Question 1

The most significant figure in corporate finance and corporate structure is 51%. Discuss.

Accepted Answer

The answer of The most significant figure in corporate finance...

Question 2

Aztech Oil Corporation and Empire Oil Corporation are two of the world's largest petroleum companies. Aztech Oil Corporation assets are all in Mexico, and all Empire Oil Corporation assets are in Canada. While normally fierce competitors, they agreed that oil developments in Russia were too risky for each of them to handle alone, given the uncertainties of the business environment. Accordingly, they decided to work together on Russian oil ventures. To keep matters financially apart from their other operations, two new companies were formed in Canada, Aztech Oil (Russia) Corporation and Empire Oil (Russia) Corporation. They operated as "Russian North Oil Ventures." The capital of RNOV was $2 million, being the combined assets of AO(R) Corp. and EO(R) Corp. Each had been capitalised with $1 million in cash, which had been then given over to RNOV. Neither AO(R) Corp. nor EO(R) Corp. had any other physical existence beyond their corporate minute books and corporate seals. RNOV set about business and had established base camps on the Russian coast near Japan.
Alan was a director of Empire Oil Corporation, Empire Oil (Russia) Corporation, and worked as an employee of Russian North Oil Ventures. He arranged for $4 million worth of oil exploration equipment from Vancouver and Calgary suppliers to be delivered to the base camps. At that time, RNOV had $750,000 remaining in its bank account, and unknown to Alan, the remaining directors of AOCorp. and EOCorp. were locked in a dispute on a number of matters. Alan's request for another $3.25 million was sent via two copies, one each to AO(R)Corp. and EO(R)Corp. As these two corporations had no more money than that which they were given, they sent requests for funds back up the chain to AOCorp. and EOCorp. The suppliers were looking for payment from RNOV when Alan got word that the alliance had fallen apart, and that there would be no further funds forthcoming. Advise the suppliers, stating the applicable principles of corporate law, and suggest what the final recovery of the suppliers will be.

Accepted Answer

The answer of Aztech Oil Corporation and Empire Oil Corporation...

Question 3

Where an investor is offered either common or preference shares in a corporation on otherwise equally satisfactory terms, the investor who seeks to have his or her voice heard in management will choose to invest in common shares.

Accepted Answer

Common shares typically provide voting rights and the ability to influence management decisions, while preference shares generally do not offer these rights. Therefore, an investor seeking to have a say in management would choose common shares.

Question 4

Phillip, Robert, and Mike, are the directors of Smithfield Warehouse Limited. The three directors had decided to increase their warehouse space, and were looking for a suitable property to lease. The bylaws of the corporation with respect to entering a lease required such a document to be ratified by a two-thirds majority of the directors. Each director was scouting for possible properties when Phillip chanced upon a warehouse which appeared to suit their purposes. Phillip entered into a lease with the warehouse property owner on behalf of Smithfield Warehousing Limited, telling the owner that before the lease would be valid that it must be approved by his company. To this the owner of the warehouse agreed. Robert viewed the property the following day, and paid the $1 000 deposit on rent that was required under the lease. Robert paid this out of his own pocket, and then wrote himself a company cheque for reimbursement. At a later meeting, the three brothers decided that a property found in the meantime by Mike was more suitable for their purposes, and informed the warehouse owner that they did not intend to pass a resolution approving the lease, and that the deal was off. The warehouse owner, who was aware that the three brothers represented all the directors, claimed that the company ratified its lease by the actions of the two directors. Discuss the issues raised by this case and render a decision.

Accepted Answer

The answer of Phillip, Robert, and Mike, are the directors...

Question 5

Sharon Sullivan built her business selling Registered Savings Plans as a sole proprietorship, and reached the point that for further expansion she would require additional capital. She transformed her sole proprietorship into a corporation, and sold shares to a number of friends who had admired her progress in business, a few of whom took positions as salespeople and managers in the expanded company. The business continued to grow in spite of numerous arguments over management and five years after incorporation, Sharon felt she was best off as a sole proprietor. She sold her 50% ownership in the company to the other shareholders and started out once again alone. To prevent a future lawsuit, Sharon left behind her client lists for the use of the remaining shareholders in continuing their business. However, once it became public knowledge that Sharon was on her own, many former clients switched their business to her, preferring her approach to service. On her own, Sharon approached other former clients and suggested to them that if they too preferred her business style, that they were welcome as her clients as well. On discovering this practice, the shareholders of Sharon's former corporation took action against her. Discuss the nature of this cause of action, the rights and duties of the parties, and the appropriate rationale that would be used by a court in rendering a decision. Render a reasoned decision of your own.

Accepted Answer

The answer of Sharon Sullivan built her business selling Registered...

Question 6

Discuss some of the issues that may arise in shareholder's agreements.

Accepted Answer

The answer of Discuss some of the issues that may...

Question 7

Shareholder agreements are useful devices to protect the interests of minority shareholders in small private corporations.

Accepted Answer

Shareholder agreements can contain provisions that protect the rights of minority shareholders, such as requiring a supermajority vote for major corporate decisions or providing for buyout options in case of disputes.

Question 8

Where a director who is a shareholder is accused of a conflict of interest, that director may vote with his or her shares on a motion regarding that conflict at a shareholders' meeting.

Accepted Answer

According to most corporate laws and regulations, a director who is also a shareholder has the right to vote with his or her shares on a motion regarding a conflict of interest, as long as he or she discloses the conflict and recuses themselves from any discussions or decisions related to the matter. This is because the director-shareholder has a financial interest in the company and thus should be allowed to participate in certain decisions affecting that interest.

Question 9

Tax legislation provides shareholders with a dividend tax credit which protects them from being taxed twice when they receive dividends.

Accepted Answer

Tax legislation does provide shareholders with a dividend tax credit, which ensures that they are not taxed twice on the same income when they receive dividends.

Question 10

Many corporations are formed simply so individuals may hide themselves from debts. Serious flaws exist in this respect and are in need of reform. Argue both sides of this statement and render a conclusion.

Accepted Answer

The answer of Many corporations are formed simply so individuals...

Question 11

The Canadian Broadcasting Corporation is an example of a Letters Patent corporation.

Accepted Answer

The Canadian Broadcasting Corporation (CBC) is a crown corporation, not a Letters Patent corporation. Crown corporations are state-owned enterprises owned by the Sovereign of Canada and established by an act of Parliament or under the authority of a specific act of Parliament.

Question 12

There is little privacy for a director of a public corporation, insofar as that director's personal trading in the shares of his or her own company will be a matter of public record.

Accepted Answer

This statement is true. Directors of public corporations are required to disclose their personal trading in the shares of their company, which then becomes part of the public record. This helps ensure that there is transparency and accountability in the marketplace.

Question 13

The doctrine of ultra vires has no place in modern corporate law. The public should be entitled to assume a corporation has all the rights and duties of a natural person, and the doctrine should be abolished. Discuss this statement and any other issues it raises.

Accepted Answer

The answer of The doctrine of ultra vires has no...

Question 14

Identify the major aspects in which corporations differ from partnerships, and explain why each aspect may be preferred in the corporate form to the partnership arrangement.

Accepted Answer

The answer of Identify the major aspects in which corporations...

Quiz 17: Corporation Law