Deck 15: The Corporate Form: Organizational Matters

Question 1

What is the term, in some jurisdictions, for a corporation that does NOT offer its shares for sale to the public?

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

Answer 1

A

Question 2

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

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

Answer 2

A

Question 3

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. What rights are attached to Marjorie's shares?

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

Answer 3

A

Question 4

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 if the entity winds down its business activity at some future time. Which of the following most likely provides 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 5

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 Marcella must answer?

A) How many classes of shares will affect the control of the issuance?
B) How many classes of shares should be issued, and what are the 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 6

Rain Water Recycling Inc. has negotiated with the federally funded Business Development Bank for a capital loan to expand its existing operations. What is the role of the bank?

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

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. What undertaking is Gwen and Ross most likely involved in?

A) They are incorporators settling on a new legal entity's share structure.
B) They are creating a directorship in an issuing corporation.
C) They are directors settling compliance with securities legislation.
D) They are managing a profitable legal entity.

Question 8

What is the legal term for decision makers who enter contracts on behalf of an artificial entity?

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

Question 9

What distinguishing characteristic does Nova Scotia share in common with British Columbia with respect to incorporating a business entity?

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 10

Which of the following is synonymous with the term "closely held" with respect to corporate entities?

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

Question 11

Ivoe and Juri are meeting with their lawyer to discuss the incorporation of X-treme Trivia Corp. They hope for the broad distribution of their product. What type of incorporation will their lawyer most likely recommend?

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

Question 12

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

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

Question 13

What legislated process do the province of Quebec and the province of Prince Edward Island share in common?

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

Question 14

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

Question 15

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

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 16

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 17

What is 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 18

Why are corporations seen as being capable of remedying many of the shortcomings found in the sole proprietorship and partnership business forms?

A) because corporations are easily formed business entities
B) because none of a corporation's assets are at risk
C) because some of the owners' assets in a corporation are at risk
D) because of a corporation's existence as a separate legal entity

Question 19

What is required to be set out in the incorporation documents with respect to the number of shares for each class that can be issued?

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 20

Which of the following would a lawyer most likely require the parties to determine before preparing and filing incorporation documents?

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

Question 21

Sam recently assumed an equity position in a corporation rather than continuing as one of its unsecured creditors. What right has Sam exercised?

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

Question 22

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 business names 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 23

Which documents typically set out the rules governing the day-to-day operations of a corporation incorporated anywhere in Canada (depending on jurisdiction)?

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 24

Tammel's father established and trademarked his McDonald's Drive Inn business in 1962. He passed its ownership to her when he retired. The McDonald's franchise and its golden arches came into existence 20 or so years later. Eventually, a McDonald's franchise opened in Tammel's small city. Tammel was approached to discuss the legalities of the confusing business names. As a result of this unintentional conflict, what 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 25

Which of the following would strongly support shareholders maintaining their business values and goals in closely held corporations?

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 26

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 27

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. How is Remmie able to exert control over Rex?

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

Question 28

"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 29

What are the terms "bonds" and "debentures" synonymous with in a business law context?

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

Question 30

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 search of similar businesses.
D) It provides a newly upgraded automated name search of proposed conflicts in business names and trademarks.

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

How is it possible for a corporation to be well financed without borrowing capital?

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

Question 33

Which of the following exempts entities from most of its requirements, provided the definition of a private corporation is met?

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

Question 34

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. What 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 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 provisions in an incorporating document would most strongly support the intention to incorporate a private company?

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

Question 37

What added advantage does a private corporation have?

A) tax-free retention of 23 percent of all HST collected from consumers
B) refund of the GST paid on the first $500 000 of annual business income
C) tax-free GST retention on the first $500 000 in fiscal earnings on the sale of goods or services
D) reduced tax rate on the first $500 000 of business income earned in each fiscal year

Question 38

According to the textbook, why did the U.S. Supreme Court agree to review Lord Black's white collar crime convictions?

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

Question 39

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. What did Martina require in order to realize the tax benefit retroactively?

A) a novation ruling from the Canada Revenue Agency allowing the transfer of contracts
B) a shelf company with an incorporation date predating 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 the Canada Revenue Agency allowing the transfer of earnings

Question 40

How is a single-purpose document, used to facilitate formal communications with a corporate entity, consistently described in each provincial jurisdiction?

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

Question 41

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

Question 42

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 43

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

Question 44

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 45

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

Question 46

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) 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 the investors
D) pursuing a statutory cause of action for negligent misrepresentations

Question 47

Which of the following is a feature of the legislation that regulates securities in Canada?

A) The Supreme Court of Canada has held that federal securities legislation is constitutional.
B) The provinces and federal government share jurisdiction over securities legislation.
C) All securities regulation in Canada falls under the federal jurisdiction.
D) Each province and territory has its own distinct securities legislation.

Question 48

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 49

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 50

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

Question 51

What is meant by the term "secondary market" in terms of equity trading?

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

Question 52

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 53

Which of the following is one of the distinctions between shares and bonds?

A) Shares represent units of ownership, whereas bonds are debts owed by the corporation.
B) The issuance of bonds is not regulated by securities legislation, whereas the issuance of shares is.
C) Bonds are unsecured, whereas shares are secured by the assets of the corporation.
D) Shares may be sold at securities exchanges, whereas bonds are never sold on securities exchanges.

Question 54

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 55

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

Question 56

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 57

Under federal legislation, when the first directors hold the organizational meeting they are required to make bylaws.

Question 58

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 59

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

Question 60

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

Question 61

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

Question 62

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

Question 63

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 64

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 65

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

Question 66

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.

Question 67

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 68

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

Question 69

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.

Question 70

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

Question 71

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 72

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

Question 73

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

Question 74

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 75

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