Name: ________________________________________ Date: _________

Course Year & Section: _____________________ Score: ________

Instruction: Answer the following questions. Strictly NO ERASURES are allowed.

MULTIPLE CHOICE. Encircle the letter of your choice.

1. Which statement is most accurate with respect to partnerships?

A. A partnership is a separate legal entity
B. General partners have unlimited liability
C. Partners are not agents for the firm
D. Partnership liability requires that one intend to be a partner

2. An agency by agreement is one in which the agent derives its power from
A. Actions of the principal that lead third parties to reasonably conclude an agency
relationship exists
B. Adoption by the principal of a contract entered on its behalf by the agent, although
the agent did not have authority at the time when it acted as agent
C. A contract between the principal and the agent
D. Agreement by the third party to be bound by commitments made to the agent
E. Circumstances that necessitated acting without authority from the principal

3. When an agent acts for a principal to enter a contract with a third party, the parties to the
contract thus formed are
A. The principal and the agent
B. The principal and the third party
C. The agent and the third party
D. The principal, the agent, and the third party
E. None of the above

4. Which statement is most accurate?

A. All partners are individually liable for the acts of fellow partners carrying out
partnership business
B. All partners are individually liable for all acts of fellow partners
C. All partners are individually liable for torts committed by fellow partners, but not for
contracts made by fellow partners
D. All partners are individually liable for contracts made by fellow partners, but not for
torts committed by fellow partners

5. Which statement about the liability of partners to outsiders for the acts of fellow partners
carrying out partnership business is most accurate?
A. Liability can only be based on torts
B. Liability can be based only on contracts
C. Liability can be based on both torts and contracts
D. Liability as a partner can only occur if one has an intent to be a partner
E. All of the above are true

6. The simplest business organization, a one-man firm:

A. Must be run by men only
B. Must comply with a variety of different laws
C. Must be run out of the owner's home
D. Must not be run out of the owner's home

7. An agent:
A. Has the authority to bind the corporation
B. Cannot enter into agreements on behalf of the principal
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 C. Has no authority to bind the corporation
D. Can only act in the presence of the principal

8. If an agent enters into a contract with a third party, who is ordinarily liable?
A. The agent
B. The principal
C. The third party
D. Any witnesses to the contract

9. If the principal fails to give notice to third parties when an agency relationship is
terminated,
A. The principal will be bound by any contracts entered with third parties by the
(former) agent that were formed through the agent's exercise of apparent authority
B. The agent will not be able to bind the principal in any contractual dealings with third
parties
C. The principal will not be able to sue the (former) agent for continuing to act as an
agent
D. The principal will not be able to sue the (former) agent for continuing to act as an
agent

10. One member of a partnership may bind the other partners in contract because of the law
of:
A. Fiduciary duty
B. Proprietorship
C. Agency
D. Director's liability

11. A principal could be liable for the acts of an agent that exceeded its actual authority based
on
A. Apparent authority
B. Express authority
C. Necessity
D. Implied authority

12. Which of the following is not an implied obligation or duty of an agent to its principal?
A. To demonstrate good faith
B. To act with competence and diligence
C. To pay reasonable expenses of the agency agreement
D. To protect confidentiality

13. The sharing of gross returns does not of itself establish a partnership even if the persons
sharing them have a joint or common interest in the property from which the returns are
derived.
A. True
B. False

14. The profits and losses of the partnership shall be divided equally among the partners if
they have no profit and loss sharing agreement.
A. True
B. False

15. A contract where two or more persons bind themselves to contribute money, property or
industry to a common fund with the intention of dividing the profits among themselves.
A. Voluntary association
B. Corporation

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 C. Partnership
D. Sole proprietorship

16. One of the following is not a characteristic of contract of partnership.

A. Real, in that the partners must deliver their contributions in order for the partnership
contract to be perfected.
B. Principal, because it can stand by itself.
C. Preparatory, because it is a means by which other contracts will be entered into.
D. Onerous, because the parties contribute money, property or industry to the common
fund.

17. One of the following is not a requisite of a contract of partnership. Which is it?
A. There must be a valid contract.
B. There must be a mutual contribution of money, property or industry to a common
fund.
C. It is established for the common benefit of the partners which is to obtain profits and
divide the same among themselves
D. The articles are kept secret among the members.

18. The minimum capital in money or property except when immovable property or real
rights thereto are contributed, that will require the contract of the partnership to be in a
public instrument and be registered with the Securities and Exchange Commission (SEC).
A. P5,000.00
B. P10,000.00
C. P3,000.00
D. P30,000.00

19. Lea and Revy entered into a universal partnership of profits. At the time of the execution
of the articles of partnership, Lea had a two-door apartment which he inherited from his
father 3 years earlier. Revy, on the other hand, had a fleet of taxis which he purchased 2
years before. In the first year of the partnership, Lea earned P500,000.00 as a radio talent,
while Revy won P1,000,000,00 in the lotto. During the same period, rentals of
P2000,000.00 were realized from the operation of the fleet of taxis. Which of the
following belongs to the partnership?
A. Two-door apartment.
B. Lotto winnings of P1,000,000.00
C. Salary of P500,000.00
D. Fleet of taxis

20. A partnership formed for the exercise of a profession which is duly registered is an
example of:
A. Universal partnership of profits
B. Universal partnership of all present property.
C. Particular partnership.
D. Partnership by estoppels.

21. Three of the following partnership contracts are void. Which one is not?
A. A universal partnership of all present property between husband and wife.
B. A universal partnership of profits between a man and a woman living together as
husband and wife without the benefit of marriage.
C. A Particular Partnership between husband and wife.
D. A universal partnership of profits between a private individual and a public officer.

22. Jason, Ariane and Gina are partners in JAG Enterprises. Not having established yet there
credit standing, the three partners requested Heidi, a well-known business woman, to help

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 them negotiate a loan from Joy, a money leader. With the consent of Jason, Ariane and
Gina, Heidi represented himself as a partner of JAG Enterprises. What kind of partner is
Heidi?
A. Managing partner.
B. Liquidating partner.
C. Ostensible partner.
D. Partner by estoppels.

23. In a limited partnership where there are 4 partners:

A. All the partners must be limited partners.
B. The number of limited partners must be equal to the number of general partner, that
is, 2:2.
C. The number of limited partners must be greater than the number of general partners,
that is, 3:1
D. It is enough that there is one limited partner; the rest may all be general partners.

24. One of the distinctions between a partnership and a corporation is that a partnership:
A. May be formed by one person.
B. Is created by operation of law.
C. Acts through a board of directions.
D. May exist for an indefinite period.

25. The articles of incorporation differ from the by-laws in that the articles of incorporation
are:
A. The rules of action adopted by a corporation for its internal government.
B. Adopted before or after incorporation.
C. A condition precedent in the acquisition by a corporation of a juridical personality.
D. Approved by the stockholders if adopted after incorporation.

26. 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.

27. A corporation acquires juridical personality:

A. Upon the filling of the articles of incorporation.
B. Upon the filling of by-laws.
C. Upon the issuance of the certificate of incorporation.
D. Within 30 days from the receipt of the notice of the issuance of the certificate of
incorporation.

28. Which of the following is a necessary part of the agency relationship?

A. Principal
B. Buyer
C. Seller
D. Franchisor
29. An industrial partner can engage in business for himself if it is of a kind different from
the partnership business even without the consent of the other partners.
A. True
B. False

30. A partner may associate another person with him in his share but the person admitted
shall not be admitted to the partnership without the consent of all the partners.
A. True
B. False

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31. A general partnership is automatically dissolved by reason of the insanity of a partner.
A. True
B. False

32. After dissolution, a partnership is still bound by the act of a partner authorized to act for
the partnership with respect to the completion of transactions begun before dissolution.
A. True
B. False

33. A partner may be a limited and general partner at the same time.
A. True
B. False

34. A corporation commences to exist upon the execution of the articles of incorporation by
the incorporators.
A. True
B. False

35. A corporation may exist for a period not exceeding 50 years but its life may be extended
several times provided each extension does not exceed 50 years in any single instance.
A. True
B. False

36. A corporation may be a stockholder of another corporation.

A. True
B. False

37. A corporation is automatically dissolved if it does not formally organize, commence the
transaction of its business or the construction of its works within two years from the data
of its incorporation.
A. True
B. False

38. A director is required to be an owner of at least one share of stock of a corporation.

However, he continues to be a director although he has disposed all his shares provided
the term for which he was elected has not yet expired.
A. True
B. False

39. The by-laws of a corporation may validly provide that one may be the President and
Secretary or President and Treasurer at the same time.
A. True
B. False

40. The continuous in operation of a corporation for a period of at least 5 years will result in
its automatic dissolution.
A. True
B. False

41. A corporation created in strict compliance with all the legal requirements and whose right
to exist as a corporation cannot be successfully attacked in a direct proceeding for that
purpose by the State is a:
A. De jure corporation
B. De facto corporation.

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 C. Corporation by estoppels.
D. Corporation by prescription

42. Under this doctrine, the separate personality of a corporation may be disregarded if it is
used for fraudulent or illegal purpose or to escape the faithful compliance of an
obligation:
A. Trust fund doctrine.
B. Doctrine of piercing the veil of corporate entity.
C. Doctrine of corporate opportunity.
D. Doctrine of limited capacity.

43. The board of directors of XYZ Inc. approves a P50 million expenditure for the company
to sponsor a PBS program on "Earth: The Next Century." A is the show's producer; he is
also married to B, the CEO of XYZ. Identify the strongest theory for a shareholder of
XYZ to challenge the expenditure.
A. the directors violated a duty of care, because spending P50 million to sponsor a show
unrelated to the business of XYZ is grossly negligent
B. the P50 million expenditure constituted corporate waste, because the directors made
no attempt to identify the shows value to the business of XYZ
C. the directors acted in violation of their duty of obedience, since XYs articles and
bylaws did not authorize support of non-profit organizations
D. the directors violated a duty of loyalty because A and B are married, raising into
question the fairness of the expenditure

44. A, B, and C are partners in ABC partnership. Their relationship breaks down. A wants
out. She can accomplish this by
A. selling her partnership interest to partner B, even without partner C's consent
B. stating she is withdrawing, thus dissolving the partnership and forcing B and C to
liquidate the business and pay her share to her in cash
C. selling her partnership interest to stranger D, assuming partner C's consent (thus
obtaining the approval of a majority of the partners).
D. merging the partnership into ABC Corporation and then selling her shares on the
open market

45. Which of the following statements is not true?

A. in a limited liability partnership, partners are not personally liable for the commercial
obligations of the business
B. in a limited partnership, limited partners cannot participate in the management of the
partnership (ie, writing checks) without incurring personal liability
C. in a close corporation, the shareholders lack a readily-available market into which
they can sell their shares
D. in a publicly-traded corporation, the shareholders can redeem their shares by selling
them to the corporation on public stock markets

46. GHI Corporation has a six-person board. At a regular board meeting, only two directors
can attend. They then call directors Alice and Bob and put them on a conference call.
The four talk about the corporation buying Blackacre and then agree to a resolution for
GHI to buy Blackacre from Third Party.
A. the purchase is authorized since four of six is a board majority
B. the purchase is authorized, assuming the GHI bylaws permit conference calls
C. the purchase is not authorized, since there was no quorum at the board meeting
D. the purchase is not authorized, since real estate transactions require shareholder
approval

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47. Three friends D, E and F agree to go into business installing home insulation. They agree
to share profits and properly register their partnership as HomeInsulate LLP. Despite
opposition by D and E, F signs a contract to undertake an insulation project for a
shopping center, a type of commercial project the business has never undertaken before.
When the project falters and the shopping center sues, who is liable?
A. only the partnership, because it is an LLP in which the partners have limited liability
and F was acting with apparent authority
B. only F, because he signed the contract and lacked authority to bind the partnership
given that the partnership name limits the business to residential projects
C. all three partners D, E and F, because the act of any one partner binds the partnership
and all partners share jointly and severally in partnership liability
D. nobody (neither the partnership nor the partners) because F acted without actual
authority in signing a contract beyond the partnerships usual business

48. DEF Corp. has a board of five directors. The company president learns of a chance to
acquire a related business and wants the board to consider and approve the deal. The
president sends a notice to the directors of a special meeting to happen in three days, but
not to director D for whom the corporation has no address. The meeting is attended by
three directors (but not D), two of them by Skype. The three at the meeting all approve
the acquisition. Is their action valid?
A. yes notice was sufficient since it went to a majority of the board at least two days
before the meeting date
B. yes the quorum at a special meeting, unlike a regular meeting, is one-third of the
board
C. no notice must be sent to each director, and the failure to send a notice to D
invalidates the meeting
D. no a board meeting must be in person, unless the articles or bylaws specifically
allow electronic or telephonic presence of directors at meetings

49. A person who purports to act on behalf of a corporation (a promoter) and who enters into
a contract with a third party when the corporation does not yet exist ...
A. is personally liable on the contract, regardless of the promoter's knowledge of the
incorporation defect
B. is not personally liable, provided the promoter incorporates the business within 90
days after the contract was entered into
C. is personally liable on the contract, provided the promoter knew the corporation did
not yet exist
D. is not personally liable, provided the third party believed it was dealing with a
corporation, regardless of the promoter's knowledge

50. XYZ Corporation has 1,000,000 authorized voting shares, of which 400,000 are
outstanding. The XYZ board concludes the corporation needs more capital and wants to
issue another 500,000 voting shares. The board adopts a resolution to this effect. What
more is necessary?
A. a vote of an absolute majority of the outstanding voting shares (200,001 shares) at a
shareholders' meeting
B. a vote of a simple majority of the shares present at a properly-convened shareholders'
meeting, assuming a proper quorum
C. a vote of at least one shareholder, since a plurality is enough
D. the board resolution is sufficient; the board of directors has the authority to approve
the issuance of authorized shares, without a shareholder vote

51. Assume that Corporation XYZ has three shareholders, with X holding 20% of the voting
shares, Y holding 25%, and Z holding 55%. The XYZ board is composed of 5 directors.
Which statement is true:
A. under straight voting, X and Y are each assured of electing one director to the five-
person board

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 B. under plurality voting, Z will be able to elect all the XYZ directors, and poor X and Y
(even if they got together) can do nothing about it
C. under cumulative voting, Z is assured of electing all four directors to the board
D. under class voting, X will be able to name one director, Y will be able to name one
director, and Z will name two directors

52. L, M and N are the only (and equal) shareholders in closely-held LMN Corp. From the
beginning of their business ten years ago, L and M were the companys only directors
and officers, distributing the companys annual profits as dividends. Last year L and M
decided to discontinue paying dividends. When N complains, L and M say they are
retaining profits for expansion plans. N consults you and asks, If I sue, would a claim
seeking payment of dividends be successful?
A. Yes. Shareholders in a close corporation have a right to an equal share of profits, just
like partner in a partnership (who can always seek an accounting)
B. Yes. Shareholders in a close corporation can enforce their reasonable expectations,
here to payment of dividends, by bringing a fiduciary claim
C. No. Dividends need not be paid if the majority has legitimate business purposes for
not paying them, here because of expansion plans
D. No. Dividends need not be paid, even when funds are available and the majority is
acting opportunistically to force the minority to sell his shares to them

53. A corporate executive does not usurp a corporate opportunity if

A. the corporation has an expectancy in the opportunity and it is rejected by the
corporation's informed, disinterested and independent decision makers
B. the corporation has an expectancy in the opportunity and the fiduciary takes it without
offering it to the corporation
C. the opportunity is within the corporation's line of business and the corporation had the
financial means to take the opportunity for itself
D. the opportunity is one that the corporation sells to the corporate fiduciary at a fair
price, based on independent market valuations

54. B owns 50 shares of XYZ Corp. (described in the previous question 11). On January 15,
B sends the corporate secretary a written, signed proxy that states that his shares are to be
voted against the charter amendment. But B then attends the meeting and, at the
appropriate time, votes his shares for the amendment. The 50 shares should be counted
as
A. being voted against the amendment, because B was holder of the shares on the record
date and properly executed a proxy for the amendment
B. being voted against the amendment, because a written proxy is irrevocable since it
was accompanied by an interest
C. being voted for the amendment, because B properly rescinded his earlier by proxy by
voting his shares in person at the meeting
D. not being voted at the meeting, but treated as abstentions because of the inconsistency
between the proxy and in-person votes

55. Publicly-traded XYZ Corporation is planning to acquire privately-held ABC Inc. by

issuing 10% of its shares for all the shares of ABC. The board of ABC demands the
acquisition be structured so shareholders of ABC will have voting rights and appraisal
rights. Which transaction will not accomplish this objective?
A. statutory merger
B. triangular merger (in which ABC is the survivor)
C. sale of all of ABCs assets
D. tender offer

56. L, M, and N are equal shareholders of LMN, Inc., a closely held corporation. All three
are directors, but only L and M are corporate officers with salaries from the corporation.
When N complains that the corporation has failed to pay dividends and left him in the

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 cold, L and M tell him to take a hike or sell your shares to us for $35/share. N is
furious, convinced his shares are worth much more than $35. He asks for the
corporations full financial records and any documents related to indications by outside
parties of an interest in buying in the business or its shares.
A. N has a right to inspect these documents because he is a 10% shareholder
B. N has a right to inspect these documents because he is a shareholder, and seeking to
value the business and his shares is a proper purpose
C. N does not have the right to inspect these documents because as a non-officer
shareholder he may only request to see the articles, bylaws and board minutes
D. N does not have a right to inspect these documents as a shareholder, but only as a
director

57. When a business owner sets up multiple corporations so that the assets of each are
separated from the risks of the others, this use of limited liability ...
A. is consistent with public policy, so long as the corporations comply with applicable
insurance requirements and the owner doesnt siphon personal funds
B. violates public policy, because all the risks of a business are part of the same
enterprise and must be supported by enterprise assets
C. violates public policy, because corporate law essentially creates an insurance mandate
that business use its assets to insure against business risks
D. is consistent with public policy, since the legislature created limited liability to
encourage business formation regardless of social costs

58. A, B and C are equal shareholders of RentEquip, Inc. C manages the business; A and B
do not actively participate. There are no shareholder or board meetings, and A and B
receive no information from C though they receive sizable monthly dividend
checks. C hires E, who rents to V a defective chainsaw. Ouch! When V sues RentEquip
for her injuries, A and B discover the companys insurance policy has lapsed because C
had not paid the premiums, despite Cs assurances to them that the premiums had been
paid. RentEquip has insufficient assets to pay Vs judgment. Who is liable to V?
A. A and B are not liable because they did not dominate the corporation or commit a
wrong given their ignorance of the corporations precarious financial situation
B. C is liable because he is responsible for the business being under-insured, thus
justifying piercing the corporate veil
C. A, B and C are liable because the corporation failed corporate formalities, which by
statute results in piercing the corporate veil
D. C is not liable because the tort in this case was committed by E, who rented a
defective item to V

59. A corporation in which you are a shareholder has just gone bankrupt. Its liabilities are far
in excess of its assets. You will be called on to pay:
A. a proportionate share of bondholder claims based on the number of common shares
that you own.
B. a proportional share of all creditor claims based on the number of common shares
that you own.
C. an amount that could, at most, equal what you originally paid for the shares of
common stock in the corporation.
D. nothing.

60. A major advantage of the corporate form of organization is:

A. reduction of double taxation.
B. limited owner liability.
C. legal restrictions.
D. ease of organization.

61. Michael Cohn is a "member" (a type of owner) of a marine supply business. Michael's
business is

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 A. a sole proprietorship.
B. a corporation.
C. a limited liability company.
D. general partnership.

62. Which of the following enjoys limited liability?

A. A general partnership.
B. A corporation.
C. A sole proprietorship.
D. None of the above.

63. A__________ provides for the greatest degree of continuity:

A. general partnership.
B. joint venture.
C. sole proprietorship.
D. corporation.

64. Which of the following is probably the most important reason for incorporating?
A. limited liability of shareholders.
B. more money for investment.
C. increased flexibility.
D. shared management.

65. A _____________ an owner who has unlimited liability and is active in managing the
firm:
A. senior partner.
B. general partner.
C. silent partner.
D. limited partner.

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