Question 1

In Canada, the jurisdiction over the securities industry is

Accepted Answer

In Canada, the regulation of the securities industry is primarily a provincial responsibility, with each province having its own securities commission or equivalent authority.

Question 2

Under criminal law, corporations are subject to be punished. Punishment can take place by

Accepted Answer

All of the above options can be used to punish corporations under criminal law, depending on the nature and gravity of the offense committed. Heavy fines and dissolution can be imposed on the corporation itself, while finding and punishing the directing mind or directors involved in the offense can also be used as a means of deterrence and holding responsible parties accountable. Imprisonment of individuals may be an option in cases where the offense involves serious crimes or deliberate wrongdoing.

Question 3

A corporation is liable for an unauthorized act of a corporate officer

Accepted Answer

If everything appears regular on its face, the corporation may be liable for the unauthorized acts of its officer due to the apparent authority doctrine, which protects third parties who rely on the officer's apparent authority.

Question 4

When officers act as agents for the corporation and a third party is aware of some restriction on the officer's authority, then the third party

Accepted Answer

When an officer acts as an agent for the corporation and a third party is aware of some restriction on the officer's authority, the third party will be bound by such restrictions. This is based on the principle that third parties dealing with agents have a duty to make reasonable inquiry into the agent's authority and are charged with knowledge of any limitations on that authority of which they have notice.

Question 5

Several years back Dean Pigeon with two friends invested $300,000 equity capital into a new corporation. As it turns out, they have more capital in the business than they can profitably use. Will the CBCA allow them to take out the excess capital?

Accepted Answer

The solvency test is required by the Canadian Business Corporations Act (CBCA) before a corporation can distribute any amounts to its shareholders. The test requires the corporation to demonstrate both that it is able to pay its liabilities as they become due and that the realisable value of its assets will not be less than the sum of its liabilities and stated capital. Therefore, if the corporation can satisfy both parts of the solvency test, it is possible to take out the excess capital.

Question 6

Directors may become personally liable to the corporation for deficiencies, if when they pay out dividends, the corporation cannot meet

Accepted Answer

The solvency test is a requirement that directors must meet prior to paying out dividends. If the corporation cannot meet its obligations after paying out dividends, the directors may become personally liable for the deficiency. Therefore, the correct choice is E.

Question 7

The basic purpose of securities legislation is to

Accepted Answer

Securities legislation aims to ensure that the capital market functions efficiently by allocating funds effectively among investment opportunities, which is the primary purpose.

Question 8

Shareholders or directors may wish for the corporation to lend them money as an indirect method to get back some of their investment. The CBCA prohibits this activity

Accepted Answer

The CBCA (Canada Business Corporations Act) prohibits loans to shareholders or directors if it would endanger the corporation's solvency or reduce the value of its assets below the amount of its stated capital.

Question 9

Since there is normally limited liability for the owners of corporations, special rules have evolved to protect corporate creditors. These rules are primarily concerned with

Accepted Answer

The rules that have evolved to protect corporate creditors are primarily concerned with the sudden and substantial impairment of the capital of a company. This is because, in most cases, the owners of corporations have limited liability for the company's debts, and creditors therefore need protection in the event that the company experiences a financial crisis or insolvency. These rules may include requirements for minimum levels of capitalization, restrictions on distributions to owners, and obligations to maintain adequate reserves or disclose financial information to creditors.

Question 10

When it is unlawful to declare dividends because of a deficiency in the capital fund, and yet the shareholders want a quick pay- out, then

Accepted Answer

The answer of When it is unlawful to declare dividends...

Question 11

Dividend payment that has the effect of making the corporation insolvent, would fail to meet

Accepted Answer

A dividend payment that renders a corporation insolvent would fail the solvency test, which ensures that a company can meet its debts as they come due after the dividend is paid.

Question 12

Filing a prospectus with a securities commission is a serious and important effort. The commission will refuse to file it should it be misleading or have omitted required data. The filing needs to be made

Accepted Answer

A prospectus must be filed before securities can be issued to the public to ensure that all necessary information is disclosed and to protect investors.

Question 13

Schemes of government regulation resemble traditional criminal law because

Accepted Answer

Schemes of government regulation prohibit certain conduct and impose punishment on those who violate the regulations, similar to criminal law.

Question 14

When protecting corporate creditors, how does the "maintenance of capital test" differ from the "solvency test"?

Accepted Answer

The maintenance of capital test and solvency test are similar in that they are both used to protect corporate creditors. However, the maintenance of capital test requires a corporation to maintain a specific amount of capital (often called a "capital fund"), while the solvency test looks at whether a corporation is able to pay its debts as they come due. The maintenance of capital test is typically used in jurisdictions that have adopted the CBCA (Canada Business Corporations Act).

Question 15

Under the regulatory offence of "strict liability", the standard that must be met for obtaining a conviction is

Accepted Answer

Under the regulatory offence of "strict liability", the standard that must be met for obtaining a conviction is where the doing of the prohibited act raises a presumption that an offence has been committed-unless the accused can prove he took all reasonable care. This means that the accused can be convicted without proving the existence of mens rea (a guilty mind). However, the accused may avoid liability if they can prove that they took all reasonable care to avoid the prohibited act. This is different from absolute liability, where no defense or excuse is available for the accused.

Question 16

In spite of the fact that a corporation does not meet the solvency test, it can:

Accepted Answer

Even if a corporation does not meet the solvency test, it can still pay wages to its employees as it is considered a priority expense. However, it cannot pay dividends, buy back shares, or make loans to directors until it meets the solvency test requirements.

Question 17

The CBCA states that a promoter acting on behalf of a corporation before it comes into existence may avoid personal liability and waive any benefits under the contract by

Accepted Answer

Including an express term that the promoter will not be bound by the agreement allows the promoter to avoid personal liability under the CBCA.

Question 18

Which of the following is NOT an aim of securities legislation?

Accepted Answer

The aim of securities legislation is not to make corporations profitable, but rather to protect the public and ensure transparency and fairness in financial markets.

Question 19

Mandy had his securities license suspended by the securities commission, yet she continues to buy and sell stock as an investment dealer. Mandy certainly

Accepted Answer

Continuing to act as an investment dealer without a valid securities license is a criminal offence.

Question 20

According to the CBCA, the rule that "if a corporation's charter is filed in a government office and available to the public for examination, then third parties are deemed to have notice of its contents", is

Accepted Answer

The rule has been abolished, meaning third parties are no longer automatically deemed to have notice of a corporation's charter just because it is publicly available.

Quiz 29: The External Responsibilities of a Corporation