Question 1

What is a "share"?

Accepted Answer

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Question 2

Punam was the director of a broadly held corporation that made educational software. Without the knowledge or consent of the board of directors, Punam started a competing business that she ran from home. Which of the following is true?

Accepted Answer

A)  Punam can compete with the business, as long as she does use confidential documents belonging to the corporation. 
B)  Punam is only a director, so she owes no special duty to the corporation. 
C)  Punam owes the shareholders of the corporation a fiduciary duty, so they could sue her if they suffer a loss. 
D)  Punam has breached a fiduciary duty owed to the corporation. 
E)  Whether or not Punam can compete with the business, depends on whether her written contract prohibits it.

Question 3

Shareholders in a closely held corporation are entitled to sell their shares to whomever they want without restriction.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

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Question 6

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

Question 7

The provincial agency that serves as watchdog on the stock market is known as ________.

Accepted Answer

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Question 8

In Salomon v. Salomon & Co., Mr. Salomon incorporated a business to which he loaned money, secured by a mortgage on the business assets. When the business failed, the creditors turned to Mr. Salomon, arguing that he should not be able to claim ahead as a secured creditor and, in fact, should be responsible for the company's debts. What did the Court find?

Accepted Answer

A)  Mr. Salomon, by creating a fictionalized legal entity, had committed a fraud on the business's creditors, and so should bear total responsibility for the creditors' claims. 
B)  Mr. Salomon could not claim priority as a secured creditor, because this would amount to a conflict of interest. 
C)  Mr. Salomon, as the incorporator, should be responsible for paying the creditors of his business, on the grounds of unjust enrichment. 
D)  The company was a legal entity separate from Mr. Salomon, so Mr. Salomon could have priority as a secured creditor and bore no responsibility for the company's debts. 
E)  The company was a legal entity separate from Mr. Salomon, but it would not be fair to allow him to claim his money ahead of arms' length parties.

Question 9

What are three distinct methods that are used for the creation of small corporations in Canada?

Accepted Answer

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Question 10

How is incorporation effected in a registration jurisdiction?

Accepted Answer

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Question 11

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)  Kent may have been able to protect himself by including a provision in the contract with Ace exempting him from personal liability. 
C)  Kent's liability on the contract would be limited to his investment in the corporation. 
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)  Many jurisdictions have recently enacted statutory provisions preventing a corporation from ratifying pre-incorporation contracts.

Question 12

Explain "lifting the corporate veil."

Accepted Answer

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Question 13

John and two friends incorporated a closely-held corporation. Each bought an equal number of common shares in the corporation. Each became a director, an officer and an authorized agent of the corporation. Which of the following is true?

Accepted Answer

A)  As director, each owes a fiduciary duty to the creditors of the corporation. 
B)  The corporation is more highly regulated and less free of government regulations and control than a broadly held corporation would be. 
C)  If the affairs of the corporation are being conducted in a manner that is unfairly prejudicial to any one shareholder, that shareholder could seek relief from such oppression from the courts. 
D)  Since the corporation is a legal fiction, all of its activities must be carried out through principals. 
E)  Each of them, as directors, owe a fiduciary duty to each of the others, as shareholders.

Question 14

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?

Accepted Answer

A)  The directors have discretion to act how they see fit, even if it is not generally viewed as professional. 
B)  The directors have breached the Canadian Code of Professional Conduct. 
C)  The directors have breached their fiduciary duty to act in the best interests of the corporation. 
D)  The directors have acted inappropriately, but because Stephen is a minority shareholder, their conduct is not actionable. 
E)  The directors have breached their fiduciary duty to act in the best interests of the shareholders.

Question 15

Aunt Juliet wants to incorporate a small closely held corporation. Which of the following bits of advice, given to her by friends, is false?

Accepted Answer

A)  In some jurisdictions in Canada, she could be personally responsible for a pre-incorporation contract. 
B)  The incorporation document to be submitted in Ontario is the "Articles of Incorporation." 
C)  She can enter into a contract on behalf of the corporation even before incorporation and the company will automatically be bound when it is incorporated. 
D)  The incorporation documents to be submitted in B.C. are called the "Memorandum" and the "Articles." 
E)  She has the option of incorporating federally if she wants.

Question 16

A securities commission is a provincial agency that serves as watchdog on the stock market.

Accepted Answer

A) True 
 B)False

Question 17

John Hollin was an officer, director, and employee of a large broadly held corporation. At a directors' meeting, he learned that the corporation was voting on a resolution to buy a piece of property from Sam Keanu for $100,000. It happened that Hollin was one of three co-owners of that property. Hollin voted for the purchase and the resolution passed without discussion by a vote of 5-0. Several months after completion of the purchase, the other directors learned of Hollin's ownership and called on him to account to the corporation for any profit made. Which of the following is false?

Accepted Answer

A)  The shareholders could proceed under the dissent procedure and force the corporation to buy them out. 
B)  If the directors failed to take action, the shareholders could have brought an action on behalf of the corporation against Hollin. 
C)  Hollin should have disclosed his interest and refrained from voting or otherwise influencing the decision. 
D)  Hollin must account for any profit made because he failed to disclose his interest and voted on the question. 
E)  Hollin owed a fiduciary duty to the corporation and breached that duty by his actions.

Question 18

Indicate three significant results of a corporation being classed as a separate legal personality.

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Question 19

Discuss the principle of limited liability, why it arises in the law governing corporations, and its significance.

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Question 20

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?

Accepted Answer

A)  If the corporation failed to start an action through its authorized agents (e.g., its directors), no action could be taken because a corporation is merely a legal concept and must act through its authorized agents. 
B)  The shareholders could dissent to this act and force the corporation to buy them out at fair market value. 
C)  The proper plaintiffs in the action are the shareholders, under the relief from oppression provision. 
D)  The shareholders could force the director to pay the $15,000 to the corporation by insisting on their "pre-emptive rights." 
E)  A shareholder could commence an action on behalf of the corporation against the director if he gets the court's permission to do so.

Exam 12: Corporations

What is a "share"?

Punam was the director of a broadly held corporation that made educational software. Without the knowledge or consent of the board of directors, Punam started a competing business that she ran from home. Which of the following is true?

Shareholders in a closely held corporation are entitled to sell their shares to whomever they want without restriction.

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

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

The provincial agency that serves as watchdog on the stock market is known as ________.

What are three distinct methods that are used for the creation of small corporations in Canada?

How is incorporation effected in a registration jurisdiction?

Explain "lifting the corporate veil."

John and two friends incorporated a closely-held corporation. Each bought an equal number of common shares in the corporation. Each became a director, an officer and an authorized agent of the corporation. Which of the following is true?

Aunt Juliet wants to incorporate a small closely held corporation. Which of the following bits of advice, given to her by friends, is false?

A securities commission is a provincial agency that serves as watchdog on the stock market.

Indicate three significant results of a corporation being classed as a separate legal personality.

Discuss the principle of limited liability, why it arises in the law governing corporations, and its significance.