2010

Your client Dianne approaches you for legal advice on putting up a medium-sized restaurant
business that will specialize in a novel type of cuisine. As Dianne feels that the business is a little
risky, she wonders whether she should use a corporation as the business vehicle, or just run it as
a single proprietorship. She already has an existing corporation that is producing meat products
profitably and is also considering the alternative of simply setting up the restaurant as a branch
office of the existing corporation.
(A) Briefly explain to your client what you see as the legal advantages and disadvantages of
using a separate corporation, a single proprietorship, or a branch of an existing corporation for
the proposed restaurant business. (3%)
SUGGESTED ANSWER: If Dianne will set up a separate corporation, her liability for its
obligations and losses will be limited to the amount of her subscription in the absence of
showing that there is a ground to disregard its separate juridical personality. If she were to
operate a single proprietorship, her liability for its debts and losses will be unlimited. The
formation and the operation of a corporation require a great deal of paper work and
record-keeping. This is not the situation in the case of a single proprietorship. If Dianne
will form a separate corporation, it can raise more funds for the business than if she were
to set up a single proprietorship.

If she were to set up the restaurant as a branch office an existing corporation, the
corporation will have more funds as capital than if she were to form a separate
corporation. However, all the assets of the existing corporation will be liable for the debts
and losses of the restaurant business.

(B) If you advise your client to use a corporation, what officer positions must the corporation at
least have?(2%)
SUGGESTED ANSWER: The corporation must have at least five directors (Section 14 of
the Corporation Code). It Must also have a president, a treasure, and secretary (Section 25
of the Corporation Code).

(C) What particular qualifications, if any, are these officers legally required to possess under the
Corporation Code? (2%)
SUGGESTED ANSWER: Every director must own at least one share of the capital stock of
the corporation, which must be recorded in his name on the books of the corporation, and a
majority of the directors must be residents of the Philippines (Section 25 of the
Corporation Code).
The president must also be a director. The secretary must be a resident and citizen of the
Philippines (Section 25 of the Corporation Code).