Question 1

Which of the following situations would allow a shareholder of a closely held corporation, with permission of the court, to sue on behalf of the corporation?

Accepted Answer

A)  If four of the five directors, in the best interests of the corporation, voted against the fifth director, voted to end the employment contract of the fifth director, and voted not to buy his shares. 
B)  If the corporation had been wronged by the negligent and fraudulent acts of one of its directors, but the corporation refused to take any action against the wrongdoer. 
C)  If the shareholders refused to enter into a shareholder's agreement. 
D)  If the directors refused to declare a dividend. 
E)  If the directors solicited proxies from all of the shareholders. 
A)  If four of the five directors, in the best interests of the corporation, voted against the fifth director, voted to end the employment contract of the fifth director, and voted not to buy his shares. 
B)  If the corporation had been wronged by the negligent and fraudulent acts of one of its directors, but the corporation refused to take any action against the wrongdoer. 
C)  If the shareholders refused to enter into a shareholder's agreement. 
D)  If the directors refused to declare a dividend. 
E)  If the directors solicited proxies from all of the shareholders.

Question 2

Which of the following is not an advantage of incorporation?

Accepted Answer

A)  Shareholders are not liable for debts of the corporation. 
B)  There may be tax advantages. 
C)  Shareholders can veto decisions of directors. 
D)  Shares are easily transferred. 
E)  Shareholders owe no duty to the corporation. 
A)  Shareholders are not liable for debts of the corporation. 
B)  There may be tax advantages. 
C)  Shareholders can veto decisions of directors. 
D)  Shares are easily transferred. 
E)  Shareholders owe no duty to the corporation.

Question 3

A corporation is considered to be a separate legal entity from the shareholders who make it up.

Accepted Answer

A) True 
 B)False

Question 4

Kent incorporated provincially. The corporation worked with small businesses in developing graphs and charts from their data for presentation to bankers, partners, shareholders, etc. If Kent, as promoter and agent of the company, had bought the necessary equipment from Ace Computers Ltd. prior to incorporation, which of the following would be true?

Accepted Answer

A)  At common law, pre-incorporation contracts are binding on the corporation, but only from the moment the corporation comes into existence. 
B)  Many jurisdictions have recently enacted statutory provisions preventing a corporation from ratifying pre-incorporation contracts. 
C)  Kent may have been able to protect himself by including a provision in the contract with Ace exempting him from personal liability. 
D)  A corporation is legally bound to ratify all contracts made prior to incorporation, but only if those contracts were made with the intention that the corporation be bound. 
E)  Kent's liability on the contract would be limited to his investment in the corporation. 
A)  At common law, pre-incorporation contracts are binding on the corporation, but only from the moment the corporation comes into existence. 
B)  Many jurisdictions have recently enacted statutory provisions preventing a corporation from ratifying pre-incorporation contracts. 
C)  Kent may have been able to protect himself by including a provision in the contract with Ace exempting him from personal liability. 
D)  A corporation is legally bound to ratify all contracts made prior to incorporation, but only if those contracts were made with the intention that the corporation be bound. 
E)  Kent's liability on the contract would be limited to his investment in the corporation.

Question 5

Distinguish between a par-value share and a non-par-value share.

Accepted Answer

Par value is simply a value that is plac

Question 6

Joe was the director of XYZ Corporation, and the corporation was experiencing some financial difficulties. The shareholders had received dividends over the years, and this year insisted that they be paid a similar dividend, despite the fact that the corporation did not have enough reserved funds to pay off its debts. Joe, along with the other directors, complied with this request, and a few months later, the corporation was unable to pay a required payment on a bank loan. What can the bank do in these circumstances?

Accepted Answer

The bank can sue Joe directly

Question 7

Explain under what circumstances a shareholder's right to dissent arises.

Accepted Answer

A shareholder's right to dissent arises

Question 8

Which of the following is an example of a breach of a fiduciary duty?

Accepted Answer

A)  A shareholder of ABC Ltd., a trucking corporation whose shares are listed on the Vancouver Stock Exchange, is working as an employee for ABC Ltd.'s competitor, Jonstone Trucking. 
B)  The directors of the corporation, contrary to the request by the shareholders, refused to declare dividends. 
C)  A partner in a firm learned of a business forced to sell some heavy equipment. Although the partnership could have used the equipment, he bought and sold it at a substantial profit before the partnership was given a chance to buy it. 
D)  A promoter of a corporation sold property to the corporation for four times what he paid for it after he made full disclosure of his interest to an independent board of directors, which voted for the purchase. 
E)  A shareholder of a corporation voted in favour of an acquisition by the corporation at the annual general meeting because he secretly had an interest in the corporation being purchased. 
A)  A shareholder of ABC Ltd., a trucking corporation whose shares are listed on the Vancouver Stock Exchange, is working as an employee for ABC Ltd.'s competitor, Jonstone Trucking. 
B)  The directors of the corporation, contrary to the request by the shareholders, refused to declare dividends. 
C)  A partner in a firm learned of a business forced to sell some heavy equipment. Although the partnership could have used the equipment, he bought and sold it at a substantial profit before the partnership was given a chance to buy it. 
D)  A promoter of a corporation sold property to the corporation for four times what he paid for it after he made full disclosure of his interest to an independent board of directors, which voted for the purchase. 
E)  A shareholder of a corporation voted in favour of an acquisition by the corporation at the annual general meeting because he secretly had an interest in the corporation being purchased.

Question 9

Mr. Malik, an investment counsellor by training, sat on the board of directors of Talbot Enterprises Ltd., a broadly held corporation. During a meeting of the board, he advised the corporation to buy some condominiums given the present soft real estate market. Malik did not disclose that he owned shares in the corporation that owned the property, nor did he disclose that he would be entitled to a commission for every unit he helped sell. When the question was put to the board, he voted for it. Read each of the following statements separately and indicate which is true.

Accepted Answer

A)  A director must disclose his interest in a contract before the board, but is not required to refrain from voting for it. 
B)  Malik doesn't have to disclose his interest in the contract if he has signed an agreement with the other directors relieving them of their fiduciary duties. 
C)  A shareholder, learning of his actions, could proceed under the dissent procedure, which would cause the corporation to buy his shares at fair market value. 
D)  Malik has breached his fiduciary duty, but if the sale was fair, he need not give up his profits. 
E)  Malik must account for any profit made because he failed to disclose his interest and voted on the question. 
A)  A director must disclose his interest in a contract before the board, but is not required to refrain from voting for it. 
B)  Malik doesn't have to disclose his interest in the contract if he has signed an agreement with the other directors relieving them of their fiduciary duties. 
C)  A shareholder, learning of his actions, could proceed under the dissent procedure, which would cause the corporation to buy his shares at fair market value. 
D)  Malik has breached his fiduciary duty, but if the sale was fair, he need not give up his profits. 
E)  Malik must account for any profit made because he failed to disclose his interest and voted on the question.

Question 10

What happens if annual returns are not filed for a corporation?

Accepted Answer

A certificate of dis

Question 11

Because a director of a closely held corporation breached his duties to the corporation, the corporation lost $15,000. Despite the urging of the shareholders, the board of directors refused to begin an action on behalf of the corporation. Which one of the following provisions would aid the shareholders?

Accepted Answer

A)  Relief-from-oppression provisions 
B)  Pre-emptive right provisions 
C)  Indoor-management rule 
D)  Derivative-action provisions 
E)  Dissent procedure 
A)  Relief-from-oppression provisions 
B)  Pre-emptive right provisions 
C)  Indoor-management rule 
D)  Derivative-action provisions 
E)  Dissent procedure

Question 12

Contrast the obligations and duties of directors and shareholders of a corporation.

Accepted Answer

Basically, the shareholders of a corpora

Question 13

If a director fails in his duty to the corporation, what rights does a minority shareholder have to hold him accountable?

Accepted Answer

The minority shareholder can b

Question 14

What is meant by the term "prospectus"?

Accepted Answer

A prospectus is a pu

Question 15

Mr. A is the sole shareholder of X Ltd., and is also a director of Y Ltd. Y Ltd. is negotiating to buy property from X Ltd. Which of the following is false?

Accepted Answer

A)  Failure to disclose his interest will make Mr. A liable to Y Ltd. for any profits he makes on the transaction and for any losses suffered by Y Ltd. 
B)  So long as Mr. A discloses his position to the board of directors of Y Ltd., he can vote in favour of the contract at the directors' meeting. 
C)  Mr. A does not owe a fiduciary duty to X Ltd. or to his fellow X Ltd. shareholders. 
D)  To protect himself, Mr. A must disclose his interest to the other directors and refrain from voting or influencing the decision. 
E)  Mr. A has a duty to act in the best interests of Y Ltd., and to avoid any conflict of interest. 
A)  Failure to disclose his interest will make Mr. A liable to Y Ltd. for any profits he makes on the transaction and for any losses suffered by Y Ltd. 
B)  So long as Mr. A discloses his position to the board of directors of Y Ltd., he can vote in favour of the contract at the directors' meeting. 
C)  Mr. A does not owe a fiduciary duty to X Ltd. or to his fellow X Ltd. shareholders. 
D)  To protect himself, Mr. A must disclose his interest to the other directors and refrain from voting or influencing the decision. 
E)  Mr. A has a duty to act in the best interests of Y Ltd., and to avoid any conflict of interest.

Question 16

Kent incorporated Dynamite Data Ltd., which worked with small businesses in developing graphs and charts from their data for presentations to bankers, shareholders, etc. Kent lent the company $25,000 by way of a shareholder's loan and took as security computers, plotters, and printers under a General Security Agreement. An employee of the corporation, Jack, got into an argument with a customer named Roth while making a delivery. Roth was complaining that the graph was in red and not in pink as requested. It ended with Jack punching Roth, who fell onto a camera. The damage to Roth's nose and the camera totalled $35,000. Which of the following is true?

Accepted Answer

A)  The corporation is not liable for the damage caused by the action of its employee, Jack. 
B)  Kent is liable for the damage to Roth and the camera if neither Jack nor the employer/corporation has sufficient funds. 
C)  If the corporation went bankrupt but owed creditors (other than Roth), Kent would be in a worse position than unsecured creditors to collect proceeds realized from the sale of the corporation's assets. 
D)  Even if Kent, the only shareholder, died, the corporation would not die and would still owe its outstanding debts. 
E)  Roth's action against Jack is for the tort of assault. 
A)  The corporation is not liable for the damage caused by the action of its employee, Jack. 
B)  Kent is liable for the damage to Roth and the camera if neither Jack nor the employer/corporation has sufficient funds. 
C)  If the corporation went bankrupt but owed creditors (other than Roth), Kent would be in a worse position than unsecured creditors to collect proceeds realized from the sale of the corporation's assets. 
D)  Even if Kent, the only shareholder, died, the corporation would not die and would still owe its outstanding debts. 
E)  Roth's action against Jack is for the tort of assault.

Question 17

Which one of the following is an example of breach of fiduciary duty?

Accepted Answer

A)  The directors of the corporation refuse to give a pay raise to the employees although they had not received a pay raise for five years. 
B)  A director profited $120,000 from a contract between the corporation and a firm in which he had an interest after he made full disclosure of his interest to the board of directors and abstained from the vote on the contract. 
C)  An officer of the corporation learned of a business opportunity intended for the corporation and intercepted it for his own benefit. 
D)  The directors refused to declare a dividend, contrary to the request by its preferred shareholders. 
E)  A shareholder owning 2% of the outstanding shares started a business in direct competition with the corporation in which he held shares. 
A)  The directors of the corporation refuse to give a pay raise to the employees although they had not received a pay raise for five years. 
B)  A director profited $120,000 from a contract between the corporation and a firm in which he had an interest after he made full disclosure of his interest to the board of directors and abstained from the vote on the contract. 
C)  An officer of the corporation learned of a business opportunity intended for the corporation and intercepted it for his own benefit. 
D)  The directors refused to declare a dividend, contrary to the request by its preferred shareholders. 
E)  A shareholder owning 2% of the outstanding shares started a business in direct competition with the corporation in which he held shares.

Question 18

Andrea agreed to form a corporation with two friends, but lay awake last night rethinking her decision. They agreed that they all wanted to be directors and officers and that they all would have signing authority with the bank from whom the corporation is borrowing the money. Nevertheless, she began to review her assumptions. Which of the following is true?

Accepted Answer

A)  When she signs the promissory note at the bank on behalf of the corporation, she can just sign her own name; she will not be personally liable as long as she intended to sign on behalf of the corporation. 
B)  As a major shareholder, she would be elected as a director every year even without such a provision in the shareholders' agreement. 
C)  She would be able to ask the court for relief from oppression if she disliked a decision passed by the majority of the directors. 
D)  As a shareholder, she is free to compete with the company even if she is a director as well. 
E)  She would be able to bring an action on behalf of the company if one of the directors breached his fiduciary duty to the corporation and the other directors refused to do anything about it. 
A)  When she signs the promissory note at the bank on behalf of the corporation, she can just sign her own name; she will not be personally liable as long as she intended to sign on behalf of the corporation. 
B)  As a major shareholder, she would be elected as a director every year even without such a provision in the shareholders' agreement. 
C)  She would be able to ask the court for relief from oppression if she disliked a decision passed by the majority of the directors. 
D)  As a shareholder, she is free to compete with the company even if she is a director as well. 
E)  She would be able to bring an action on behalf of the company if one of the directors breached his fiduciary duty to the corporation and the other directors refused to do anything about it.

Question 19

Explain what is meant by pre-emptive rights.

Accepted Answer

Depending on the legislation and the jur

Question 20

A securities commission is a provincial agency that serves as watchdog on issuance and trading of shares.

Accepted Answer

A) True 
 B)False

Which of the following situations would allow a shareholder of a closely held corporation, with permission of the court, to sue on behalf of the corporation?

Which of the following is not an advantage of incorporation?

A corporation is considered to be a separate legal entity from the shareholders who make it up.

Distinguish between a par-value share and a non-par-value share.

Explain under what circumstances a shareholder's right to dissent arises.

Which of the following is an example of a breach of a fiduciary duty?

What happens if annual returns are not filed for a corporation?

Contrast the obligations and duties of directors and shareholders of a corporation.

If a director fails in his duty to the corporation, what rights does a minority shareholder have to hold him accountable?

What is meant by the term "prospectus"?

Mr. A is the sole shareholder of X Ltd., and is also a director of Y Ltd. Y Ltd. is negotiating to buy property from X Ltd. Which of the following is false?

Which one of the following is an example of breach of fiduciary duty?

Explain what is meant by pre-emptive rights.

A securities commission is a provincial agency that serves as watchdog on issuance and trading of shares.

Managing Your Legal Affairs

Introduction to the Legal System

The Resolution of Disputes: the Courts and Alternatives to Litigation

Intentional Torts and Torts Impacting Business

Negligence, Professional Liability, and Insurance

The Elements of a Contract: Consensus and Consideration

The Elements of a Contract: Capacity, Legality, and Intention

Factors Affecting the Contractual Relationship

The End of the Contractual Relationship

Agency and Partnership

Employment

Intellectual Property

Real and Personal Property and Protection of the Environment

Priority of Creditors

Sales and Consumer Protection

Filters

Exam 11: Corporations

Which of the following situations would allow a shareholder of a closely held corporation, with permission of the court, to sue on behalf of the corporation?

Which of the following is not an advantage of incorporation?

A corporation is considered to be a separate legal entity from the shareholders who make it up.

Distinguish between a par-value share and a non-par-value share.

Explain under what circumstances a shareholder's right to dissent arises.

Which of the following is an example of a breach of a fiduciary duty?

What happens if annual returns are not filed for a corporation?

Contrast the obligations and duties of directors and shareholders of a corporation.

If a director fails in his duty to the corporation, what rights does a minority shareholder have to hold him accountable?

What is meant by the term "prospectus"?

Mr. A is the sole shareholder of X Ltd., and is also a director of Y Ltd. Y Ltd. is negotiating to buy property from X Ltd. Which of the following is false?

Which one of the following is an example of breach of fiduciary duty?

Explain what is meant by pre-emptive rights.

A securities commission is a provincial agency that serves as watchdog on issuance and trading of shares.

Managing Your Legal Affairs

Introduction to the Legal System

The Resolution of Disputes: the Courts and Alternatives to Litigation

Intentional Torts and Torts Impacting Business

Negligence, Professional Liability, and Insurance

The Elements of a Contract: Consensus and Consideration

The Elements of a Contract: Capacity, Legality, and Intention

Factors Affecting the Contractual Relationship

The End of the Contractual Relationship

Agency and Partnership

Employment

Intellectual Property

Real and Personal Property and Protection of the Environment

Priority of Creditors

Sales and Consumer Protection

Filters