JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

LAW ON PARTNERSHIP AND CORPORATION

Multiple Choice

1. The following are the attributes of a private corporation. What is the exception?
A) It is an artificial being
B) It is created by law
C) It has the right of succession
D) Its power attributes, or properties are expressly authorized by law or incident
to its existence
E) None of the above

2. A corporation has a personality of its own because it is legal or a juridical person.

Which among the following is not a consequence of its separate personality?
A) It may acquire and possess property of all kinds are well as incur debts and
other contractual obligations.
B) It has a nationality or citizenship of its own apart from that of the stockholder’s
C) Its obligations are obligations of the majority shareholder:
D) It enjoys constitutional protection.

3. Piercing the veil of corporate entity is considered an exception to the rule of corporate
fiction, i.e, that a corporation possesses a personality of its own separate and distinct from
the personalities of the corporators of the corporation. Which of the following is the
consequence of ‘piercing the veil of corporate entity’?
A) The corporation will be considered a mere association of persons without a
personality of its own
B) The persons composing the corporation will be considered the same as the
corporation;
C) The liabilities of the corporation may be considered the liabilities of the
stockholders or vice-versa;
D) All the above

4. Which of the following is not a similarity between a corporation and a partnership?

A) Both have juridical personalities distinct from those of the individuals
composing them;
B) Both can act only through their agents
C) Both have continuity of existence
D) Both may own property in their own names

5. They are corporations formed or organized for the government of a portion of state or
those created by the state as its own device for the accomplishment of its own public
purposes.
A) Private corporations
B) Public Corporation
C) Quasi-public corporation
 D) Corporation by prescription

6. The following are typical examples of public corporations. Which is the exception?
A) Province of Romblon
B) City of Manila
C) Municipality of Malolos
D) Social Security System

7. They are corporations consisting of one member only. It is usually organized for the
purpose of administering and managing as trustee, the affairs, property and temporalities
of any religious denomination, sect or church. It may be formed by the chief archbishop,
bishop, priest, minister, rabbi or other presiding elder of such religious denomination,
sect or church.
A) Ecclesiastical corporations
B) Lay corporations
C) Corporation sole
D) Religious societies

8. They are corporations that are organized for spiritual purposes or for the furtherance of
religion as opposed to lay corporations that are created for secular or temporal purpose.
A) Ecclesiastical corporations
B) Eleemosynary corporations
C) Civil corporations
D) Corporation aggregate

9) It is a corporation whose articles of incorporation provide that (1) all the corporation’s
issued stock of all classes, exclusive of treasury shares, shall be held of record by not
more than twenty (20) persons; (2) all the issued stock of all classes shall be subject to
one or more restrictions on transfer; and (3) the shares shall not be listed in any stock
exchange or be offered to the public.
A) Open corporation
B) Restrictive corporation
C) Corporation by estoppel
D) Close corporation

10. If certain persons assume to act as a corporation knowing it to be without authority to

do so, they are liable as general partners for all debts, liabilities and damages incurred or
arising as a result of such assumptions as a corporation. This situation gives rise to a
A) De facto corporations
B) Corporation by prescription
C) Corporation by estoppel
D) Corporation by misrepresentation

11. No. I – Five persons without organizing a corporation pretended to be members of a

non-existent corporation, which they called ‘Ocean Quest Corporation’. Through this
misrepresentation they obtained a loan of P5 million from Mr. X. When the debt was not
paid, Mr. X sued Ocean Quest. The purported members thereof may invoke the defense
that Ocean Quest cannot be sued because it is in truth and in fact not a corporation.

No. II – Spice Boys Corporation is in truth and in fact not a corporation but a mere
association composed of five members. Mr. X, knowing it to be a unincorporated entity
entered into a contract with it. When sued for the breach of the contract, Mr. X may
interpose the defense that Spice Boys Corporation has no legal capacity to sue
A) Both are true
B) Both nos. are false
C) Only no. 1 is true
D) Only no. 1 is false

12. It is a corporation formed or organized or existing under any laws other than those of
the Philippines.
A) Domestic corporation
B) Foreign corporation
C) De jure corporation
D) De facto corporation

13. No. 1 – A foreign corporation is not automatically allowed to engage in business in

the Philippines. It must first obtain a license in the Philippines if it wants to engage in
business locally. If it engages in business in the Philippines without obtaining a license,
it may be sued but it cannot sue.

No. 2 – A foreign corporation that it not engaged in business in the Philippines need not
obtain a license because a license is required only for business purposes. Such foreign
corporation may however, sue in the Philippines where the suit arise out of an isolated
transaction or in order to protect its reputation, corporate name or goodwill.
A) Both nos. are correct
B) Both nos. are wrong
C) Only no. I is correct
D) Only no. II is correct.

14. No I – Every corporator is an incorporator and vice versa

No. II – Corporators in a stock corporation are either stockholders or members
A) Both statements are true
B) Both statements are false
C) Only first statement is true
D) Only the second statement is false

15. They are persons who bring about or cause to bring about the formation and
organization of a corporation by bringing together the incorporators or the persons
interested in the enterprise, procuring subscriptions or capital for the corporation and
setting in motion the machinery that leads to the incorporation of the applicant
corporation.
A) Underwriters
 B) Promoters
C) Subscribers
D) Incorporators

16. It is the amount fixed in the articles on incorporation. To be subscribed and paid in
by the shareholders of a corporation, either in money or property, labor or services, at the
organization of the corporation or afterwards and upon which it is to conduct its
operations. It limits the maximum amount or number of shares that may be issued by the
corporation without formal amendment of the articles of incorporation.
A) Legal capital
B) Subscribed capital
C) Outstanding capital stock
D) Authorized capital stock

17. Incorporators should have the following qualifications. Which is the exception?
A) They must be of legal ages and must be natural persons
B) They must not less than five (5) but not more than fifteen (15) majority of
whom are citizens of the Philippines
C) They must number not less than five (5) but not more than fifteen (15),
majority of whom must be residents of the Philippines
D) Each of the incorporators of the stock corporation must be a subscriber to at
least one (1) share of the capital stock of the corporation

18. Which among the following situations will justify a denial of an application for
incorporation?
Authorized Capital Stock Subscription Paid Up
A) P500,000 P125,000 P31,5000
B) 200,000 60,000 12,000
C) 50,000 12,500 5,000
D) 100,000 25,000 6,250

19. Which among the following are the limitations to the corporate power to amend its
articles of incorporation?
A) The amendment must be for a legitimate purpose
B) The amendment must be approved by the required vote of the board and the
stockholders or members
C) Both the original and amended articles must be filed with the Securities and
Exchange Commission
D) All of the above

20. When does the corporate existence commence?

A) From the date the Securities and Exchange Commission issues a
certificate of incorporation under its official seal
B) From the date the corporation is notified by the Securities and Exchange
Commission of the issuance of the certificate of incorporation
C) From the date the certificate of incorporation is actually received by the
 corporation
D) From the date of the publication of the issuance of the certificate of
incorporation in a newspaper of general circulation

21. What is the effect of the issuance of the certificate of incorporation?

A) The corporation commences to have corporate existence and judicial
personality
B) The corporation may now exercise corporate powers
C) The incorporators, stockholders/members and their successors shall constitue a
body politic and corporate under the name stated in the articles of
incorporation
D) All of the above

22. A corporate doctrine which holds that the stockholder are not personally liable for
corporate debts.
A) Trust fund Doctrine
B) Doctrine of corporate fiction
C) Right of succession
D) Piercing the veil of corporate entity

23. No. 1 – A director is remove from office by a vote of the stockholders representing at
least 2/3 of the outstanding capital stock. The vacancy occasioned by such removal can
be filled up by the vote of a least a majority of the remaining directors if still constituting
a quorum
No. 2 – Treasury shares are entitled to dividends and can be used in voting matters
involving fundamental corporate actions
A) Both nos. are true
B) Both nos. are false
C) Only no. 1 is true
D) Only no. 1 is false

24. Which of the following is a ground for the suspension or revocation of the certificate
of incorporation by SEC?
A) Failure of the corporation to commence operations within five years from its
incorporation.
B) Failure of the corporation to commence operation within two years from its
incorporation
C) Continuous inactivity for at least five years after it had formally
organized and commenced operations
D) Continuous inactivity for at least two years after it had organized and
commenced operations

25. Which of the following defects will preclude the creation of even a de facto
corporation?
A) A name resembles that of another corporation
B) Failure to comply with the minimum paid up requirement
 C) Absence of a certificate of incorporation
D) Failure to formally organized immediately from the issuance of a certificate of
incorporation

26. It is a corporate scheme that enables a stockholder to dispose of his share and still
retain the right to vote for a period not exceeding five years at any one time.
A) Proxy
B) Special Power of Attorney
C) Voting trust agreement
D) Management right

27. A corporation that is created in strict or substantial conformity with the statutory
requirements for the incorporation and whose right to exist as a corporation cannot be
successfully attacked even in a direct proceeding by the state is known as
A) de jure corporation
B) de facto corporation
C) corporation by estoppel
D) corporation by prescription

28. The articles of incorporation is required to state the names, nationalities and
residences of persons who shall act as directors or trustees until the first regular members
of the Board elected. This requirement is intended to provide a basis by which the SEC
could determine whether the articles of incorporation has complied with the requirement
that
A) At least a majority of the directors or trustees are residents of the
Philippines
B) All of the directors or trustees are residents of the Philippines
C) At least a majority of the directors or trustees are citizens of the Philippines
D) At least 2/3 of the directors or trustees are residents of the Philippines

29. They are shares of stocks issued by a corporation for a consideration less than its par
value or issued price or for a consideration in any form other than cash, valued in excess
of its fair value
A) Treasury shares
B) Preferred shares
C) Common shares
D) Watered stocks

30. The following corporations cannot issue no par value shares. Which is the exception?
A) Banks
B) Trust companies
C) Manufacturing companies
D) Insurance companies

31. An officer of a corporation may hold two or more positions in the corporation but not
as
 A) Chairman of the board and president
B) President and treasurer
C) Secretary and treasurer
D) Vice President and Secretary

32. The right of a corporation to exist as a juridical person during its term as stated in its
articles of incorporation despite the death of any of its stockholders is called
A) Right of existence
B) Right of redemption
C) Right of succession
D) Pre-emptive right

33. What is the requirement to effect the amendment of the by-laws of the corporation?
A) Majority vote of the board and 2/3 of the outstanding capital stock
B) 2/3 vote of the board and 2/3 vote of the outstanding capital stock
C) Majority vote of the board and majority vote of the outstanding capital
stock
D) Majority vote of the board and unanimous vote of the outstanding capital stock

34. Which of the following does not form part of the three fold duty of directors or
trustees?
A) Duty of obedience
B) Duty of efficiency
C) Duty of diligence
D) Duty of loyalty

35. The holder of non-voting shares may nevertheless be allowed to vote on the following
matters. What is the exception?
A) Amendment of the articles of incorporation
B) Adoption and amendment of the by-laws
C) Increase or decrease of the capital stock
D) Every sale of corporate property

36. The board of directors or trustees has the following powers except
A) To exercise corporate powers
B) To conduct the business of the corporation
C) To grant compensation to its members
D) To hold and control corporate property

37. The nationality of the corporation is determined by the state under the laws of which
the corporation was organized. This refers to
A) Domiciliary test
B) Incorporation test
C) Control test
D) Organization test
38. Contracts between a corporation and third persons must be made by or under
authority of the
A) Stockholders
B) Board of directors or trustees
C) President
D) General Manager

39. A contract of the corporation with one or more of its directors or trustees or officers is
A) void
B) voidable at the option of the director, trustee or officer
C) voidable at the option of the corporation
D) unenforceable

40. A director who acquires for himself a business opportunity which should belong to
the corporation, must account to the latter for all such profits by refunding the same
because the act is an act of disloyalty. The disloyal act
A) cannot be ratified
B) can be ratified by at least 2/3 of the outstanding capital stock
C) can be ratified by at least a majority of the outstanding capital stock
D) can be ratified by a majority vote of the board

41. The corporate by laws may create a committee composed of not less than three
members of the board to be appointed by the board. Said committee may act, by majority
vote of all its members, on such specific matters within the competence of the board.
This committee is called
A) Executive committee
B) Steering committee
C) Ways and means committee
D) Management Committee

42. The stockholders right to subscribed to all issues or disposition of shares of any class
in proportion to their present stockholdings, the purpose being to enable the shareholders
to retain his equity in the surplus, is called
A) Preferential right
B) Subscription right
C) Pre-emptive right
D) Stockholders’ equity

43. No. 1 – Every declaration of dividend requires the approval of the stockholders
No. 2 – Every ultra vires act is illegal
A) Both are false
B) Both are true
C) Only No. 1 is true
D) Only No. 2 is true
44. The following are the legal effects of merger or consolidation. Which is the
exception?
A) The consolidated or surviving corporation shall enjoy the same rights, powers,
privileges and immunities of corporations established under the
corporation code
B) All pending actions by or against the dissolved corporation shall be litigated by
the surviving or consolidated corporation.
C) All claims pertaining to the dissolved corporation shall now pertain to the
surviving or consolidated corporation
D) The surviving or consolidated corporation does not assume the liabilities
of the dissolved corporations because of the theory of separate legal entity

45. The subscriber of unpaid shares which are not delinquent shall be entitled to the
following rights, except the right to
A) vote
B) inspect corporate books
C) a stock certificate
D) dividends

46. Their names are mentioned in the articles of incorporation as originally forming the
corporation and are signatories thereof
A) Corporators
B) Stockholders
C) Incorporators
D) Members

47. The right of the stockholders to demand payment of the fair value of his shares when
he dissents from certain corporate acts known as
A) pre-emptive rights
B) appraisal right
C) redemption right
D) appreciation right

48. Which of the following statements is false concerning treasury shares?

A) They are entitled to dividends
B) They have no voting right
C) They may be disposed of for a price lower than the par value provided such
price is reasonable
D) They are not outstanding

49. Which is the operative act that will give judicial personality upon a corporation?
A) The filing of the articles of incorporation
B) The filing of the by-laws
C) The issuance of the certificate of incorporation
D) The execution by the incorporators of the articles of incorporation which is the
contract among themselves
50. Which of the following special corporations is requires by the Corporation Code to
have its number of directors in multiples of 5?
A) A stock educational corporation
B) A non-stock educational corporation
C) A corporation sole
D) A religious society