Question 1

John Hollin was an officer,director,and employee of a large broadly held corporation.At a directors' meeting,he learned that the corporation was voting on a resolution to buy a piece of property from Sam Keanu for $100,000.It happened that Hollin was one of three co-owners of that property.Hollin voted for the purchase and the resolution passed without discussion by a vote of 5-0.Several months after completion of the purchase,the other directors learned of Hollin's ownership and called on him to account to the corporation for any profit made.Which of the following is false?

Accepted Answer

The dissent procedure allows shareholders who voted against a corporate action to force the corporation to buy out their shares at fair value. This is not relevant to the situation described in the question, as there is no indication that any shareholders opposed the purchase of the property. Therefore, choice D is false. The other options are true: Hollin had a fiduciary duty to the corporation that he breached by failing to disclose his interest and voting on the matter, and shareholders could bring an action on behalf of the corporation against him if the directors failed to act. Additionally, Hollin should have disclosed his interest and refrained from voting or otherwise influencing the decision.

Question 2

A person who participates in the initial setting up of a corporation or who assists the corporation in making a public share offering is known in law as

Accepted Answer

A person who participates in the initial setting up of a corporation or who assists the corporation in making a public share offering is known as a promoter. Shareholders are people who own shares in the corporation. Initiator and founder generally refer to the person who originally came up with the idea for the corporation or started it. Preferred shareholders are a specific type of shareholder who have preferential treatment in certain aspects of the company.

Question 3

Punam was the director of a broadly held corporation that made educational software.Without the knowledge or consent of the board of directors,Punam started a competing business that she ran from home.Which of the following is true?

Accepted Answer

As a director of a corporation, Punam owes a fiduciary duty of loyalty to the corporation, which includes refraining from competing with the corporation without the knowledge and consent of the board of directors. By starting a competing business without informing the board and without their consent, Punam has breached this duty. Therefore, choice A is the correct answer. Choices B, C, D, and E are incorrect because they do not reflect the legal obligation of a director to act in the best interests of the corporation and refrain from competing with it without proper disclosure and consent.

Question 4

You have been asked by two fellow graduates to join them in incorporating a closely held corporation that would commence a consulting business.One was in your class,so you know him quite well,but the other is graduating from a different school.You have been discussing the law to review the protection it gives you.Read each of the following statements separately and indicate which is true.

Accepted Answer

The answer of You have been asked by two fellow...

Question 5

Which two of the following are examples of breaches of fiduciary duty?

Accepted Answer

The answer of Which two of the following are examples...

Question 6

Which one of the following is an example of breach of fiduciary duty?

Accepted Answer

Breach of fiduciary duty occurs when an officer or director of a corporation fails to fulfill their obligation to act in the best interest of the corporation and its shareholders. Intercepting a business opportunity intended for the corporation for personal gain is a clear example of a breach of fiduciary duty. The other options do not involve a breach of fiduciary duty. A) The decision to withhold a pay raise is typically within the discretion of the board of directors and does not necessarily represent a breach of fiduciary duty. B) The director disclosed his interest and abstained from the vote, which fulfills his fiduciary duty to act in the best interest of the corporation. D) The decision to declare dividends is within the discretion of the board of directors and does not necessarily represent a breach of fiduciary duty. E) While not a breach of fiduciary duty, this could potentially be a violation of the duty of loyalty if the shareholder used confidential information or trade secrets to compete with the corporation.

Question 7

A securities commission is

Accepted Answer

A securities commission is a provincial agency that regulates and oversees the issuance and trading of securities, including shares, to protect investors from fraudulent activities and promote fair and transparent markets.

Question 8

Art Raskle was an officer,director,and employee of a broadly held corporation.At a directors' meeting,he was surprised but pleased to learn that the corporation was discussing a resolution to contract with the firm of Fielding's Office Supply for $20,000 worth of office equipment.He and a businesswoman had recently bought that business,in which Raskle has a 45% interest.Raskle voted for the contract and the resolution passed without discussion by a vote of 6-0.Several months after completion of the purchase,the other directors learned of Raskle's interest in Fielding's Office Supply and called on him to account to the corporation for any profit made.Which of the following is true?

Accepted Answer

As an officer, director, and employee of a broadly held corporation, Raskle has a fiduciary duty to act in the best interests of the corporation and to disclose any conflicts of interest. In this case, he failed to disclose his interest in the firm that the corporation was contracting with and voted on the matter. As a result, he must account for any profit made. The dollar value of the contract and the statutory threshold are not relevant in this situation. Option C suggests that a special resolution by the shareholders could relieve Raskle of his duty to account, but this is not the case as the breach has already occurred. Option D is incorrect because directors with an interest in a matter should disclose their interest and abstain from voting. Option E is also incorrect as Raskle's vote could have influenced the outcome if he had voted differently or if the vote had been closer.

Question 9

Ethan got together with a number of friends who all sat on the board of directors of a corporation.They personally disliked Stephen,a minority shareholder with a bad attitude.A new proposal was being put to the board.While they knew that this was not a measure that was in the best interests of the corporation,they also knew it would seriously weaken Stephen's financial position.Accordingly,they voted in favour of it.Which of the following is true?

Accepted Answer

As directors, they have a fiduciary duty to act in the best interests of the corporation, not in their personal interests or to harm a minority shareholder. By knowing that the proposal was not in the best interest of the corporation and still voting for it, they have breached this duty.

Question 10

The promoter of a corporation,called Seymour Holdings Ltd.,contracted for $4000 worth of office furniture "on behalf of Seymour Holdings Ltd.," prior to incorporation.After incorporation,the new directors want to ensure that the corporation is bound.They will be able to do so if

Accepted Answer

The corporation can only be bound by the contract if it is ratified and ratification is allowed in the jurisdiction. Without ratification, the contract is considered a pre-incorporation contract and the corporation is not yet bound. However, if the contract is ratified, it becomes a post-incorporation contract and the corporation is now bound by it.

Question 11

John and two friends incorporated a closely held corporation.Each bought an equal number of common shares in the corporation.Each became a director,an officer,and an authorized agent of the corporation.Which of the following is true?

Accepted Answer

According to the information provided, each of the three shareholders became directors, officers, and authorized agents of the corporation. Option A is incorrect because as directors, they owe a fiduciary duty to the corporation and its shareholders, not its creditors. Option B is also incorrect because the level of regulation and government control does not depend on the type of corporation, but rather on the industry and other factors. Option C is incorrect because they owe a fiduciary duty to the corporation and all its shareholders, not just each other. Option D is incorrect because while the corporation is a legal fiction, its activities can be carried out through officers and agents as well. Therefore, option E is the best choice, as it is true that if one shareholder is being unfairly prejudiced by the corporation's activities, they can seek relief from the courts.

Question 12

Which of the following situations would allow a shareholder of a closely held corporation,with permission of the court,to sue on behalf of the corporation?

Accepted Answer

In this situation, the corporation has been wronged by the actions of one of its directors but is refusing to take any action against them. Under these circumstances, a shareholder may sue on behalf of the corporation with permission from the court. This is known as a derivative lawsuit.

Question 13

Mr.A is the sole shareholder of X Ltd.,and is also a director of Y Ltd.Y Ltd.is negotiating to buy property from X Ltd.Which of the following is false?

Accepted Answer

The answer of Mr.A is the sole shareholder of X...

Question 14

The directors held their last meeting on December 31 at 4:30 p.m.,and it was conducted more like a party than a usual meeting.A director was negligent in signing a promissory note,which cost the corporation $15,000.Furthermore,the director was in breach of his fiduciary duty because the note was paid to a corporation in which he had an interest.Which of the following is true?

Accepted Answer

A shareholder could commence a derivative action on behalf of the corporation against the director if he or she gets the court's permission to do so. Shareholders may sue a corporation in derivative actions to bring legal action against officers, directors, or third parties for internal or external wrongdoing. In this case, the director's failure to sign the promissory note and breach of fiduciary duty harmed the corporation. Therefore, a derivative action is appropriate to recover the damages caused by the director's misconduct.

Question 15

Which of the following situations would allow a shareholder to sue on behalf of the corporation?

Accepted Answer

Shareholders can sue on behalf of the corporation if the corporation itself refuses to take action against a wrongdoer, as in scenario B. This is known as a derivative lawsuit, where a shareholder brings a lawsuit on behalf of the corporation for harm done to the corporation. The other scenarios, such as the board voting against a director or issuing new shares without offering them to existing shareholders may be seen as unfair, but they do not necessarily give a shareholder the right to sue on behalf of the corporation.

Question 16

Which of the following statements about pre-incorporation contracts is false?

Accepted Answer

Promoters can be held liable for losses on pre-incorporation contracts if the corporation does not ratify the contract or if ratification is not permitted by law, contradicting the idea of the "corporate myth" which suggests that only the corporation can be held liable.

Question 17

Which of the following attracts the dissent procedure,which can result in the corporation being forced to buy the shares of a shareholder at market value?

Accepted Answer

The answer of Which of the following attracts the dissent...

Question 18

In which of the following relationships is a fiduciary duty owed?

Accepted Answer

The answer of In which of the following relationships is...

Question 19

Because a director of a closely held corporation breached his duties to the corporation,the corporation lost $15,000.Despite the urging of the shareholders,the board of directors refused to begin an action on behalf of the corporation.Which one of the following provisions would aid the shareholders?

Accepted Answer

Derivative-action provisions allow shareholders to take legal action on behalf of the corporation when the board of directors refuses to do so. This is the best choice in the given scenario as the board of directors has refused to begin an action despite the urging of the shareholders. Relief-from-oppression provisions are used in cases where shareholders are being unfairly treated or oppressed by the corporation or the majority shareholders. Pre-emptive right provisions provide shareholders the right to purchase additional shares before they are offered to the general public. Indoor-management rule pertains to the internal management and decision-making of the corporation, and dissent procedure is used to express disagreement with a particular corporate action or decision.

Question 20

Mr.Ace of Oink Inc.,a closely held corporation,is one of three shareholders.After several years of considerable success,the corporation hit hard times.The other shareholders,Mr.Bane and Mr.Curr,in the best interests of the corporation,voted Mr.Ace out as a director and voted not to renew his employment contract.Upset by these events,Mr.Ace just wanted to sell his interest and leave the corporation.The other two shareholders,however,refused to buy his shares.Furthermore,when he attempted to sell his shares to his brother,who was interested in the corporation,they refused to register the brother as a member.Which of the following is true?

Accepted Answer

A unanimous shareholders' agreement could have included provisions for the sale of shares in the event of a shareholder dispute, as well as requirements for registration of new shareholders. None of the other choices are accurate - statutory pre-emptive right provisions do not apply in this situation, there is no clear breach of fiduciary duty, there is no evidence of fraud, and shareholders have the right to refuse registration of new shareholders if they do not meet certain requirements outlined in the corporation's bylaws or unanimous shareholder agreement.

Quiz 11: Corporations