming it has no license to do business in the Philippines , can OFW Services Ltd. file an action in Philippine courts to recover the funds taken by A? [ 5 points]

VIII.

True or False. A True answer is sufficient. If False, rewrite the statement to make it true or correct. [ 2 points each ] 1. 2. 3. 4. 5. 6. The Concession Theory of incorporation does not apply to corporations created by a special law. The reduction of the authorized capital stock of a corporation resulting in the return of capital to shareholders violates the trust fund rule. The restricted retained earnings of a corporation may not be reclassified to unrestricted retained earnings and thereafter declared as cash dividends. The corporation may purchase delinquent shares only if it has unrestricted retained earnings. A dissolved corporation in the process of liquidation no longer has any power to appoint corporate officers. All pending actions for or against a dissolved corporation are abated upon the lapse of the 3 year winding up period and may no longer be maintained for or against the dissolved corporation. Property donated to a non-stock corporation with the condition that the property cannot be disposed, transferred or conveyed by the corporation cannot be held liable for debts of the non-stock corporation. A religious society cannot be incorporated as a non-stock corporation. A corporation owned by close corporation is a close corporation.

7.

8. 9.

10. The non-impairment clause of the Constitution applies to contracts entered into by a corporation dissolved by legislative act. ===========================================================

1. Distinguish capital stock from shares of stock. [ 5 points] 2. Mario subscribed to 1 Million shares of PopCorn (Phils.), Inc. ( the Company) at a par value of P1.00 each and paid 50% of his subscription. Due to intense competition, the Company was unable to make a profit after 5 years of operations and Mario requested the Company to pay back what

he has paid for his shares. In response, the Company demanded that Mario pay the balance of his subscription. Mario refused to invest additional money in the losing business, hence the Company filed an action in the Regional Trial Court for collection of the balance of the subscription and damages. 2.1 While the action in the RTC is pending, Mario demanded that he be allowed to inspect the minute book of the Company to determine what resolutions were passed by the Board of Directors in the past two years. The Company denied his request due to the pending litigation between him and the Company. Who is correct? Explain. [ 5 points] 2.2 Pending final judgment, Mario assigned all his interests and rights in the Company to Lucas who offered to pay the unpaid subscription. The Company refused to accept the payment on the ground that being delinquent and not fully paid, Marios shares may not be disposed of. Can Lucas compel the Company to accept the subscription payment? [5 points]

3. The Homebuilders Realty and Development Co. Inc. ( the Company) is a domestic corporation with an authorized capital stock of P500 Million divided into 400 million common shares and 100 Million preferred, convertible shares, with a par value of P1.00 per share, all of which are subscribed and duly issued to the Cruz Holdings Company Inc. and a foreign partner. To build up its capital base in preparation for a planned initial public offering, the Company intends to i) declare 25% stock dividend, ii) acquire 2 lots in Fort Bonifacio worth P150 Million in exchange for the Companys equivalent shares, and iii) convert all its preferred shares into common shares. Assuming the Company has sufficient retained earnings, what steps will be performed and what approvals will be secured by the Company in order to carry out its capital build-up. [ 20 points] 4. The Selected Goats Inc. proposed to increase its capital stock from P 10 Million to P100 Million, with more than half of the new funds to be reserved to finance the development of its 100 hectare property in Tagaytay into a

tourist resort through a wholly-owned subsidiary it intended to incorporate. Juan and Manuel are minority shareholders who do not agree with the plans of the company for different reasons. 4.1 During the shareholders meeting called to approve the amendment of the articles of incorporation of the Company, Juan objects to the increase in capital stock on the ground of dilution and makes a written demand to exercise his appraisal right. Is he correct? Explain. [ 5 points] 4.2 Due to illness, Manuel was unable to attend the same stockholders meeting but he wrote the Corporate Secretary three days after the meeting to register his objection to the proposed increase in the capital stock of the Company because he did not believe that the Company should go into the business of property development. Thereafter, he also demanded to exercise his appraisal right. Is he correct ? Why or why not ? [ 5 points] 5. Andrew owns 23 shares from out of a total of 100 shares of the CocaCola Juice Company (the Company). The other shares are owned by the Soriano family. At the annual stockholders meeting of the Company, Andrew nominated himself and his wife to the Board of Directors which has 5 members. They both lost. 5.1 Andrew argues that with 23 shares, he should be entitled to at least one seat in the Board. The Corporate Secretary disagrees. Who is correct? Explain. [ 5 points] 5.2 The Chairman of the Board, Don Manuel Soriano, suddenly died one month after the annual stockholders meeting. The remaining members of the Board elected Raul to replace Don Don Manuel and to serve his unexpired term. Raul had one(1) share in his name. Andrew claimed that since he owns 23 shares of the Company, he should be elected in place of Don Manuel instead of Raul who has only one (1) share. The Corporate Secretary disagrees again. Who is correct? Explain. [ 5 points] 6. Distinguish a proxy from a voting trust agreement. [ 5 points]

7.. Who is a self-dealing director? What are his liabilities, if any? [ 5 points] 7.1 Distinguish the doctrine on self-dealing director with the doctrine of corporate opportunity. [ 5 points] 8. May treasury shares be declared as dividends? If yes, what approvals are required for such declaration? [5 points] 9. Define and distinguish corporations under common control and corporations with interlocking directors. [ 5 points] 10. Define a security. [ 5 points]

11. Define and distinguish redeemable bonds from redeemable shares. [ 5 points] 12. To raise an additional P500 Million in new equity, the Sixth Sense (Phils.) Co. Inc, a domestic corporation with total capital assets of almost P200 Million and more than 300 stockholders, proposed to increase its existing capital stock from P100 Million to P1 Billion and to offer for sale P500 Million of the new shares with a par value of P1.00 per share to Philippine Insurance and Surety Company Inc. to the extent of 300 Million shares and the balance of 200 Million shares through a stock rights offering to existing shareholders. Is prior registration of the sale of the Companys shares required under the Securities Regulation Code? Explain why or why not. [ 10 points]
I. Define or explain the following: [ 3 points each] 1. 2. 3. 4. 5. 6. 7. 8. Authorized but unissued capital stock Subscription agreement Grandfather rule Philippine national Primary Franchise Sociedad anonima Control test Common control

9. Right of succession of a corporation 10. Juridical capacity of a corporation II. To promote the exploration and development of natural gas as an alternative energy source, Congress passed a law creating the Philippine Natural Gas Corporation (PNGC) which will be owned 50% by the Government and 50% by private investors to be chosen by public bidding. The law also granted the PNGC exclusive rights to explore for natural gas in Palawan for a period of 50 years. Kalikasan Foundation, a Philippine NGO, claims the law violates the constitution. Name and briefly discuss at least 2 grounds it can raise. [ 10 points] III. Explain how the power of the corporation to classify its shares is used to achieve the following corporate purposes: [ 5 points each] 1. To raise capital. 2. To maintain control of the corporation. IV. Encouraged by the booming food industry, X, a well-known chef, negotiated to acquire the exclusive Philippine franchise from a well-known US fast food company. To raise capital, X convinced his friends A, B and C and D to subscribe to 40% of the proposed Philippine company that will hold the franchise, who all agreed on the condition that X will personally manage and attend to the food business. Mainly because of Xs business reputation, the franchise was granted to the company he was forming. After incorporation of the company, X was elected Chairman and President and A, B, C and D were elected non-executive directors. The food business was a great success. X wanted to expand by opening another food branch, but A, B, C and D objected on the ground that expansion is too early. X instead incorporated X Food Company by himself and opened a restaurant using the same franchise. A and B sued X for damages claiming X and his company has no right to use the food franchise. Will the action prosper? Explain. [ 10 points] V. St. Michael Inter-island Inc. (SMI), the second biggest ferry operator in the Visayas, is a wholly-owned subsidiary of Global Ventures Inc. (GVI), a holding company whose principal business is to own and hold shares of other corporations. SMI holds office in the same building as GVI ; 3 directors of GVI are also directors in SMI ; the principal officers of SMI are all nominated by GVI and SMI and GVI have the same President.

GVI is paid management fees by SMI and at least 12% of the annual income of GVI are derived from dividends declared by SMI. 1. One of the ferries of SMI was involved in an accident that resulted in the death of all its passengers and crew. A suit for damages and breach of contract of carriage was filed against SMI, GVI and the President of both companies by the heirs of some of the victims alleging that SMI and GVI are one and the same company. Assuming the cause of the sinking was SMIs negligence, will the suit prosper? Explain? [ 5 points] 2. The President of SMI and GVI argue that he is not personally liable for the claims of the heirs of the passengers regardless of the cause of the accident. Is he correct? [ 5 points] VI. A and 4 others agreed to form a corporation to engage in merchandise trading. While the articles of incorporation of their company was pending review and approval by the Securities and Exchange Commission, A and the others entered into several contracts in the name of Golden Trading Company Inc., a company in the process of incorporationand started conducting business as such even if A and the others that the SEC had not approved their articles of incorporation. 1. Is Golden Trading Company Inc. a corporation by estoppel or a corporation de facto? Explain briefly. [ 5 points] 2. Assuming the articles of incorporation of Golden Trading Company Inc. are disapproved, are the contracts entered into by it valid? Who will be liable under said contracts, if any? [ 5 points]

VII. True or False. A true answer is sufficient. If false, restate the sentence to make it correct. [ Each statement is worth 2 points]. 1. A government-owned corporation is a corporation organized under the Corporation Code and owned by the government. 2. A foreign corporation not doing business in the Philippines cannot be sued in Philippine courts. 3. Par value shares may be issued by the Corporation at different values. 4. Treasury shares form part of the unissued capital stock of the corporation. 5. The by-laws of a corporation are internal rules that do not bind third parties.

6. A subscription agreement entered into by a corporation whose authorized capital stock has been fully issued is a valid agreement. 7. 8. The shareholders of a corporation are co-owners of the assets of the corporation pro rata. Preferred shares with no voting rights have no right to vote on the change of the corporations principal place of business. by the

9. A corporation has no tort liability for a negligent act duly approved Board of Directors. 10. Under the alter ego rule, a corporation may be held liable for the personal debts of its controlling shareholder. I.

Five newly-passed lawyers desire to practice law together. One of them suggested that instead of forming a professional partnership like existing law firms they form a corporation that will provide legal and consultancy services. 1.1 What advantages and disadvantages are there between a professional partnership and a corporation engaged in the business of providing legal services? [ 5 points] 1..2 Should the Securities and Exchange Commission allow the incorporation of the proposed corporation ? [ 5 points] II. Define, compare or distinguish the following: [ Each number is worth 2 points] 1. 2. 3. 4. 5. Authorized capital stock and outstanding capital stock Paid-in capital and legal capital Subscribed capital and issued capital Share and stock. Subscription agreement and share purchase agreement. III. Encouraged by the booming food industry, A negotiated to acquire the exclusive Philippine franchise from a well-known US fast food company. To raise capital, A

convinced his friend X and 3 others to subscribe to 40% of the proposed Philippine company that will hold the franchise. After X and the others agreed to make the subscription, A bought equipments, leased prime commercial space in a mall for a 10 year term, engaged a building contractor and hired several employees all the while representing that he is the majority shareholder of a new corporation still to be formed. Unfortunately, the franchise was awarded to another business group. 1. May X cancel his subscription to the proposed company ? Explain. [ 5 points] 2. May the lessor hold X personally liable for rentals and/ or damages under the lease contract ? If not, against whom may an action be brought to enforce the lease? [ 5 points] 3. To resolve his dispute with X, A proposed to acquire the shares of X in the proposed company payable from the profits of another business A planned to open. Assuming X agrees, is the contract valid? Explain. [ 5 points] IV. A Corp Inc., a leading local restaurant chain, is expanding and wants to acquire Pancake Hut Inc. ( PHI), a family-owned business, to make its entry in the profitable breakfast and mid-afternoon meal segment. The two corporations are capitalized as follows: A Corp Inc. Authorized capital stock : P 500,000,000.00 divided into 50,000,000 shares with par value of P10.00 each Subscribed and outstanding capital stock: P 300,000,000.00 Issued and outstanding shares : 30,000,000 shares Paid-In capital : P 225,000,000.00 Unissued authorized capital stock: 20,000,000 shares Pancake Hut Inc. Authorized capital stock : P50,000,000 divided into 10,000 shares with a par value of P 5000 each Subscribed and outstanding: P 30,000,000.00 Paid-In capital : P30,000,000.00 Unissued authorized capital stock: 4,000 shares The Board of Directors of A Corp Inc. approved the acquisition subject to the following basic terms : i) PHI is acquired as an operating business and there will be no disruption in its business, ii) the least cash outlay is involved, iii) A Corp Inc. will not

assume any liabilities of PHI to creditors and employees and iv) the PHI owners will acquire 10% of the shares of A Corp Inc. What will be your acquisition strategy? Explain . [ 10 points] V. XYZ Inc. is being incorporated to own and a manage a leisure resort in Palawan. It will own several parcels of land and hold foreshore leases from the government. Its business strategy is guided by these considerations:

a. For five years from incorporation of the new company, only the nominees of XYZ Inc. shall be voted for in its board. Thereafter, XYZ will hold majority of the board positions; b. Foreigners will be allowed to acquire shares in the new company without the right to vote; c. The majority of the shares of the new company will be freely transferable; d. The shares held by XYZ Inc and by foreigners will have a preference in the distribution upon dissolution. How will you classify the shares to achieve these business objectives. Explain. [ 10 points] VI. X Inc. is a wholly-owned subsidiary of Y Inc., a holding company whose principal business is to own and hold shares of other corporations. X Inc. holds office in the same building as Y Inc. , the two corporations have the same members of the board and the principal officers of X Inc. are all nominated by Y Inc. and are generally also the same officers of Y Inc. X Inc.. pays Y Inc. management fees for these services . At least 60% of the annual income of Y Inc. are derived from dividends declared by X Inc., which operates a profitable snack manufacturing operation. To raise capital for expansion, X Inc. borrowed money from a bank which required that X Inc.s President who is also Ys President sign a joint and several clause with X Inc.. X Inc. defaulted. 1. May the corporate veil of X Inc. be pierced in order to hold Y Inc. and the principal shareholders of Y Inc. liable for the debt of X Inc? Explain ? [ 5 points]

2. The President of X Inc. argues that he is not personally liable for the debt even under the joint and several clause because he executed the loan documents only as part of his official duties? Is he correct? [ 5 points]

VII. Riding the property boom, a realty company aggressively launches a high-end a mixed residential/ commercial project in Cebu despite warnings that the area was overbuilt. A depressed market, cost overruns and contract problems with contractors compelled the company to discontinue the project which was left unfinished. The Company defaulted on its loans and several suits were filed by creditors, who discovered that the company had no remaining assets and its capital has been fully impaired due to losses over several years of operation. 1. Has the trust fund doctrine been violated? [ 5 points] 2. Y has a subscription agreement with the corporation but the certificates have not been issued pending payment of his subscription. Can he be sued by the creditors for his unpaid subscription ? [ 5 points]

VIII. True or False. A true answer is sufficient. If false, explain why. [ Each statement is worth 3 points]. 7. All corporations require a primary franchise in order to operate its principal business. 8. Shares of stocks of corporation, whether for profit or not, are securities. 9. Treasury shares form part of the issued and outstanding capital stock of the corporation. 10. The Articles of Incorporation is a contract that binds only the corporation and its shareholders. 11. A subscription agreement entered into by a corporation whose authorized capital stock has been fully issued and subscribed is void. 12. Preferred shares with no voting rights have no right to vote on the reclassification of shares from Common A to Common B.

13. A share acquired by a shareholder for less than par value of the share is a watered stock. 14. Unrestricted retained earnings of a corporation may be used to redeem redeemable shares, acquire the corporations own shares and to declare stock dividends. 15. Under the trust fund doctrine, a corporation may not dispose of its assets if there is a risk of default on its loan obligations. 16. As an artificial person, a corporation may inherit property. =========================================================== 1. Encouraged by the growing business of live fish exports, Jose, Mario, Ricardo and Pedro agreed to incorporate a company with a capital stock of P20 Million to raise, grow, process, sell and export live fish. Pedro agreed to subscribe to 70% of the company while Jose, Mario and Ricardo agreed to subscribe to 10% each. 1.1 After investing 1 Million in the proposed company, Pedro refused to invest any more money after he had some disagreements with Jose on how to run their business and declared his intent to withdraw from the proposed company whose articles of incorporation were still pending with the Securities and Exchange Commission. Jose filed suit to compel Pedro to invest the full amount he committed to invest in the company. Will Joses suit prosper? Explain. [5 points] 1.2 Pedro demanded that as a condition of his investment, he will sit as a Chairman of the Board for ten years after incorporation of the new company. May the by-laws validly provide that Pedro will be the Chairman of the Board for ten years after incorporation? Explain. [5 points] 1.3 Pedro entered into a Shareholders Agreement with Jose, Mario and Ricardo that none of them can sell their shares for five years from the date of the Shareholders Agreement except with the consent of all shareholders and in case of such a sale, the selling shareholder must first offer the shares to the other shareholders. Is the agreement valid? Explain. [10 points] 1.4 In anticipation of their business needs, the proposed company acting through Jose entered into a conditional sale of several hectares of land in Pangasinan to be developed into fishponds The lot owner agreed to sell only because of Pedros substantial investment. Assuming that Jose, Mario and Ricardo agreed to allow Pedro to withdraw from the business before the proposed articles can even be filed, may a suit by the seller to compel the

proposed company and Pedro to perform the contract and to solidarily pay damages prosper? Explain. [10 points] 2. Bahay Realty Company is a domestic corporation engaged in the realty business. The Company was founded and is almost wholly owned by Dan Bahay, a former OFW who used all his savings to turn the company into a multi million venture in only 15 years. Other shareholders include his relatives. Dan convinced the Board of Directors of the Company to buy, rebuild and operate a 50-bed hospital near one of its subdivision projects. The other shareholders objected to the hospital project on the ground that it is an ultra vires act. Are they correct? Explain. [ 10 points] 3. Efren is the majority shareholder and President of XYX Corporation, a company engaged in the trading business. Maritess was his secretary. By reason of Maritess refusal to go out to dinner with him, Efren filed a complaint against her for alleged theft claiming that Maritess had stolen some cash he had left in his drawer over the weekend. After investigation, Maritess was found guilty of the charge and dismissed from employment. Maritess filed an illegal dismissal suit against the Company and Efren, and the NLRC found that the dismissal was illegal and held the Company and Efren jointly and severally liable for damages and backwages. 3.1 Efren claimed that he cannot personally be liable for Maritess claims because he is not her employer. Is Efren correct ? Explain. [ 5 points] 3.2 If XYZ Corporation argues and proves that it is not incorporated, can Efren alone be held liable for Maritess claims? Explain. [ 5 points] 4. Your client proposes to incorporate a joint venture company to engage in the operation of call centers in the Visayas and Mindanao. The JV company will be owned 60% by your client and 40% by a Singapore company. 4.1 Draft Article Seventh, Eight and Ninth of the proposed articles of incorporation of the JV Company which will have an authorized capital stock of Php 50Million. You may provide details as you deem necessary. [ 10 points] 4..2 Your client wants, and the foreign partner agrees, that for a period of 5 years from incorporation of the JV Company, the 40% share of the foreign partner will be non-voting. Amend Article Seventh in 4.1 above to implement this agreement between the partners. [ 10 points]

5. ABC Realty Corporation is wholly-owned by the Reyes family. The Company owns a parcel of land in Tagaytay which is the Companys only asset. Abala Realty Company proposed to purchase the property outright, but the sale of the land will be subject to the highest tax rate. Is there any other way for the buyer to acquire said property other than a sale of the land? [ 10 points] 6. RB Engineering (RBE), a sole proprietorship owned by Carlo Reyes, filed an action for collection of a sum of money against Evas Garden and Massage Inc. (EGM). The case was docketed as RB Engineering vs. Evas Garden and Massage Inc. in the Regional Trial Court of Manila. It appears that Reyes, as sole proprietor, entered into a Construction Agreement with EGM for the construction of a parlor along Mendiola Avenue, Manila. Despite demands, EGM refused to pay the balance of the contract price long after the construction was completed. As it turns out, EGM is not properly incorporated after its proposed articles were disapproved for having an immoral primary purpose. EGM filed a motion to dismiss the action on four grounds 1) 2.) 3.) 4.) RBE has no legal personality to file the action. EGM has no power to sue or be sued since it is not an incorporated entity. Eva Gardenia, not EVG, is the proper party in interest. The construction contract is outside the powers of EGM and therefore void.

Which of these grounds is valid? Explain. [ 10 points] 7. Distinguish a corporation sole from an incorporated religious society. [ 5 points] 8. Are all family- owned or -controlled corporations close corporations? Explain. [ 5 points] =========================================================== I. 5 persons incorporated Five Star Corp. Inc. with an authorized capital stock of P1 Million divided into 1 Million shares with a par value of P1.00 per share, with each of them owning 20% interest in the corporation. In their Shareholders Agreement, each agreed that no issuance, sale or disposition of the shares held by any of them may be made to a third party without first offering the shares to the other shareholders. Two years later, they voted to increase the authorized capital stock of the corporation to P5Million. (1) Two of the shareholders, S and B, are unable to subscribe to the increase in the capital stock due to lack of funds. The corporation then accepted the offer of X, who is not a shareholder, to subscribe to

the entire unissued capital stock of the corporation that the existing shareholders refused to subscribe. S claims that the action of the corporation violates the Shareholders Agreement . Is S correct? [ 5 points] (2) Due to the insistence of the other members of the board to approve Xs subscription, S resigned as member of the Board and demanded that the corporation buy back his shares at its fair market value. The Corporation refused. Thereafter, S sold all his shares to Y, a non-shareholder, without the knowledge of the other shareholders. The corporation refused to register the sale in favor of Y because i) the shares have not been fully paid, and ii) the sale was in violation of the Shareholders Agreement. Is the corporation correct? [5 points] II. A subscribed to 100,000 shares of Lexus Corp. Inc. at P100.00 per share, with 25% of the subscription payable upon signing and the balance within 30 days from the issuance of the certificate of stocks representing 100,000 shares. Six months after the date of the subscription, the corporation made a call for payment of all unpaid subscription within 30 days from the date of the call. (1) A refused to pay the balance of his subscription because the stock certificates have not been issued to him. Is A correct? [3 points] (2) By reason of A s refusal to pay the balance of the subscription, the corporation declared A shares delinquent and refused to allow A to attend and vote his shares in the annual stockholders meeting, where one of the items to be voted on was the proposed increase in the corporations authorized capital stock. Is the corporation correct? [3 points] (3) Upon the mediation of the Board Chairman, who owns 70% of the entire outstanding capital stock, the corporation and A agreed on a c compromise whereby the corporation will issue 25,000 fully-paid shares to A while the balance of As subscription will offered for subscription to any interested third person. B, another shareholder, questions the compromise agreement as invalid. Is B correct? [4 points] III. S is a shareholder in Homes Realty Inc. S is also the majority owner of Dreamland Realty Inc. Both companies are engaged in the business of property development and

are competitors in the industry. S also sits as a director in Homes Realty Inc. and is the Chairman of the Board in Dreamland Realty Inc. (1) Homes Realty Inc. proposed to amend its by-laws to include the following provisions: (a) no shareholder of the corporation shall be allowed to engage directly or indirectly in a competitive business, and any shareholder with interests in any business in competition with the corporation shall be required to sell its shares to the corporation at par value within 30 days from demand by the corporation, and (b) no shareholder with interests in a competing business shall be elected to the board of directors. Are the proposed by-law amendments valid? [5 points] (2) In one of the meetings of the board of Homes Realty Inc., which A attended, an offer to sell a property in Malate made by a broker was discussed. Homes Realty agreed to further study the proposal and to defer a decision until it has identified a funding source for the purchase. At the meeting of the board of Dreamland Realty 3 days later, S mentioned the offer to the board, which agreed to make an offer to the owner to buy the property. When Homes Realty found out about Dreamlands offer, it made its own offer to buy the same property. The property owner accepted the offer of Dreamland Realty which was the higher offer. Did S violate any of his duties as a director? [ 5 points]

IV. PLDT Corp. Inc., a domestic corporation engaged in the telephony business, proposes to acquire 25% of the outstanding capital stock of ABS Corp., Inc, a mass media company owning 3 radio stations for P400 Million. PLDT explains that the purchase will allow the corporation to offer new services and the acquisition will result in the appreciation of the value of PLDT shares. (1) S, a PLDT director, objects to the investment on the ground that the primary purpose of PLDT is to engage in the telephone business and it is not authorized to invest in a mass media company. Is S correct? [ 3 points] (2) Despite the objection of S, the PLDT board approves the investment and enters into a contract with some of the shareholders of ABS Corp. to acquire 25% ownership of the latter company. Is the contract ultra vires? [3 points] (3) If you were S, what remedies are available to you as a shareholder? [4 points]

V. (a) Name and briefly explain at least 4 provisions/principles in the Corporation that protect voting rights of minority shareholders. [ 5 points] (b) Director A sits in the board of directors of X Corp. Inc. representing the minority shareholders. The corporation has 5 directors. In a board meeting, it was decided to increase the number of directors in the board from 5 to 9 directors. Director A objects to the increase in directors, claiming that by by increasing the number of directors in the board, the minority shareholders will lose their seat in the board. Is As objection valid? If yes, what remedies are available to the minority shareholders, if any? VI. Define the following terms under the Securities Regulation Code: 1. 2. 3. 4. 5. Issuer Exchange Registration Statement Tender Offer Exempt Securities

[ 2 points each] VII. (a) What are the effects of a merger or consolidation? (b) Distinguish the effects of an assets only purchase from a merger. VIII. (a) Distinguish the powers and prerogatives of the board of directors of ordinary stock corporation from the board of directors of a close corporation. [5 points]

(b) When are actions taken by the board of directors of a close corporation valid even without a valid meeting? [5 points] IX.

(a) Distinguish a corporation sole from a religious society. [ 5 points] (b) Distinguish a foreign corporation from a foreign national. X.. True or False. A True answer is sufficient. If False, write False and then rewrite the statement to make it true or correct. [1 point each] 1. 2. 3. 4. 5. 6. 7. 8. 9. A private corporation may be created by a special law. The by-laws of a corporation do not bind third persons who are not shareholders. A de facto corporation has all the powers and privileges of a corporation which has properly been incorporated. A corporation organized under Philippine laws and owned 100% by Filipino citizens is a Filipino citizen under the Philippine Constitution. The proceeds of a sale of a corporate asset may be declared as dividends. Treasury shares may be issued by the corporation for less than its par value or acquisition value.. The donation of a corporate asset without the consent of corporate creditors violates the trust fund rule. A member of the board of directors has the same fiduciary duties as a bylaw officer who is not a director.. A contract between two corporations with the same President is voidable if the Presidents vote and presence in the meeting approving the contract is necessary for quorum and approval.

10. Cumulative voting is not mandatory in the election of directors in a close corporation.