Deck 28: The Internal Affairs of Corporations

Question 1

Salon Suppliers Ltd. often has difficulty coordinating between production and marketing. The 12 owners meet daily in a "directors" meeting. They usually argue, and get into impossible deadlocks on day- to- day operating decisions. This corporation needs

A) to better blend the ownership and management.
B) to follow good corporate organisational structure.
C) to provide a counseling seminar in psychology.
D) to hire a business coordinator.
E) to assist their chief executive officer.

Answer 1

B

Question 2

The only real power shareholders have in a corporation is to

A) control stock splits and dividends.
B) fill a sudden vacancy on the board of directors.
C) elect the board of directors.
D) manage the ownership of the company.
E) give the directors guidelines in the investment of capital.

Answer 2

C

Question 3

Which of the following is a duty of directors to a corporation?

A) to carefully document all the corporation's records
B) to provide statutory safeguards for the shareholders
C) to eliminate any conflicts of interest with the corporation
D) to refrain from abuse of corporate opportunity
E) to appoint an inspector for the financial statements

Answer 3

D

Question 4

The CBCA describes relationships between the shareholders, directors, and officers of a corporation as _ ; whereas the relationships between the corporation and its customers, suppliers, and employees is referred to as _ .

A) decision making; profit producing
B) external arrangements; internal arrangements
C) the affairs; the business
D) VIP functions; the enterprise
E) beneficiaries; external resources

Question 5

A director will be criminally liable where he

A) acts as corporate agent to the determent of the corporation.
B) uses corporate information to make personal profit.
C) directly competes with the corporation in his own business.
D) intercepts a corporate opportunity.
E) gets involved with insider trading.

Question 6

In a distributing public company, auditors are appointed by:

A) the Securities Commission
B) the audit committee of the board of directors
C) the directors
D) the shareholders
E) the treasurer

Question 7

Which of the following is not a right of the shareholders of the corporation?

A) a right of notice and attendance at all shareholders meetings
B) a right to requisition special meetings
C) a right to displace the management of the company
D) a right to vote on special resolutions as well as ordinary resolutions
E) a right right to receive any dividend declared by the corporation

Question 8

Jacob is a minority shareholder in a closely held corporation. Recently he was dismissed from his marketing management position and now the board of directors is stopping him from transferring his stock to a cousin. He has

A) legal claims against the board of directors.
B) lost his rights as a minority stock holder.
C) been locked- in and frozen out.
D) been locked- in.
E) been frozen out.

Question 9

Directors owe a duty to act with a view to the best interests of:

A) the creditors
B) the employees
C) the corporation
D) the individual shareholders
E) all of the above

Question 10

Tom inherited $15,000 from his grandfather. He wants to invest it where he can realise growth for his children's education yet have liquidity in case of emergency. HIs expectations are most likely obtained by investing in

A) a widely held corporation.
B) his best friend's new auto repair shop.
C) a closely held corporation.
D) government savings bonds.
E) debentures.

Question 11

Joseph is director of Marttel Inc. The company is thinking about buying some land in which Joseph is part owner. At the board of directors meeting where this is discussed and voted on, Joseph should

A) be silent and refrain from voting on this matter.
B) graciously be absent from the meeting.
C) reveal, discuss, and vote on the matter since this is his fiduciary duty.
D) abstain from voting on the matter since this is a potential conflict of interests.
E) explain fully of his interests in the land, then vote his conscience.

Question 12

Which of the following is not a duty of the Directors of corporations?

A) to adopt by- laws governing the business
B) to call meetings of shareholders
C) to issue shares
D) to take care of the day- to- day business of the corporation
E) to declare dividends

Question 13

Martin is a newly elected director of the Alliance Corporation. After being told of what would be expected of him, he is not sure he wants the position. However, upon investigating, he finds out that the only thing he will be liable for is

A) to act with the professional standards of a director.
B) employee wages if the corporation becomes insolvent.
C) to exercise a high standard of care, diligence, and skill.
D) to attend all regularly scheduled board of director meetings.
E) to study items on the agenda before each director's meeting.

Question 14

Directors owe duties to:

A) the Public.
B) the Shareholders.
C) the corporation.
D) creditors of the corporation.
E) all of the above

Question 15

The CEO of a corporation is

A) chosen from the board of directors.
B) hired by the president.
C) in charge of the board meetings.
D) elected by the shareholders.
E) appointed by the board of directors.

Question 16

The duties of a director are primarily to

A) the stockholders that voted for and support him as a director.
B) the public- keeping employment up, providing good products, protecting the environment, and being good community citizens.
C) their own sense of duty and integrity.
D) ethics and the laws of Canada.
E) the corporation itself, doing everything for its long- term best interests.

Question 17

Margaret is a first- time shareholder to a small Canadian corporation. She has the right to all the following EXCEPT

A) obtain names of other stockholders.
B) vote for a resolution that would obviously cause the corporation to suffer.
C) obtain financial statements and/or audit reports.
D) left over assets upon dissolving of the company.
E) a semi- annual shareholder's meeting.

Question 18

Sometimes almost all the directors of a company have interests in a contract. They should

A) gather the remaining independent directors and form a quorum.
B) vote as a corporate committee of the whole.
C) present the contract to a general meeting of shareholders for their ratification after full disclosure has been made.
D) present the contract to the management for a decision.
E) vote as a total board of directors.

Question 19

Which of the following is TRUE regarding the appointment and removal of directors of a corporation?

A) Casual vacancies on the board are normally filled by a special election of the shareholders.
B) All directors must hold at least some ownership in the corporation.
C) A director's term of office is usually more than three years.
D) It takes at least a two- thirds vote to remove a director from the board.
E) Cumulative voting is an attempt to achieve proportional representation on the board of directors.

Question 20

Which of the following is not one of the essential powers of the directors of a corporation?

A) to declare dividends
B) to adopt by- laws
C) to issue shares
D) to act as mediators in management and employer disputes
E) to call meetings of shareholders

Question 21

The first directors of a corporation hold office until the first meeting of the board of directors.

Question 22

The first directors of a corporation hold office until the first meeting of the shareholders of the corporation.

Question 23

If a corporation is profitable, directors must declare a dividend to holders of common shares according to their proportionate shareholding.

Question 24

Regarding financial rights, shareholders have a right to

A) dividends paid in the order of preferences assigned to classes of shareholders- starting with the common shareholders.
B) dividends when the corporation makes a profit.
C) some discrimination in the payment of dividends.
D) receive dividends when declared by the corporation.
E) capital appreciation as a result of retained earnings.

Question 25

The decision- making function of the corporation is undertaken by the directors of the corporation.

Question 26

Claude will be a minority shareholder in a new corporation. All interested parties are now in a meeting to draft the incorporating documents. To protect his rights as a minority shareholder, Claude wants certain provisions included in a well drafted shareholder's agreement. Which of the following provisions is unnecessary and won't be included in such an agreement?

A) the right to participate in management
B) the right to a fair price for her share interest
C) for the unanimous approval of all shareholders
D) the right to employment
E) for the agreement to be included inside the charter

Question 27

One of the duties owed by directors to the corporation is that a director must not take an opportunity belonging to the corporation.

Question 28

If a corporation is insolvent, directors can be held strictly liable to employees of the corporation for a certain amount of unpaid wages.

Question 29

Which of the following statements is INCORRECT?

A) Officers of a corporation do not have to be shareholders of a corporation.
B) Shareholders of a corporation can only vote for the election of directors if they appear in person at the shareholders' meeting.
C) Shareholders both appoint and can remove directors of a corporation.
D) Shareholders will get paid last in the event of a bankruptcy.
E) Directors can both appoint and remove officers of a corporation.

Question 30

Jack is a director of Metallica, a construction corporation. During the course of his work as director of the corporation, Jack learns that the government is about to ask for tenders for the construction of a highway. If Jack resigns from his position as director, sets up a new corporation that successfully bids for the government contract, he will not be in breach of his duty as a director.

Question 31

Unlike some U.S. courts, Canadian courts have consistently held that a controlling shareholder owes to act for the benefit of the corporation and to act for the benefit of the shareholders.

A) a fiduciary duty; a duty of care
B) a duty of care; a fiduciary duty
C) a positive duty; no positive duty
D) no positive duty; no positive duty
E) a positive duty; a positive duty

Question 32

There is no legal distinction between the business and affairs of the corporation.

Question 33

The decision- making function of the corporation is undertaken by the officers of the corporation.

Question 34

The is quickly becoming the most widely used shareholder remedy in Canada.

A) "just and equitable" winding- up
B) appraisal remedy
C) common law derivative action
D) oppression remedy
E) statutory derivative action

Question 35

What are pre- emptive rights?

A) rights to vote cumulatively or in blocks
B) rights to send in a proxy statement for any meeting
C) rights to vote out any director without cause
D) rights to retain their proportionate holdings in a firm
E) rights to buy as many shares as are available

Question 36

The winding up (the dissolution) of a corporation can be required by a court in order to rescue a

A) CEO who has reached an impass with the board of directors.
B) bankrupt shareholder.
C) minority shareholder from a buyout by others.
D) director who has been unjustly dismissed.
E) locked- in shareholder.

Question 37

The only "document of record" the company need NOT allow access to by the shareholders is

A) a register of directors.
B) a copy of the company charter.
C) a copy of all special resolutions.
D) a register of all transfers of shares.
E) minute books of board of directors' meetings.

Question 38

The most important disclosure by a corporation is its financial statements. To assist in the analysis and evaluation of the annual financial statement the statutes provide for the appointment by the shareholders of

A) an official examiner.
B) an independent auditor.
C) an association inspector.
D) a financial director.
E) an external treasurer.

Question 39

Which of the following best describes the appraisal remedy?

A) the right of a minority shareholder to apply to the court for a liquidation order
B) the right of shareholders to appoint an auditor
C) the right of a dissenting shareholder to have his shares bought out by the corporation
D) the right of an auditor to have access to all the corporation's information
E) the right of the court to grant relief to shareholders who are victims of oppressively unfair actions

Question 40

Which of the following is NOT a statutory safeguard when considering disclosure?

A) appointment of inspector
B) record of insider trading
C) pre- emptive rights
D) the financial statement
E) documents of record

Question 41

Explain why most corporations issue pre- emptive rights on their new issues of stock when pre- emptive rights are generally not recognized by courts in Canada?

Question 42

Explain what it means for a director to give the corporation the right of first refusal? Give an example.

Question 43

The Delphi Corp. owns 60% of Lynden Sand & Gravel Inc. Delphi, with its voting power, elected all three directors on Lynden's board. Then the board decided to sell one of Lynden's gravel reserves to Delphi at only half its value. As a minority shareholder in the Lynden corporation, how have you been affected by this transaction?

Question 44

If a shareholder is unhappy about the way the corporation is being run, describe the major ways the shareholders can obtain information about and exercise control over the corporation.

Question 45

Contrast the duties of a director with the duties of shareholders to the corporation.

Question 46

Explain how a director must protect him or herself when he or she contracts with the corporation of which he is a director?

Question 47

Explain the concepts of debt and equity capital.

Question 48

Explain how a proxy is used?

Question 49

What does it mean when a court lifts the veil of incorporation?

Question 50

Mary, Martha, Marge, and Alice, incorporate a private corporation for the purpose of wholesaling sports equipment. Each owns an equal number of shares. Their incorporating documents neither specify what business the corporation is in nor restrict the type of business the corporation can operate. Martha, Mary, and Marge are the three directors and officers of the corporation, while Alice is being frozen out of the company's
decision- making. She has never been elected as a director, never had a position in the management, and has not had any of her resolutions passed at the annual shareholder's meeting. Also, the corporation seemed to have abandoned its original purpose and gone into a different business- one that doesn't interest Alice. Explain to Alice the "oppression remedy" and its advantages over two other kinds of remedy.

Question 51

Qualco Lumber Ltd. owned a timber license over 50,000 hectares of forest in British Columbia. The British Columbia government notified Qualco that it intends to cancel this valuable license. A director of Qualco immediately upon hearing of the cancellation, sells all his shares. When would that director be liable for insider trading and when would he not?

Question 52

What is the appraisal remedy?

Question 53

What is a derivative action?

Question 54

Explain the use of a Unanimous Shareholders' Agreement. What effect does it have on directors?

Question 55

What are the duties of directors?

Question 56

Insider trading refers to the practice whereby an officer of a corporation sells company secrets to a rival corporation.

Question 57

What duties do directors owe to shareholders of the corporation?

Question 58

What is the difference between the business of a corporation and the affairs of a corporation?

Question 59

Dan is a director of a corporation, and without disclosing his conflict of interest, entered into a contract to supply the corporation with widgets. The contract was made in the name of his mother so that the corporation would not know that Dan was involved. Pat is a minority shareholder in the corporation, has found out about the conflict, and intends to bring a derivative action against Dan. Explain what a derivative action is. Why is a derivative action appropriate in the circumstances? What must Pat show in order to bring a derivative action? What remedy might a court award?