Question 1

Briefly explain how a corporation can be financed, including the source of regulation with respect to public share issuance or debt offerings.

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Question 2

A bondholder of an insolvent corporation is entitled to payment from proceeds before general creditors, if secured, and before shareholders.

Accepted Answer

This is known as the priority of claim in a liquidation process. Secured bondholders have a higher priority than general creditors, and both have a higher priority than shareholders.

Question 3

Where there has been a finding of liability for failure to make timely disclosure of a material change in an issuer's business, the liability award will be capped unless the defendant knowingly participated in the misrepresentation or failure to disclose.

Accepted Answer

This statement is true. The liability award for failure to make timely disclosure of a material change in an issuer's business will be capped unless the defendant knowingly participated in the misrepresentation or failure to disclose. This is specified in securities laws and regulations in certain jurisdictions.

Question 4

Briefly explain the particulars of a NUANS report, including what it is and how it is created. Briefly discuss the corporate name approval process, and explain the major weakness inherent in that process.

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Question 5

Briefly discuss how the offences of insider trading and tipping are dealt with in Canada.

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Question 6

Individuals who engage in insider trading are subject to both criminal and civil liability under securities legislation and corporate legislation. In addition to the penalty of up to ten years in prison for insider trading, amendments to the Criminal Code created a penalty of up to five years in prison for conviction of a tipping offence.

Accepted Answer

This statement is true. Insider trading is considered a criminal offence and can result in up to ten years in prison. Tipping offences, which involve passing on inside information to others, can also result in up to five years in prison.

Question 7

Among the objectives of securities legislation are to provide a mechanism for the transfer of securities and to regulate the activities of those engaged in the trading of securities.

Accepted Answer

This statement accurately describes two of the main objectives of securities legislation.

Question 8

Discuss the requirements in all incorporating jurisdictions with respect to a corporation's name.

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Question 9

Identify the different models currently used for creating corporations. Indicate which jurisdictions use which model, and identify which jurisdictions, if any, provide for the creation of unlimited liability corporations.

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Question 10

Identify the actions required of first directors under federal corporate legislation, following the issuance of articles of incorporation.

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Question 11

Rolf called Tim to discuss an as-yet unannounced corporate takeover. Following Rolf's call, Tim purchased securities of both corporations on the basis of relevant material information he received. The securities are held in a joint trading account co-owned by Tim and Rolf. In these circumstances, Rolf is a tippee, Tim is an insider, and both Rolf and Tim are guilty of insider trading.

Accepted Answer

Rolf is the insider (as he has access to non-public, material information about the corporate takeover), Tim is the tippee (as he received the insider information from Rolf), and both could be guilty of insider trading if they traded based on this non-public information.

Question 12

Identify and briefly explain the typical rights and privileges that may attach to a class of shares issued by a corporation.

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Question 13

Explain how a corporation is formed, and identify all of the issues that must be considered when contemplating this choice of business vehicle.

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Question 14

Identify and briefly describe the provisions that must be present in incorporating documents in order to comply with the Ontario Securities Act and allow the new entity to qualify as a private corporation.

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Question 15

Explain the consequences that flow from a corporation's ability to exist as a legal entity that is separate and distinct from its shareholders.

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Quiz 15: The Corporate Form: Organizational Matters