Bus. Org.

II, FINALS

Name: _____________________________________________

Part I. Encircle the correct answer/answers. NO ERASURES ALLOWED

1. Which of the following are transactions exempt from registration under the Securities
Regulation Code?

a. Sale of a security pledged in good faith by or for the account of a pledge holder, or
mortgagee or any pledge lien holder
b. An isolated transaction by the owner or by his representative not being made in
the course of repeated and successive transactions;
c. The distribution by a corporation of stock dividends or other distribution out of
surplus;
d. Issued or guaranteed by the Government, its subdivision, agency or any person
controlled or supervised by, and acting as an instrumentality thereof.
e. All of the above.

2. A corporation organized under the FIA and 100% foreign owned is a:

a. Foreign Corporation;
b. Domestic Corporation;
c. Regional Operating Headquarters;
d. Violation of the Philippine Constitution.
e. None of the above.

3. A close corporation, within the meaning of the Corporation Code is one whose articles of
incorporation provide that:

a. All the corporation’s issued stock of all classes shall be held of record by not more
than thirty (30) persons;
b. The issued stock of a particular class shall be not be subject to one or more
specified restrictions on transfer;
c. The corporation shall not be owned by more than 2/3 of a corporation which is not
a close corporation.
d. All of the above.
e. None of the above.

4. Any stockholder of a corporation shall have the right to dissent and demand payment of
the fair value of his shares in the following instances:

a. In case of merger or consolidation;

b. In case of sale, lease, exchange, transfer, mortgage, pledge all or substantially all
of the corporate property and assets;
c. In case of issuance of watered stocks;
d. In case any amendment to the articles of incorporation has the effect of changing
or restricting the rights of any stockholder or class of shares, or of authorizing
preferences in any respect superior to those of outstanding shares of any class, or
of extending or shortening the term of corporate existence;
e. All of the above.
5. Any director of a corporation may be removed from office by a vote of:

a. stockholders representing two-thirds (2/3) of the outstanding capital stock;

b. stockholders representing two-thirds (2/3) the stockholders present;
c. stockholders representing a majority (50%+1) of the outstanding capital stock;
b. stockholders representing a majority (50%+1) of the stockholders present;
d. two-thirds (2/3) of the board of directors if still constituting a quorum;
e. a majority (50%+1) of the board of directors if still constituting a quorum.

6. Pre-emptive rights may be denied under the following circumstances:

a. Such right is denied by the articles of incorporation or an amendment thereto;

b. Where shares to be issued are in compliance with laws requiring stock offerings or
minimum stock ownership by the public;
c. Where shares to be issued in good faith with the approval of the stockholders
representing a majority of the outstanding capital stock, in exchange for property
needed for corporate purposes or in payment of a previously contracted debt;
d. All of the above.
e. None of the above.

7. Pursuant to business-enterprise transfer:

a. The transferee is liable for the debts and liabilities of his transferor arising from the
business enterprise conveyed;
b. Fraud is not an essential element for the application of the business-enterprise
transfer;
c. The purpose of the business-enterprise transfer is to protect the creditors of the
business by allowing them a remedy against the new owner of the assets and
business enterprise. Otherwise, creditors would be left "holding the bag," because
they may not be able to recover from the transferor who has "disappeared with the
loot," or against the transferee who can claim that he is a purchaser in good faith
and for value;
d. All of the above.
e. None of the above.

8. A private corporation may invest its funds in any other corporation or business or for any
purpose other than the primary purpose for which it was organized when approved by:

a. A majority of the board of directors;

b. A two thirds (2/3) majority of the board of director;
c. A majority of the board of directors and ratified by the stockholders representing at
least a majority of the outstanding capital stock;
d. A majority of the board of directors and ratified by the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock;
e. A two thirds (2/3) majority of the board of directors ratified by the stockholders
representing at least a majority of the outstanding capital stock;
f. A two thirds (2/3) majority of the board of directors ratified by the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock.

9. Which of the following may not be used as consideration for the issuance of stock:
a. Actual cash paid to the corporation;
 b. Property, tangible or intangible, actually received by the corporation and necessary
or convenient for its use and lawful purposes at a fair valuation equal to the par or
issued value of the stock issued;
c. Labor performed for or services to be rendered to the corporation;
d. Previously incurred indebtedness of the corporation;
e. All of the above.

10. A merger of consolidation becomes effective upon:

a. Approval by two-thirds (2/3) of the outstanding capital stock of each corporation of

the plan of merger or consolidation;
b. Approval by the Securities and Exchange Commission of the articles of merger or
of consolidation;
c. Approval by two-thirds (2/3) of the outstanding capital stock of each corporation of
the articles of merger or consolidation;
d. Approval by a two-thirds (2/3) vote of each of the board of directors of the
constituent corporations of the plan of merger or consolidation;
e. All of the above.

Part III. ESSAY, Logic and Clarity is an absolute must. (30%)

1. March 08, 2018 Exam: Aby, Babi, Cady, Didi and Edy are classmates in high school
who decided to put up the Bebe Corporation to engage in Ecommerce. Intending to keep
the company between friends, they declared in their Articles of Incorporation that the
company will not list in the stock exchange. After two years, Didi and Edy had a falling
out due to Toto, the local tambay, who became both their lovers. Out of spite, Didi
resigned as treasurer and without informing anybody, sold 99 out of her 100 shares to
Carla, the wife of Toto. When Aby, the Corporate Secretary, was informed of the sale,
she refused to record the sale in the Stock and Transfer Book on the grounds that the
rest of the stockholders had a pre-emptive right over the shares of each other. In a special
board meeting that ensued the next day, Babi, the President, was also appointed by the
board as Treasurer to replace Didi. The board likewise elected Toto as a director of the
corporation in the hopes that Carla will not undertake any legal action if her husband was
involved. Incensed at the turn of events, Didi made a demand for inspection of books and
records prompting the board to cause the filing of an injunction case to prohibit Didi from
inspecting the corporate books and records on the grounds that Didi had only one share
and was motivated by malice and ill-will.

Q1. Did Didi violate the pre-emptive rights of Aby, Babi, Cady, Edy when she sold 99% of her
stockholdings to Carla? Why?

No. Section 63 of the Corporation Code contemplates no restriction as to whom the stocks may
be transferred. It does not suggest that any discrimination may be created by the corporation in
favor of, or against a certain purchaser. The owner of shares, as owner of personal property, is
at liberty, under said section to dispose them in favor of whomever he pleases, without limitation
in this respect. No such pre-emptive rights therefore exist insofar as the shareholders of Bebe
Corp. are concerned. (Rural Bank of Salinas, Inc. v. CA, G.R. No. 96674, June 26, 1992).

Q2. Was Aby correct in refusing to register the sale of the stocks sold to Carla in the stock
and transfer book of the corporation? Why?
No. In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and
does not try to decide the question of ownership.(Andaya v. Rural Bank of Cabadbaran, Inc.,
G.R. No. 188769, August 3, 2016).

Q3. Was the board correct in appointing Babi as treasurer to replace Didi? Why?

No. Pursuant to Sec. 25 of the Corporation Code, any two (2) or more positions may be held
concurrently by the same person, except that no one shall act as president and secretary or as
president and treasurer at the same time.

Q4. Was the board correct in electing Toto as director? Why?

No. Every director must own at least one (1) share of the capital stock of the corporation of which
he is a director, which share shall stand in his name on the books of the corporation. Toto was
never a transferee of any stock of Bebe Corp.

Q5. Was the board correct in filing an injunction suit against Didi? Why?

No. Injunction filed by a corporation is unavailable to prevent stockholders from exercising their
right to inspection. Specifically, stockholders cannot be prevented from gaining access to the (a)
records of all business transactions of the corporation; and (b) minutes of any meeting of
stockholders or the board of directors, including their various committees and subcommittees.
(Philippine Associated Smelting and Refining Corp. v. Lim, G.R. No. 172948, October 5, 2016).

2. March 15, 2018 Exam: Aby, Babi, Cady, Didi and Edy are classmates in high school
who decided to put up the Bebe Corporation to engage in Ecommerce. In September of
2017, Evolution Ltd., a limited company organized and existing under the laws of the
British Virginia Islands, proposed to Aby, as president of Bebe Corp., the following
business opportunity:

a. Evolution shall sell to Bebe Corp. 10 hectares of its 100 hectare property development
project in Laguna (the Property) with a value of P25million at the discounted price of
P20million.
b. Bebe Corp. shall thereafter execute in favor of Evolution Ltd. an Irrevocable Special
Power of Attorney to enable Evolution Ltd. to sell the Property to third persons.
c. If the Property is sold by Evolution Ltd. during the first year, Evolution Ltd. shall pay
Bebe Corp. the amount of P25million.
d. If the Property is not sold after the first year, Evolution Ltd. shall pay Bebe Corp. the
amount of P5million and interest on the P20million at the rate of 10% a year.
e. After the fifth year, if Evolution is still unable to sell the Property, Evolution Inc. shall
pay Bebe Corp. the additional amount of P5million, after which the Irrevocable Special
Power of Attorney will be cancelled and Bebe Corp. can take over possession of the
Property.

Finding the offer to be advantageous, Aby convinced Babi and Cady of the soundness of
the business offer of Evolution Ltd. Convinced by Aby’s presentation, the board consisting
of Aby, Babi and Cady gave its approval and Aby thereafter entered into a Memorandum
of Agreement with Evolution Ltd. At that time, Didi and Edy were then in Europe on a
business trip and did not attend the meeting nor made aware of the decisions of the board.
 Two days later, upon the return of Didi and Edy, they found out about the deal with
Evolution Ltd. and they were furious as the people behind Evolution Ltd. had a bad
business reputation. An emergency board meeting was then called which was attended
by Babi, Cady, Didi and Edy. During said meeting, the board issued a stop payment order
on the P20million check issued by Bebe Corp. in favor of Evolution Ltd. and replaced Aby
with Didi as president of Bebe Corp.

When Evolution Ltd. found out about the stop payment order on the check, it filed an
action for breach of contract against Bebe Corp. with the courts and claimed damages in
the amount of P100million.

As soon as Bebe Corp. received the summons from the courts, a special board meeting
was called where Aby again failed to attend. The board then unanimously voted to remove
Aby as a director of the Corp. Didi then informed the board that she was assigning one
share of stock to Toto, her lover. On an affirmative vote of 3 and a dissent of 1, Toto was
elected the new director to replace Aby.

Q1. What is the nature of the contract between Evolution Ltd. and Bebe Corp.?

It is an investment contract as defined in the Amended Implementing Rules and Regulations of

R.A. No. 8799, i.e., a "contract, transaction or scheme whereby a person invests his money in a
common enterprise and is led to expect profits primarily from the efforts of others. (G.R. No.
164182)

Q2. If you were the lawyer of Bebe Corp., what defense/s will you raise as against the claims
of Evolution Ltd.

I will raise the defense that Evolution Ltd., being a foreign corporation not licensed to do business
in the Philippines, is not permitted to maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines. (Sec. 133, Corporation Code)

Q3. Was the removal of Aby as President valid? Why?

Yes. Under Sec. 23 of the Corporation Code, the corporate powers of all corporations shall be
exercised, all business conducted and all property of such corporations controlled and held by
the board of directors. Since the directors may appoint officers and agents and as incident to
this power of appointment, they may discharge those appointed. (G.R. No. 153413)

Q4. Was the removal of Aby as Director valid? Why?

No. Directors of a corporation may be removed from office only by a vote of the stockholders
holding or representing at least two-thirds (2/3) of the outstanding capital stock at a regular
meeting or at a special meeting called for the purpose. (Sec. 28, Corporation Code)

Q5. On the assumption that the removal of Aby as a director was valid, was the appointment
of Toto as a replacement director valid? Why?

No. A transfer of shares shall be valid only as between the parties until the transfer is recorded
in the books of the corporation. In the case at bar, there is no showing of the recording of such
transfer in the books of the corporation. (Sec. 63, Corporation Code)