Deck 15: The Corporate Form: Organizational Matters

Question 1

A creditor of an insolvent corporation is unable to seek redress for its losses from the company's shareholders.How will the law discern this outcome?

A) as limiting the perpetual existence of a corporate entity
B) as eminently unjust to the creditor
C) as just if the creditor was also a shareholder of the corporation
D) as perfectly legitimate and eminently just

Answer 1

D

Question 2

Ivoe and Juri are meeting with their lawyer to discuss the incorporation of X-treme Trivia Corp.They hope for broad distribution of their product.Which of the following will their lawyer most likely advise with respect to their business plans?

A) provincial incorporation
B) foreign incorporation
C) federal incorporation and extra-provincial registration
D) federal incorporation

Answer 2

D

Question 3

Which of the following must be present with respect to each class of shares issued by a corporate entity?

A) the right to receive dividends, vote, and share in proceeds on dissolution
B) the right to receive preference shares, vote, and participate in winding up
C) the right to vote, right to preference on dissolution, and the right to share dividends
D) the right to vote, receive remuneration, and share in proceeds on dissolution

Answer 3

A

Question 4

Suppose Marcella is incorporating a new business entity and must consider the matters relating to shares.Which of the following is a valid question that must be answered by Marcella?

A) How many classes of shares will affect the control of the issuance?
B) How many classes of shares and what rights and privileges for each?
C) Who will have the right to manage or control the issuance?
D) Who will receive the rights and privileges that attach to stakeholders?

Question 5

Which of the following is synonymous with the term "widely held"?

A) restrictions on classes of shares
B) private corporations
C) rights attaching to a share class
D) public corporations

Question 6

Which of the following is a legislated process the province of Quebec and the province of Prince Edward Island share in common?

A) issuance of articles of incorporation by each
B) issuance of letters patent in each jurisdiction
C) memorandums of association are issued by each
D) articles of association are issued in each jurisdiction

Question 7

Gwen and Ross are contemplating the frequency of the declaration of dividends regarding each of the classes of shares recommended by their accountant.Which of the following depicts the undertaking Gwen and Ross are most likely involved in?

A) incorporators settling on a new legal entity's share structure
B) directorship in an issuing corporation
C) directors settling compliance with securities legislation
D) management of a profitable legal entity

Question 8

Decision makers who enter contracts on behalf of an artificial entity are legally known by which of the following terms?

A) internal stakeholders
B) indirect stakeholders
C) direct stakeholders
D) internal shareholders

Question 9

With respect to the number of shares for each class that can be issued,which of the following is required to be set out in the incorporation documents?

A) unlimited number and type of classes of shares
B) maximum number or designation of unlimited for each class
C) minimum number or designation of unlimited for each class
D) limited number of shares for each class

Question 10

Prior to preparing and filing incorporation documents,which of the following would a lawyer most likely require the parties to determine?

A) number of shares to be issued and to whom
B) suitability of federal or provincial jurisdiction
C) number of token directors needed for the board
D) suitable method for capitalizing the entity

Question 11

With respect to incorporating a business entity,which of the following is a distinguishing characteristic Nova Scotia shares in common with British Columbia?

A) unlimited liability corporations
B) issuance of articles of association creating limited liability entities
C) unlimited combinations of diversified rights for classes of shares
D) issuance of memorandums of association

Question 12

A corporation is viewed as being capable of remedying many of the shortcomings found in the sole proprietorship or partnership business forms.Which of the following would a business law professor most likely indicate as the source of this capability?

A) because it is an easily formed business entity
B) because none of the corporation's assets are at risk
C) because some of the owners' assets are at risk
D) because of its existence as a separate legal entity

Question 13

With respect to corporate entities,which of the following is synonymous with the term "closely held"?

A) unlimited liability corporation
B) limited liability corporation
C) private corporation
D) public corporation

Question 14

Amarilla is willing to contribute capital to her son's new business enterprise.She has asked for qualified assurance of the return of her share capital should the entity wind down its business activity at some future time.Which of the following would a lawyer most likely indicate as providing the qualified assurance Amarilla is seeking?

A) redemption rights distributed among the classes of shares
B) shares with financial rights for buyback at a set price
C) shares with preferred rights on dissolution
D) preference shares with redemption rights

Question 15

Which of the following is a distinguishing characteristic of a corporation?

A) ease of transfer of ownership
B) entirely funded by stockholders
C) ease of understanding tax consequences
D) entirely secured debt arrangements

Question 16

Which of the following would your lawyer likely suggest as the most compelling reason for the creation of a corporate business entity?

A) to extend director's liability in the event of bankruptcy
B) to limit owners' liability in the event of bankruptcy
C) to share joint liability in the event of bankruptcy
D) to proportion liability in the event of bankruptcy

Question 17

Marjorie owns 1000 shares in Martina's business entity.Under certain circumstances,Marjorie's investment in the business will involve having the entity purchase her shares at $30.Which of the following describes the rights attached to Marjorie's shares?

A) redemption rights
B) preference rights
C) dividend rights
D) financial rights

Question 18

In the historical case of Salomon v.Salomon Ltd.,[1897] A.C.22 (H.L.),which of the following reflects the opinion held by the court with respect to the concerns of creditors?

A) Incorporation is undertaken to limit risk of business bankruptcy.
B) Shareholders are prohibited from becoming highly protected creditors of the company.
C) The fact that one or several shareholders limit their liability is irrelevant.
D) Shareholders are totally responsible for their own as well as the entity's obligations.

Question 19

Rain Water Recycling Inc.has negotiated with the federally funded Business Development Bank for a capital loan to expand it existing operations.In these circumstances,which of the following exemplifies the role of the bank?

A) extrinsic creditor
B) external stakeholder
C) widely held creditor
D) closely held stakeholder

Question 20

If a corporation does not offer its shares for sale to the public,how is it described in some jurisdictions?

A) non-reporting corporation
B) unlimited liability entity
C) non-public corporation
D) limited liability entity

Question 21

"Bonds" and "debentures" are terms used interchangeably to refer to financing methods.How is it possible to understand precisely which type of financing either instrument actually pertains to?

A) by noting the securities listed in the corporation's borrowing bylaws
B) by searching the corporate registry
C) by noting the securities listed in the corporation's debt ledger
D) by reading the document itself

Question 22

Nathaniel has been asked to obtain a NUANS report.What is the role of the NUANS report?

A) It is a document that is useful to a corporation having to choose a name quickly.
B) It is a document that permits a corporation to be assigned a numbered name.
C) It provides a newly updated automated name search of proposed conflicts in business names and trademarks.
D) It provides a newly upgraded automated name search of proposed conflicts in business names and trademarks.

Question 23

In closely held corporations,which of the following would strongly support shareholders maintaining their business values and goals?

A) the rights and restrictions on first refusal
B) the rights and restrictions on transfer of shares
C) control over who may become a shareholder
D) insider acquisitions of additional shares

Question 24

Remmie Ltd.owns all of the Class B shares in Rex Holdings Inc.,giving it 40 percent of the equity and 82 percent of the voting power.Remmie is able to exert control over Rex through which of the following?

A) dual-share structure
B) fractional share structure
C) multi-class share structure
D) flow-through share structure

Question 25

Which of the following is a distinguishing characteristic of a Notice of Directors?

A) Particulars given must coincide with the number of first directors stated in the articles.
B) Names and addresses must prove Canadian residency of individual first directors.
C) Names and address must also be given for those persons acting as first directors.
D) Particulars of the first directors are set out in the entity's incorporating articles.

Question 26

In a business law context,what are the terms "bonds" and "debentures" synonymous with?

A) corporate IOU
B) corporate securities
C) unsecured debt
D) flexible capital

Question 27

So long as the definition of a private corporation is met,the entity is generally exempt from most of the obligations that are requirements set out under which of the following?

A) corporate legislation
B) corporate law regulating winding up transactions
C) securities legislation
D) securities law regulating redemption on dissolution

Question 28

In August,Martina decided to seek preferable tax status for her business income.She negotiated the novation of all contractual obligations acquired since November with each of her sole proprietorship's customers.Novation will allow those obligations to rest with her new corporate entity.In order to realize the tax benefit retroactively,which of the following did Martina require?

A) a novation ruling from Canada Revenue Agency allowing the transfer of contracts
B) a shelf company with an incorporation date pre-dating the earliest of her contracts
C) a numbered company active in business on the date of the earliest of her contracts
D) a novation ruling from Canada Revenue Agency allowing the transfer of earnings

Question 29

Sam recently assumed an equity position in a corporation rather than continuing as one of its unsecured creditors.Which of the following would the corporation's lawyer most likely indicate Sam has exercised?

A) redemption right on a convertible debenture
B) redemption right on a convertible bond
C) conversion right on a convertible debenture
D) conversion right on a convertible bond

Question 30

A court has been asked to answer profound questions raised in a lawsuit regarding the alleged ability of empire builders to readily defraud investors and shareholders.Which of the following would the presiding judge most likely have to develop a working knowledge of?

A) the corporation's fractional share structures
B) the corporations' governance structures
C) each of the corporation's respective tax structures
D) each of the corporation's securities disclosure reports

Question 31

Amber has received a lucrative offer to purchase her shares in a closely held corporation.She is required to give her fellow shareholders an opportunity to acquire her shares at the same price offered by the outsider.Why is Amber required to do so?

A) A shareholders' agreement gives the remaining shareholders a right of first refusal.
B) A shareholders' agreement provides the legal elements for valuing the entity's shares.
C) The corporation is listed on an exchange as a publicly traded entity.
D) The share structure prohibits the transfer of shares to outside parties.

Question 32

With respect to completing incorporating documents,which of the following provisions would most strongly support Amanda's intention to incorporate a private company?

A) provision for preference share subscriptions.
B) a distinct, approved entity name.
C) a maximum of 50 shareholders.
D) provision for common share subscriptions.

Question 33

Which of the following is the reason given in the text for the U.S.Supreme Court's agreement to review Lord Black's white collar crime convictions?

A) prevalence of fraud by dishonest corporate managers of dual-class structured entities
B) deprivation of honest services by corporate managers is not settled as a criminal matter
C) consensus concerning the application of the fraudulent corporate services theory
D) propriety of allowing the use of dual-class voting structures by corporations

Question 34

Daenna resides in Manitoba and is creating a new business entity.She has not settled on a name.She does intend to carry on business in the Western provinces and will be importing goods from Scandinavian countries in the near term.Which of the following will most likely accommodate Daenna's business needs and expectations,as well as legislative requirements?

A) 36993636 Canada Corp.
B) 12361239 Manitoba Inc.
C) 36993636 Incorporated
D) Daenna's Import Co.

Question 35

Why are shareholders required to hold a meeting within the first 18 months of the date of incorporation?

A) to authorize the issuance of shares and other securities by the directors
B) to replace first directors with directors who have made banking arrangements
C) to replace first directors with directors who will hold office until the annual meeting
D) to authorize the appointment of officers to manage the operations of the corporation

Question 36

Which of the following is considered to be an added advantage that flows to a private corporation?

A) tax-free retention of 23 percent of all HST collected from consumers
B) refund of the GST paid on the first $400 000 of annual business income
C) tax-free GST retention on first $400 000 in fiscal earnings on sale of goods or services
D) reduced tax rate on first $400 000 of business income earned in each fiscal year

Question 37

Tammel's father established and trademarked his McDonalds Drive Inn business in 1962.He passed its ownership to her when he retired.The McDonalds franchise and its golden arches came into existence 20 or so years later.Eventually,a McDonalds franchise opened in her small city.Tammel was approached to discuss the legalities of the confusing business names.As a result of this unintentional conflict,which of the following would be the most favourable and likely outcome for Tammel and her business?

A) As the first to register the name, Tammel will be entitled to carry on as is.
B) She can be compensated for having to re-establish her corporate identity.
C) She can sue for trademark infringement and the tort of passing off.
D) The registrar of the corporations branch will dissolve Tammel's company.

Question 38

A single purpose document,used to facilitate formal communications with a corporate entity,is consistently described in each provincial jurisdiction as which of the following?

A) Notice of Directors
B) Notice of Incorporating Office
C) Notice of Registered Office
D) Notice of Incorporation

Question 39

Depending on jurisdiction,the rules governing the day-to-day operations of a corporation incorporated anywhere in Canada could typically be set out in which of the following documents?

A) general bylaws, banking bylaws, articles of association
B) memorandum of association, bylaws, articles
C) articles, bylaws, articles of association
D) banking bylaws, memorandum of association, general bylaws

Question 40

Armand,his two brothers,and each of their wives,own shares in Tri-Bro Inc.,a debt-free,well-financed corporation.How is it possible for the corporation to be well financed without borrowing capital?

A) equity retention
B) shareholder's bonds
C) equity financing
D) shareholder's debentures

Question 41

A NUANS report is required to be submitted with the incorporating documents of a shelf company.

Question 42

The board of directors of a corporation is charged with the management functions,including policy development,and is answerable directly to the shareholders,who may vote them out of office should they perform poorly.

Question 43

Marcella must take care when choosing a name for her new corporate entity if she wants to avoid criminal prosecution for defrauding the public.

Question 44

A closely held corporation typically has several classes of shares that it offers by invitation to the public.

Question 45

Marion,along with several others,lost substantial funds through an investment based on misrepresentations stated in a secondary market disclosure their broker recommended.The disgruntled group's lawyer advised that recent amendments to provincial securities legislation now provide a meaningful civil remedy and facilitate class actions.Which of the following exemplifies the type of amendment made to achieve these goals?

A) ease of establishing reliance on the defendant's investment misrepresentations
B) removing the issue of proof of a class action group's reliance on the disclosure
C) removing proof of reliance and substituting deemed reliance by investor
D) ease of pursuing a statutory cause of action for negligent misrepresentations

Question 46

The fundamental repercussions of a corporation's possessing a separate and distinct legal identity bind the internal stakeholders,who are solely responsible for its debts and other liabilities.

Question 47

A corporation with one type of shares in its share structure must ensure that the basic shareholder rights attaching to those shares includes the right to vote,the right to elect officers,and the right to declare dividends.

Question 48

All Canadian jurisdictions follow a similar procedure for the creation of a corporation and all require payment of the filing fee,payable to the Receiver General,to be made concurrent with the submission of the incorporating documents for registration.

Question 49

Four years after the Canadian Securities Administrators introduced National Instrument 51-102-Continuous Disclosure Obligations requiring issuing corporations to fully disclose known and contingent environmental liabilities,provincial securities regulators admitted the continuing failure of industries to meet the requirements of this regulation.Based on this fact,which of the following would a securities law professor indicate to be the most accurate statement with respect to the Canadian Securities Administrators?

A) a national body that strictly enforces provision of adequate information to make informed decisions
B) a national body that strictly enforces both general securities law and traditional principals of jurisdiction
C) a national body of regulators engaged in the issuance of debt financing and trading of securities
D) a national body composed of 13 administrators from the provincial and territorial securities regulators

Question 50

A class of shares may include a combination of various rights and privileges.

Question 51

Prior to incorporation,directors are required to hold an organizational meeting to complete the incorporation documents and make bylaws,which are the rules specifying the day-to-day operating procedures of a corporation.

Question 52

In Prince Edward Island,when the first directors hold the organizational meeting,they are required to make a memorandum of association,which is considered to be the general equivalent of bylaws.

Question 53

With respect to the notion that cyberspace is a separate jurisdiction and therefore unencumbered by regulation,which of the following would your business law professor most likely indicate to be the view held of regulators and legal scholars in that regard?

A) worldwide ratification
B) divided rejection
C) divided ratification
D) worldwide rejection

Question 54

Modern commerce continues to favour the corporation as a business vehicle because of its recognition as a separate legal entity.

Question 55

The primary purpose of the legislated requirement that a corporate name contain a legal element is to ensure the entity is distinctly identifiable for tax reporting purposes.

Question 56

It is estimated that secondary market trading accounts for more than 90 percent of all equity trading in Canada.In these circumstances,what is meant by the term "secondary market"?

A) purchasing or selling of securities from third parties
B) purchasing securities pursuant to a prospectus offering
C) buying or selling securities by securities exchange takeover bid
D) buying or selling securities directly from a corporate entity

Question 57

Part of the process of organizing the newly incorporated entity involves the appointment of an auditor to hold office until the first annual meeting of the shareholders.

Question 58

Amy's corporation will have a broad distribution base.She is currently working on a statement pertaining to matters that are likely to affect the value of securities.Which of the following matters must be disclosed,in accordance with securities legislation,in the document Amy is preparing?

A) registration, disclosure, and insider-trading restrictions set out in a prospectus
B) registration and continuous disclosure obligations set out in an offering memorandum
C) full, true, and plain disclosure of material facts set out in an equity option memorandum
D) complete, accurate, and undisguised disclosure of material facts set out in a prospectus

Question 59

Laws that are designed to regulate transactions involving shares and bonds of corporations are found in securities legislation.

Question 60

In British Columbia a corporation is often described as a "company," although,strictly speaking,the terms are not synonymous.

Question 61

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.

Question 62

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

Question 63

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

Question 64

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

Question 65

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.

Question 66

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.

Question 67

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

Question 68

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.

Question 69

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

Question 70

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.

Question 71

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

Question 72

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

Question 73

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

Question 74

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

Question 75

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 10 years in prison for insider trading,amendments to the Criminal Code created a penalty of up to 5 years in prison for conviction of a tipping offence.