Question 1

When shares are involved,even preferred shares,there is no legal obligation to pay dividends,but a failure to repay ________ constitutes a breach of the corporation's legal obligation.

Accepted Answer

The missing word in the sentence is related to financial obligation and the only option that fits that description is "debt". The company has to repay its debts, but there is no legal requirement to pay dividends. Failure to repay debt would result in a breach of the corporation's legal obligations. The other options are not relevant to the context.

Question 2

Consider the decision in Agrium Inc.v.Hamilton.What did the Court find?

Accepted Answer

The Court found that Hamilton, as a director and majority shareholder of Flagstaff, was not in a fiduciary relationship with Agrium, a minority shareholder. Therefore, Agrium's claim for breach of fiduciary duty was dismissed.

Question 3

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

The House of Lords found that the company was a legal entity separate from Mr. Salomon, and therefore he could have priority as a secured creditor and was not responsible for the company's debts. This became known as the "Salomon principle" and established the concept of corporate personality in company law.

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

Since Kent was acting as a promoter and agent of the corporation, he would not be personally liable for any pre-incorporation contracts if he included a provision in the contract with Ace exempting him from personal liability. This is because the corporation, once incorporated, would be liable for any contracts it entered into, not Kent personally. However, if Kent did not include such a provision, he could potentially be personally liable for any obligations under the contract.

Question 5

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

As a shareholder, 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. While shareholders elect the board of directors, being a major shareholder does not guarantee being elected as a director every year. Signing authority with the bank as a director does not remove personal liability, but signing on behalf of the corporation with the intention to do so would protect personal assets. Relief from oppression typically applies to minority shareholders, and competing with the company as a director may create conflicts of interest.

Question 6

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

Mr. Malik, as a director, had a fiduciary duty to act in the best interest of the corporation and to disclose any conflicts of interest. By not disclosing his interest in the real estate and the commission he would receive, he breached that duty. As a result, he must account for any profit he made from the transaction. Option A is incorrect because a director must not only disclose their interest but also refrain from voting on the contract. Option B is incorrect because the other directors cannot relieve Malik of his fiduciary duties. Option C is also incorrect because the dissent procedure is only available to dissatisfied shareholders, not to a shareholder who has engaged in self-dealing. Option D is incorrect because even if the sale was fair, Malik still breached his fiduciary duty by not disclosing his interest.

Question 7

The corporation typically makes a debt commitment to a ___________,who then issues shares in the indebtedness to individual bondholders.

Accepted Answer

The corporation typically makes a debt commitment to a trustee, who then issues shares in the indebtedness to individual bondholders.

Question 8

A securities commission is

Accepted Answer

A securities commission is a provincial agency that regulates and oversees the stock market to protect investors and promote informed and fair securities trading. It is responsible for ensuring that public companies and investment dealers meet their disclosure and registration requirements, enforcing securities laws, investigating fraud and insider trading, and educating investors about the risks and benefits of investing.

Question 9

In Peoples Department Stores Inc.et al.v.Wise et al.,the Supreme Court of Canada had to clarify to whom a director owes its duties.What did the Court hold?

Accepted Answer

The Supreme Court of Canada held that a fiduciary duty is owed only to the company, while a duty of care can also be owed to other stakeholders.

Question 10

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

This advice is false. A corporation does not exist until it is incorporated, and therefore cannot enter into contracts prior to its incorporation. Any contracts entered into by Aunt Juliet prior to the corporation's incorporation would be entered into as an individual, not as a corporation.

Question 11

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 startup.Lee failed to mention that she owned shares in this new tech company.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.

Accepted Answer

Lee is in breach of her fiduciary duties to Angel Enterprises Ltd. by failing to disclose her interest in the new technology startup and by voting in favor of investing in it. She must account for any profit made as a result of this breach of duties.

Question 12

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

As a director of a broadly held corporation, Punam owes a fiduciary duty to the corporation, which includes a duty of loyalty. Starting a competing business without the knowledge or consent of the board of directors breaches this duty of loyalty.

Question 13

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

The directors have breached their fiduciary duty to act in the best interests of the corporation. Their personal dislike of Stephen should not have influenced their decision to vote in favour of a proposal that is not in the best interests of the corporation. As directors, they have a responsibility to act in the best interests of the corporation and its shareholders, not to pursue their personal vendettas.

Question 14

Read each of the following separately.In which one of the following cases would the corporation not be bound by the contract made?

Accepted Answer

In this case, Jones acted without knowledge or authorization of the corporation and therefore there was no valid contract made on behalf of the corporation.

Question 15

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

Accepted Answer

The answer of Shareholders are participants in the corporation,whereas ___________...

Question 16

The corporation can also borrow funds,thus accumulating ___________.

Accepted Answer

When a corporation borrows funds, it accumulates debt. This can be in the form of loans, lines of credit, or issuing bonds. Shares, bonds, assets, and trustees are all related to corporate finance, but only debt accurately describes the act of borrowing funds.

Question 17

Which of the following is not an advantage of incorporation?

Accepted Answer

Shareholders do not have the power to veto decisions made by the directors. Instead, they can express their dissatisfaction by voting against the director in the next election or propose changes to the bylaws. All of the other options listed are advantages of incorporation.

Question 18

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 in law as

Accepted Answer

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 a promoter. Shareholders are individuals who own shares in the corporation. Initiator and founder may be used colloquially, but are not legal terms. Preferred shareholders are a specific type of shareholder with different rights and privileges.

Question 19

When lending money to a closely held corporation,what will a bank usually insist on from the major shareholders or other principals?

Accepted Answer

When lending money to a closely held corporation, a bank will usually insist on a personal guarantee from the major shareholders or other principals to ensure that they will be personally liable for repaying the loan in case the corporation is unable to repay. This provides the bank with an added level of security and minimizes the risk of default.

Question 20

Mark wants to incorporate.Which one of the following statements is correct with regard to incorporating in Nova Scotia?

Accepted Answer

In Nova Scotia, the documents required to incorporate a company are called the "memorandum" and the "articles."

Quiz 12: Corporations