ASSOCIATION OF TAXATION AND LAW STUDENTS

University of the East Caloocan

Federation Year 2012 2013

REVIEWER NOTES ON BL 102 (LAW ON BUSINESS ORGANIZATIONS)
Midterm Grading Period

Sources: Law on Partnerships and Private Corporations by H.S. De Leon (2005 Edition)
Notes in Business Law by F.R. Soriano (2011 Edition)
Chan Robles Virtual Law Library (http://www.chanrobles.com/legal5cc.htm)
Corporation Law (http://www.angelfire.com/me4/francute/corplaw.htm)


LAW ON CORPORATIONS(Batas Pambansa Blg. 68, took effect on May 1, 1980)

Corporation defined. A corporation is an artificial being created by operation of law, having the right of succession and
the powers, attributes and properties expressly authorized by law or incident to its existence.

Partnership vs. Corporation

Comparison Corporation Partnership
Manner of Creation By operation of law Mere agreement of partners
Number of organizers 5 ~ 15 (except in corporation sole) 2 or more
Right of Succession True False
Limitation on Powers Only those expressly authorized by
law/ incident to its existence
No limit provided not contrary to law,
morals, good customs, public order
or public policy.
Management Board of Directors General Partners
Liability for debts Not liable for debts of the
corporation
Liable with their separate assets for
partnership debts
Commencement for existence Date of issuance of certificate of
incorporation
Execution of partnership contract
Transfer of interest True, even without consent of other
stockholders
True, if only with consent by other
partners
Term 50 years Indefinite life
Dissolution False, must have consent by the
State
True, by stipulation by partners

Classification of Corporations

1. Stock Corporation. Corporations which have capital stock divided into shares and are authorized to distribute to
the holders of shares dividends or allotments of the surplus profits on the basis of the shares.
2. Non Stock Corporation. Corporations where no part of its income is distributable as dividends to its members,
trustees or officers.

3. Domestic Corporation. One incorporated under Philippine laws.
4. Foreign Corporation. One formed, organized and existing under any laws other than those of the Philippines and
whose laws allow Filipino citizens and corporations to do business in the Philippines.
Consideration: At least 60% of Filipinos should comprise the capital structure of the company.

5. Corporation Aggregate. One composed of more than one corporator.
6. Corporation Sole. One composed of only one person. [ex. Roman Catholic Church]

7. Public Corporation. One that is organized for the government of a portion of the State [ex. Caloocan City]
8. Private Corporation. One that is formed for a private purpose. [ex. San Miguel Corporation]

9. Ecclesiastical Corporation. One formed for a religious purpose [ex. Iglesiani Cristo]
10. Lay Corporation. One formed for a purpose other than religious.

11. Eleemosynary Corporation. One formed for charity.
12. Civil Corporation. One formed for business or profit.

13. De Jure Corporation. One that has been created in strict compliance with all the legal requirements of the law.
14. De Facto Corporation. One that is defectively created but there is an exercise of corporate rights and franchise
resulting from an attempt in good faith to incorporate on the part of its partners.

15. Parent Corporation. One who owns shares of another corporation and having power (control) over the latter
including the election of officers thereof.
16. Subsidiary Corporation. One whose shares are owned by another corporation.

17. Close Corporation. One whose shares is limited to a few people and not listed in any stock exchange.
18. Open Corporation. One whose shares are offered to public and is listed to any stock exchange.

19. Corporation by Prescription. One who has exercised corporate powers for such a length of time without
interference by the State.
20. Corporation by Estoppel. One which is in reality not a corporation but is considered as one with respect to those
who are precluded by their admission from denying its existence.

Corporations Created by Special Laws / Charters

Corporations may be also formed by virtue of special laws or charters, and shall be governed primarily by the provisions
applicable to them.
Examples: Social Security System (SSS), a government-owned and controlled corporation is formed by
virtue by Republic Act 1161 (Social Security Law), and as amended by Republic Act 8282 (Social
Security Act of 1997), and is not covered by the Corporation Code of the Philippines

Components of a Corporation

1. Corporators. Those who comprise thecorporation, including stockholders, members, incorporators, et cetera.
2. Incorporators. Those stockholders or members mentioned in the articles of incorporation as originally forming and
composing the corporation and who are signatories thereof.
3. Stockholders. Corporators of a stock corporation.
4. Members. Corporators of a non-stock corporation.
5. Promoters. A person (juridical or natural) who usually discovers a prospective business and brings persons
interested to invest in it through formation of a corporation.

Capital Stock Terms
1. Capital stock. Amount specified in the articles of incorporation paid in for carrying on of the business of the
corporation.
a. Authorized capital stock. Total amount of shares which a corporation is allowed to issue if shares have a
par value.
b. Subscribed capital stock. Part of capital stock which is subscribed, whether paid or unpaid
c. Outstanding capital stock. Total shares of stock issued to subscribers/stockholders, whether or not fully or
partially paid, except treasury shares.
d. Paid up capital stock. Part of subscribed stock paid to the corporation.
e. Unissued capital stock. Part of capital stock which is not issued nor subscribed.
2. Legal capital. Total par value of all issued par value shares or total cash/consideration received for all issued no
par value shares.

Example Problem:
The articles of incorporation of Pol Corporation provide for an authorized capital stock of PHP 10,000,000 divided into
10,000 shares each. At the time of incorporation, 25% of the authorized capital stock was subscribed of which 25% was
paid.
Find for:
1. Authorized capital stock PHP 10,000,000
2. Subscribed capital stock PHP 2,500,000 (10M x 25%)
3. Outstanding capital stock PHP 2,500,000
4. Unissued capital stock PHP 7,500,000 (10M 2.5M)
5. Paid up capital stock PHP 625,000 (10M x 25% x 25%)
6. Legal capital PHP 2,500,000

Shares of Stock.One of the units into which the capital stock of the corporation is divided.
Stock Certificate.Written acknowledgement by the corporation of the stockholders interest in the corporation.
Par Value Stock. Nominal value of which appears to the stock certificate.
No Par Value Stock. One without any nominal or par value appearing of stock certificates

Classes of Shares of Stock
1. Common / ordinary stock entitles the holder to a pro rata division of the dividends, without any preference over
other stockholders.
2. Preferred stock entitles the holder of certain preferences other other shareholders.
a. Cumulative preferred stock entitled the holder for payment not only to current dividends but also those
in arrears, before holders of common shares are paid
b. Non-cumulative preferred stock entitled the holder for payment to current dividends but not those in
arrears, before holders of common shares are paid
c. Participating preferred stock entitle the holder to participate with the holder of the common shares in the
surplus profits after the amount stipulated has been paid to holders of preferred shares
d. Non-participating preferred stock entitle the holder only to the amount stipulated paid to holders of
preferred shares

Redeemable Shares.Those which grant the issuing corporation the power to redeem or purchase them after a certain
period.
Founders Shares. Those which grant to the founders certain rights and privileges not enjoyed by other shares.
Treasury Shares. Those which have been issued and fully paid for but subsequently reacquired by the issuing corporation
by purchase, redemption, donation, or throught some other lawful means.
Watered Shares. Those issued without compensation or with no adequate consideration.
Voting Shares. Those entitled to vote in the meetings of the corporation.
Non-voting Shares.Those without voting rights, except in certain cases.

Incorporation and Organization of Private Corporations

Steps in Incorporation
1. Verification with SEC of the name to be used. No corporate name shall be allowed if the proposed name is:
a. Identical or deceptively similar to any existing corporation or any other name protected by law
b. Patently deceptive, confusing or contrary to existing laws.
2. Drafting and execution of articles of incorporation signed by the incorporators.


25% 50% 75%
25% of the authorized capital stock has been subscribed



25% 50% 75%
25% of the subscribed capital stock has been paid

3. Filing of articles of incorporation with SEC.
4. Payment for the filing, publication and other fees.
5. Issuance of certificate of incorporation by SEC. [Start of the juridical personality of the corporation]

Contents of the Articles of Incorporation
1. Name of corporation.
2. Purpose of the corporation.
3. Place of principal office which must be in the Philippines
4. Term of existence (maximum of 50 years, may be extended)
5. Names, nationalities and residences of incorporators (majority are residents of Philippines, and must be at least a
subscribed of one share of stock)
6. Names, nationalities and residences of board of directors or trustees
7. Amount of authorized capital stock, number of shares divided, and par value of each
8. Names of subscribers, nationalities, shares subscribed, amount subscribed and amount paid in. (must not be
lower than PHP 5,000)
9. Other matters
10. Name of temporary treasurer elected, notarial acknowledgement, and affidavit

Amendment of Articles of Incorporation
Votes required for amendment
1. Majority vote of directors
2. Vote or written assent of 2/3 of the outstanding capital stock or members
Effectivity
Upon approval by SEC or from the date of filing with Commission if not acted within 6 months

Non-use of corporate charter for:
Two years shall be deemed dissolved unless the same is due to causes beyond the control of the corporation
as may be determined by SEC.

Continuous non-operation of corporation for:
Five years shall be grounds for revocation of its corporate franchise or certificate of incorporation, unless the
same is due to causes beyond the control of the corporation as may be determined by SEC.


If any of you lacks wisdom, you should ask God,
who gives generously to all without finding fault,
and it will be given to you.
James 1:5 (NIV)

Trust in the Lord with all your heart
and lean not on your own understanding;
in all your ways submit to him,
and he will make your paths straight.
Proverbs 3:5-6 (NIV)

GOD BLESS TO YOUR EXAMINATION!
ASSOCIATION OF TAXATION & LAW STUDENTS
University of the East Caloocan
Federation Year 2012 2013

QUIZZER FOR THE MIDTERM DEPARTMENTAL EXAMINATIONS
BL 102 LAW ON BUSINESS ORGANIZATIONS

Coverage: Civil Code of the Philippines, Article 1828 to 1867
Corporation Code of the Philippines, Section 1 to 22

1. The contracts between a corporation and third persons must be made by or under the authority of its
a. Board of directors
b. Stockholders
c. President
d. General manager

2. Statement 1: An incorporator ceases to be an incorporator once he sells his share of stock.
Statement 2: A corporation can be an incorporator of another corporation.
a. True, True
b. True, False
c. False, True
d. False, False

3. Statement 1: Treasury shares have no right to vote in the meetings of the corporation
Statement 2: The Board of Trustees is the body which controls the corporate affairs of a stock corporation
a. True, True
b. True, False
c. False, True
d. False, False

4. Statement 1: What is the minimum requirement of shares of stock of a certain corporation that must be owned
and controlled by Filipino citizens under the 1987 Constitution?
a. 25%
b. 50%
c. 60%
d. 70%

5. Statement 1: A minor as a rule can be an incorporator of another corporation
Statement 2: A corporation is created by the mere consent of the contracting parties
a. True, True
b. True, False
c. False, True
d. False, False

6. A proposed corporation may be legally incorporated if in relation to its authorized capital stock,
a. 25% of the authorized capital stock shall be subscribed, and 25% thereof should be paid
b. 25% of the authorized capital stock shall be subscribed, and 20% thereof should be paid
c. 20% of the authorized capital stock shall be subscribed, and 25% thereof should be paid
d. 20% of the authorized capital stock shall be subscribed, and 20% thereof should be paid

7. The juridical personality of a corporation begins from
a. The filing of the articles of incorporation to the SEC
b. The issuance by the SEC of the certificate of incorporation
c. The signing by the incorporators of the articles of incorporation
d. The notarization of the articles of incorporation

8. Statement 1: Issued treasury shares are considered part of outstanding shares.
Statement 2: A director individually and as such can bind the corporation since he is an agent of the corporation.
a. True, True
b. True, False
c. False, True
d. False, False

9. Statement 1: All incorporators can be corporators, and all corporators can be also incorporators
Statement 2: A stockholder can transfer his/her shares to another person without the consent of the other
stockholders
a. True, True
b. True, False
c. False, True
d. False, False

10. What is the maximum life of a corporation?
a. 25 years
b. 40 years
c. 50 years
d. None of the above, as the life of a corporation is indefinite.

11. Statement 1: Watered stocks are those which were not issued with adequate consideration.
Statement 2: The outstanding capital stock is the total shares of stock issued and fully paid to the stockholders.
a. True, True
b. True, False
c. False, True
d. False, False

12. Statement 1: The due existence of a de facto corporation may be attacked collaterally in a proceeding
Statement 2: A corporation may be formed for more than one purpose.
a. True, True
b. True, False
c. False, True
d. False, False

13. The articles of incorporation of JoyceCorporation provide for an authorized capital stock of PHP 8,000,000with a
par value of P10.00 per share. At the time of incorporation, 25% of the authorized capital stock was subscribed of
which 25% was paid. How many shares were unissued after the subscription and payment of the stocks?
a. 0
b. 200,000
c. 600,000
d. 800,000

14. The articles of incorporation of Mariz Corporation provide for an authorized capital stock of PHP 5,000,000 with a
par value of P25.00 per share. At the time of incorporation, 25% of the authorized capital stock was subscribed of
which 25% was paid. How many shares were considered part of the paid-in capital?
a. 0
b. 12,500
c. 37,500
d. 50,000

15. These are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing
corporation by purchase, redemption, donation, and through some other lawful means.
a. Voting shares
b. Non-voting shares
c. Founders shares
d. Treasury shares

16. Statement 1: The stockholders are the corporators of a stock corporation
Statement 2: An eleemosynary corporation is one formed for a religious purpose.
a. True, True
b. True, False
c. False, True
d. False, False

17. Which of the following will not cause the automatic dissolution of a general partnership?
a. Death of a capitalist partner
b. Insolvency of a capitalist partner
c. Insanity of an industrial partner
d. Civil interdiction of an industrial partner

18. The change in the relation of the partners caused by any ceasing to be associated in the carrying on the business
is known as
a. Termination of the partnership
b. Liquidation of the partnership business
c. Dissolution of the partnership
d. Winding up of partnership affairs

19. Statement 1: A limited partner may assign his interest to another person.
Statement 2: As a rule, a limited partner shall be liable as a general partner if he allows the use of his surname to
be included in the partnership name
a. True, True
b. True, False
c. False, True
d. False, False

20. Diana, Audree, Katchiek and Karl have formed a limited partnership. Which of the following situations is incorrect?
a. Diana, a limited partner, contributed land worth PHP 4,000,000.00
b. Audree, also a limited partner, contributed her expertise in accounting into the partnership.
c. The name of Diana and Audree has not been included in the partnership name because they are limited
partners.
d. Katchiek is a general partner and at the same time, a limited partner.

21. In a limited partnership where there are four members,
a. All the partners are limited partners.
b. It is enough that there is one limited partner, the rest may all be general partners
c. The number of limited partners must be equal to the number of general partners
d. The number of limited partners must be greater than the number of general partners

22. If a partner is insolvent, what will be the correct order of the distribution of his individual property?
I. To those owing to partnership creditors
II. To those owing to partners by way of contribution
III. To those owing to his/her separate creditors
a. I, II, III
b. II, I, III
c. II, III, I
d. III, I, II

23. It is the stage where in all the business or affairs of the partnership are completely wound up.
a. Dissolution
b. Winding up
c. Termination
d. None of the above

24. The following are the causes of dissolution without violation of the agreement of the partners. Which of the
following does not belong to the group?
a. By the termination of the definite term or particular undertaking specified in the agreement
b. By the express will of any partner who must act in good faith, when no definite term or particular
undertaking is specified
c. By the expulsion of any partner from the business bonafide in accordance with such a power conferred by
the agreement between partners
d. None of the above

25. Statement 1: A limited partnership is one which has one or more general partners and one or more limited partners
Statement 2: A partnership intended to be formed as a limited partnership but without the word Limited or Ltd.
appended to its name shall still be considered as a limited partnership.
a. True, True
b. True, False
c. False, True
d. False, False
SUGGESTED ANSWERS WITH EXPLANATIONS:

1. (A)
2. (D) In Statement 1, even his/hershare of stock
was sold; an incorporator is still an incorporator
since his/her name is in the Articles of
Incorporation. In Statement 2, only natural
persons can be an incorporator of another
corporation
3. (B) In Statement 1, treasury shares are non-
voting stocks, meaning they have not right to
vote except in certain cases. In Statement 2, the
Board of Directors, not the Board of Trustees,
should be the body of the corporate affairs of a
stock corporation. The Board of Trustees is used
in a non-stock corporation.
4. (C)
5. (B) In Statement 1, a minor cannot enter into a
contract, hence, he/she is disqualified in
entering into a corporation. In Statement 2, the
corporation is created by operation of law, not by
mere consent of the parties, which is applicable
in a partnership.
6. (A)
7. (B)
8. (A)
9. (C) In Statement 1, all incorporators can be
corporators, but not all corporators can be also
incorporators, since there can be some
corporators which is not present on the time the
Articles of Incorporation is ratified by the
incorporators.
10. (C)
11. (B) In Statement 2, the outstanding capital stock
is the total shares of stock issued to the
stockholders and subscribers, whether or not
fully or partially paid.
12. (C)
13. (C) [(8,000,000 / 10) (8,000,000 / 10 x 25%)]
= 600,000
14. (B) 5,000,000 / 25 x 25% x 25% = 12,500
15. (D)
16. (B)
17. (C)
18. (C)
19. (A)
20. (B) Limited partners can only contribute money
and/or property, not services. Generally, limited
partners are not included in the partnership
name except for circumstances under Art. 1846.
A general partner can also be a limited partner
at the same time subject to the provisions of Art.
1853.
21. (B)
22. (D)
23. (C)
24. (D)
25. (B) In Statement 2, a partnership intended to be
formed as a limited partnership but without the
word Limited or Ltd. appended to its name shall
be considered as a general partnership.

TOPIC COVERAGE FOR BL 102 LAW ON BUSINESS
ORGANIZATIONS

PRELIMINARY
Civil Code of the Philippines, Articles 1767 to 1827

MIDTERM
Civil Code of the Philippines, Articles 1828 to 1867
Corporation Code of the Philippines, Section 1 to 22

FINALS
Corporation Code of the Philippines, Section 23 to 149


COMPLIED BY:

ASSOCIATION OF TAXATION AND LAW STUDENTS
University of the East Caloocan

Contact #: (0915) 210-12-85
E-mail Address: atlas.ue2012@yahoo.com
Website: http://atlasuecal.weebly.com

Academics Department
Contact #: (0915) 104-90-90