Question 1

Your friend Harry became wealthy through the tremendous success of a gadget he designed that allowed micro-chips to be produced without being touched by humans.He has been invited to sit on the board of directors of different corporations.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?

Accepted Answer

A)   123456 Canada Ltd.: In a closely held corporation with four members, each owning 25 percent of the outstanding shares, the two members who served as directors voted to issue more shares, which they sold directly to themselves to give them voting control of the corporation, despite a provision providing for preemptive rights in a shareholders agreement.
B)   167354 Canada Ltd.: A director who learned of a business opportunity while serving on the board of directors intercepted the opportunity for himself before the company could act on it.
C)   1999872 Canada Ltd.: A minority shareholder joined with a group that protested the corporation's involvement in a logging operation and tried to prevent the planned logging.
D)   3721956 Canada Ltd.: The majority of the directors voted on a measure that was not in the best interest of the corporation, but that would financially weaken the position of a shareholder whom they personally disliked.
E)   12376252 Canada Ltd.: In this broadly held computer software corporation, a director, without the knowledge or consent of the board of directors, started a competing business that he ran from his home. C

Question 2

In jurisdictions in which the registration system of incorporation is used,the rules governing the internal regulations of a company are called

Accepted Answer

A)   the memorandum or memorandum of association.
B)   the letters patent.
C)   the articles or articles of association.
D)   the notice of offices.
E)   the certificate of incorporation. C

Question 3

When a closely held corporation is involved,it is common to include no restrictions on the transfer or sale of the shares.

Accepted Answer

A) True 
 B)False  False

Question 4

The method of incorporating used in some jurisdictions in Canada whereby the government grants recognition to the company as a separate legal entity is known as ________.

Accepted Answer

The answer of The method of incorporating used in some...

Question 5

Which of the following statements about pre-incorporation contracts is false?

Accepted Answer

A)   Promoters will often purchase property on behalf of a corporation prior to incorporation and then have the corporation ratify after incorporation has taken place.
B)   Ratification of pre-incorporation contracts is invalid at common law, since the corporation did not exist at the time the contract was made.
C)   Many jurisdictions have made legislative changes permitting later-incorporated corporations to ratify pre-incorporation contracts.
D)   If a corporation does not ratify a pre-incorporation contract, or if a pre-incorporation contract is signed in a jurisdiction which does not permit ratification, the promoter remains solely liable for any losses.
E)   Promoters cannot be held liable for losses, due to the doctrine of corporate myth.

Question 6

A debenture is likely to be secured.

Accepted Answer

A) True 
 B)False

Question 7

How can a corporation be brought to an end?

Accepted Answer

The answer of How can a corporation be brought to...

Question 8

Where preemptive rights exist,existing shareholders must be offered their proportionate share of any new allotment of shares before the shares are offered to anyone else.

Accepted Answer

A) True 
 B)False

Question 9

Explain the nature of the "corporate myth".

Accepted Answer

The answer of Explain the nature of the "corporate myth"....

Question 10

Explain under what circumstances a shareholder's right to sue against oppression arises.

Accepted Answer

The answer of Explain under what circumstances a shareholder's right...

Question 11

Discuss the concept of promoters,their duties,and their role in the corporate form.

Accepted Answer

The answer of Discuss the concept of promoters,their duties,and their...

Question 12

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

Accepted Answer

A)   receivers
B)   trustee
C)   shareholder
D)   bondholder
E)   tribuna

Question 13

After Bill Roles graduated from university,he incorporated Roles Enterprises Ltd.He put $10 000 into the corporation by way of a shareholder's loan and the corporation granted him a chattel mortgage of one of its two delivery trucks as security.You knew Bill at school; therefore,when Roles Enterprises Ltd.needed computer supplies,Bill,on behalf of the corporation,contracted with you,the owner of a business selling computer supplies.As it turned out,Bill placed such orders with you almost every three weeks.Read each of the following separately and indicate which of the following is true.

Accepted Answer

A)   If Bill neglects to file annual returns for the corporation, Roles Enterprises Ltd. could cease to exist.
B)   If an employee of Roles Enterprises Ltd. came to your store to pick up supplies and caused $900 damage by his negligent driving, you could sue the employee, Roles Enterprises Ltd., and Bill personally because the employee worked for Bill's corporation.
C)   If Roles Enterprises Ltd. owed you $1500 for supplies when it was placed into bankruptcy by its creditors, Bill would be more likely to lose money he lent to the corporation than you would be.
D)   If the corporation owed you money and Bill, the only shareholder in the corporation, was killed, you would look to Bill's estate for payment.
E)   If Bill had inadvertently contracted with you before the corporation was in existence, the corporation would lose the ability to ratify that contract, and the contract would be considered void.

Question 14

Explain what is meant by "lifting the corporate veil."

Accepted Answer

The answer of Explain what is meant by "lifting the...

Question 15

What are "preferred shares"?

Accepted Answer

The answer of What are "preferred shares"?...

Question 16

Explain the standard of care that a director must live up to in carrying out his duty towards the corporation.

Accepted Answer

The answer of Explain the standard of care that a...

Question 17

With regard to the law of corporations,which of the following is true?

Accepted Answer

A)   In many jurisdictions, pre-emptive rights entitle a shareholder to pass on their right to vote to someone else.
B)   If a minority shareholder is treated unfairly, the appropriate relief to request is that the court "lift the corporate veil."
C)   "Relief from oppression" provisions allow a party who has contracted with the corporation to force the corporation to honour a contract it has signed in an irregular manner.
D)   A director of a corporation could not be personally liable on a promissory note even if he just signed his own name as long as at the time he intended to sign on behalf of the corporation.
E)   A creditor of a corporation could sue for some remedy if the directors of the corporation voted for a resolution to pay a dividend when the corporation was insolvent.

Question 18

An agent owes a fiduciary duty to his principal; a director owes a fiduciary duty to the corporation; 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?

Accepted Answer

A)   An agent would be in breach of his fiduciary duty if he let his interest conflict with his duty.
B)   A fiduciary is in a position of trust and owes true loyalty to the person depending on him.
C)   A shareholder owning a business that secretly competes with the corporation is in breach of fiduciary duty.
D)   A partner secretly competing with his own firm would be in breach of his fiduciary duty.
E)   An agent failing to disclose to his principal all information relating to the principal's business transaction would be a breach of his fiduciary duty.

Question 19

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.

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 12: Corporations

In jurisdictions in which the registration system of incorporation is used,the rules governing the internal regulations of a company are called

When a closely held corporation is involved,it is common to include no restrictions on the transfer or sale of the shares.

The method of incorporating used in some jurisdictions in Canada whereby the government grants recognition to the company as a separate legal entity is known as ________.

Which of the following statements about pre-incorporation contracts is false?

A debenture is likely to be secured.

How can a corporation be brought to an end?

Where preemptive rights exist,existing shareholders must be offered their proportionate share of any new allotment of shares before the shares are offered to anyone else.

Explain the nature of the "corporate myth".

Explain under what circumstances a shareholder's right to sue against oppression arises.

Discuss the concept of promoters,their duties,and their role in the corporate form.

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

Explain what is meant by "lifting the corporate veil."

What are "preferred shares"?

Explain the standard of care that a director must live up to in carrying out his duty towards the corporation.

With regard to the law of corporations,which of the following is true?

An agent owes a fiduciary duty to his principal; a director owes a fiduciary duty to the corporation; 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?

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?

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.