Exam 11: Corporations

To whom does the director owe the duty to be careful?

Ethan got together with a number of friends who all sat on the board of directors of a corporation. They personally disliked Stephen, a minority shareholder with a bad attitude. A new proposal was being put to the board. While they knew that this was not a measure that was in the best interests of the corporation, they also knew it would seriously weaken Stephen's financial position. Accordingly, they voted in favour of it. Which of the following is true?

Distinguish between selling the assets of a corporation and selling its shares.

Art Raskle was an officer, director, and employee of a broadly held corporation. At a directors' meeting, he was surprised but pleased to learn that the corporation was discussing a resolution to contract with the firm of Fielding's Office Supply for $20,000 worth of office equipment. He and a businesswoman had recently bought that business, in which Raskle has a 45% interest. Raskle voted for the contract and the resolution passed without discussion by a vote of 6-0. Several months after completion of the purchase, the other directors learned of Raskle's interest in Fielding's Office Supply and called on him to account to the corporation for any profit made. Which of the following is true?

Explain why a corporation is referred to as a legal fiction.

Shareholders have a right to bring an action against the directors on behalf of the company when the directors fail in their duty to the corporation.

Owning shares gives the shareholder control of the corporation but no rights to the assets of the corporation upon dissolution.

Since a variety of rights and restrictions can be incorporated into ________, depending on the interests of the parties, it is important that these matters be negotiated before they are issued.

A share interest in the indebtedness of a corporation that can be secured against specific assets is known as a ________.

Explain the nature of an annual general meeting.

What is typically the most expensive form of business organization to create and maintain?

In which of the following relationships is a fiduciary duty owed?

Directors owe a fiduciary duty to the public.

Smith, Jones, and Brown incorporated XYZ Ltd. The three were sole shareholders, directors, officers, and employees. Jones and Brown disliked working with Smith. They knew he was good for the business, but they disliked his personality and politics. After a year, Jones and Brown, as directors, removed Smith as an officer and employee and raised their own salaries as employees. They then voted Smith out as a director at the next shareholders' meeting. Which one of the following provisions would aid Smith?

A par-value share reflects the actual value on the market.

Shareholders are participants in the corporation, whereas ________ are simply creditors.

Shareholders in a closely held corporation can control the rights and responsibilities they have to each other by a unanimous shareholders' agreement.

Under what circumstances will preferred shareholders of a corporation be allowed to vote?

Joe, along with two friends, bought a peat bog with the idea of incorporating a corporation and reselling it to promote the development of the peat bog. Joe bought the bog for $40,000 and, when the corporation was incorporated, had himself and his two friends named as directors. They then held a meeting and on the first order of business, they bought the bog from themselves for $500,000. Then they voted to sell all of the shares of the business to five interested businessmen for $500,000, based on the value of the sole asset of the corporation, the peat bog. When the businessmen found out what had happened, they sued Joe and his friends. Explain the nature of the complaint and the likely outcome.

Explain "lifting the corporate veil."