Exam 11: Corporations

An agent owes a fiduciary duty to his principal, a director owes a fiduciary duty to the corporation, and partners owe a fiduciary duty to the firm and to the other parties. Which of the following is not true with regard to one's fiduciary duty?

Long ago, your friend Harry became wealthy through the tremendous success of a gadget he designed that allowed microchips to be produced without being touched by humans. Ever since, he has been invited to sit on the board of directors of different corporations, and has now decided it is time to accept. He is aware of the increasing number of cases finding directors personally liable. He does not want to be connected with a corporation involved with any wrong-doing. He has hired you to prepare in-depth reports on five corporations. Your reports reveal the following. In which of these is there no legal wrong?

Joe is an environmental activist and he acquired shares in Big Forestry Ltd. (a forestry corporation), only for the purpose of undermining Big Forestry Ltd. by speaking against their practices at annual shareholders' meetings and getting access to confidential information. Joe spoke against Big Forestry Ltd. at every opportunity. Explain his legal obligations to the corporation under these circumstances.

When a personal guarantee has been signed by a shareholder, the creditor can demand payment from that shareholder despite the separate legal entity nature of the corporation.

Explain the nature of the director's duties to the corporation.

Jed Wimsey, in auditing the books of various businesses around town, was talking to you, his best friend, about certain practices that he thought improper. Which of the following practices he found would be a breach of fiduciary duty?

A person who participates in the initial setting up of a corporation or who assists the corporation in making a public share offering is known as promoter.

One of the most common ways for small, closely held corporations to come to an end is for the principals to simply neglect to file the annual return.

What is the purpose of a unanimous shareholder agreement?

The directors held their last meeting on December 31 at 4:30 p.m., and it was conducted more like a party than a usual meeting. A director was negligent in signing a promissory note, which cost the corporation $15,000. Furthermore, the director was in breach of his fiduciary duty because the note was paid to a corporation in which he had an interest. Which of the following is true?

What does it mean to be a closely held corporation?

Lee, a former head of a venture capital firm, sat on the board of directors of Angel Enterprises Ltd., a broadly held corporation. During a board meeting, she recommended that the corporation invest in a new technology start-up. Lee failed to mention that she owned shares in this new tech corporation. When the prospect of investing was put to the board, Lee voted in favour it. Read each of the following statements separately and choose the true statement.

To what does the term "due diligence" refer?

Explain what is meant by a preferred share.

A corporation is a fiction that does not exist in reality.

In 2016, Rambolin incorporated Rambolin Industries Ltd. and became its sole shareholder. He lent the corporation $10,000 and took a General Security Agreement from the corporation as security for repayment of the loan. He became director, president, and secretary of the corporation. The corporation prospered. Last year, you began supplying the corporation with office supplies. You were paid at the end of each month for supplies delivered during that month. For the last six months, however, you have not been paid. You learn that other suppliers have not been paid either because sales have dropped drastically, apparently due to Rambolin's nasty temper caused by ill health. Which of the following is true?

Directors owe a fiduciary duty to the corporation.

"In modern business practice, the shareholders of a corporation own that corporation." Explain the accuracy of this statement.

Joe is a shareholder of XYZ Corporation, an extremely profitable corporation in the software business, and was upset when the directors of the corporation refused to declare a dividend again, ploughing the money back into research and development. Joe sued, along with several other shareholders, claiming that there was no excuse for withholding dividends under these circumstances. Explain the likely outcome.

Another term commonly used where a bond is involved is