Question 1

Which of the following statements best describes the role of the auditor?

Accepted Answer

A) Auditors help management prepare the financial statements for the corporation. 
B) Auditors prepare the financial statements of the corporation. 
C) Auditors advise the directors on whether management has done a good job in managing the corporation's business 
D) Auditors provide an independent assessment of the corporation's financial statements prepared by management usually for the benefit of shareholders. 
E) Auditors advise the corporation on how to set up its bookkeeping system. 
A) Auditors help management prepare the financial statements for the corporation. 
B) Auditors prepare the financial statements of the corporation. 
C) Auditors advise the directors on whether management has done a good job in managing the corporation's business 
D) Auditors provide an independent assessment of the corporation's financial statements prepared by management usually for the benefit of shareholders. 
E) Auditors advise the corporation on how to set up its bookkeeping system. D

Question 2

The defence of due diligence

Accepted Answer

A) applies only to a mens rea crime. 
B) applies only to an absolute liability crime. 
C) applies if a shareholder brings an action against a corporate director for relief under the oppression remedy. 
D) is the only defence to a derivative action. 
E) is available to a corporation, in certain circumstances, if the person with managerial responsibility for the area of the corporation's activities in which a strict liability offence was committed acted reasonably in the circumstances with a view to preventing the offence. 
A) applies only to a mens rea crime. 
B) applies only to an absolute liability crime. 
C) applies if a shareholder brings an action against a corporate director for relief under the oppression remedy. 
D) is the only defence to a derivative action. 
E) is available to a corporation, in certain circumstances, if the person with managerial responsibility for the area of the corporation's activities in which a strict liability offence was committed acted reasonably in the circumstances with a view to preventing the offence. E

Question 3

On behalf of her employer, MasterFood Inc, Claire has been negotiating the purchase of the business of Watson Corp for a price of $1 million.She has been dealing with Barry, who has told her that he is the chief financial officer of Watson Corp.She has visited him at the offices of Watson Corp him many times and, with her team, gone over Watson Corp's books.They have agreed on a form of contract to give effect to the sale from Watson Corp to MasterFood Inc.At the closing of this transaction, what should she do to ensure that Barry has sufficient authority to bind Watson Corp to sell its business?

Accepted Answer

Given these facts, she may consider relying on Barry having apparent authority on the basis that the corporation has represented that he is the chief financial officer by acquiescing in him acting as such.The problem with relying on apparent authority in this situation, however, is that there may be some uncertainty as to whether being the chief financial officer of the corporation carries with it the usual authority to sell the business of the corporation.For such a fundamentally important transaction, one could argue that only the president or the board of directors would have sufficient usual authority.As well, the scale of the transaction is sufficiently large that a substantial investment in being certain about Barry's authority would be justified.This might include, for example, a certified copy of the director's resolution conferring such authority on him and a legal opinion from the lawyers for the corporation certifying that Barry has this authority and all corporate formalities of Watson Corp have been satisfied in entering into the transaction.

Question 4

Salima is a director of Commercial Depot Inc, an office supply business.Salima thinks it would be a good idea if the corporation were to buy the building the corporation is currently renting.In her view, the price the landlord is offering is a good one.She thinks that if the corporation does not buy it, someone else might, and that person would want to significantly increase the corporation's rent.She has been trying to get the other members of the board to agree to buy the building for the past six months, but the purchase has not yet been approved.There just never seems to be time to get to it at the directors' meetings.She is very worried about other buyers and wonders whether she should just buy the building herself.She could always sell it again for a gain and she would not have to increase the rent to Commercial Depot to ensure that she receives a good cash flow.Do you see any problems with Salima's plan to buy the building herself? Explain how Salima could achieve her objective while avoiding any legal problems.

Accepted Answer

Even though she intends to protect the c

Question 5

Vanna is a director of Quorn Co, which operates a health food supply business.Vanna manages the business and wants to be the president.Her appointment would have to be approved by the shareholders to be effective.

Accepted Answer

A) True 
 B)False

Question 6

Sandy is a director of Plex Manufacturing Inc.She reads in a report to the board that the corporation has entered into a series of complex financing transactions.One result of the transactions is that the presentation of the corporation's financial statements has changed to make the corporation look more profitable.Sandy is concerned that these transactions might have been designed to hide the true financial position of the corporation.She decides not to enquire into these transactions, however, because she thinks that if she finds out more about them she will have to do something about it.In doing so, Sandy is in compliance with her duty of care and fiduciary duty because she does not have any clear evidence of wrongdoing.

Accepted Answer

A) True 
 B)False

Question 7

Jordan has been negotiating to sell office supplies to Softstuff Ltd, a software developer.He has been dealing with Ira exclusively.Jordan has visited Ira's office at the premises of Softstuff Ltd and noticed the sign on the door that says "Purchasing Manager." Ira has told Jordan that he has authority to enter into the contract.Which of the following is TRUE?

Accepted Answer

A) Jordan cannot rely on Ira having any authority to bind the corporation because he has no proof that Ira actually has authority to contract on behalf of Softstuff. 
B) Jordan cannot rely on Ira having apparent authority because no one in the corporation has represented to him that Jordan has authority. 
C) Jordan can rely on Ira having authority because Ira told him he has authority. 
D) Jordan can rely on Ira having apparent authority because the corporation has made a representation that Ira has the usual authority of a purchasing manager by allowing him to use an office indicating that he has that title. 
E) Jordan cannot rely on Ira having apparent authority because Ira might not actually have authority to contract on behalf of the corporation. 
A) Jordan cannot rely on Ira having any authority to bind the corporation because he has no proof that Ira actually has authority to contract on behalf of Softstuff. 
B) Jordan cannot rely on Ira having apparent authority because no one in the corporation has represented to him that Jordan has authority. 
C) Jordan can rely on Ira having authority because Ira told him he has authority. 
D) Jordan can rely on Ira having apparent authority because the corporation has made a representation that Ira has the usual authority of a purchasing manager by allowing him to use an office indicating that he has that title. 
E) Jordan cannot rely on Ira having apparent authority because Ira might not actually have authority to contract on behalf of the corporation.

Question 8

Elroy was the controlling shareholder and sole director of Maxi-Screen Ltd, which carries on a film production business.His wife, Ann, is a minority shareholder.The corporation was incorporated in 1995 and has paid a substantial dividend each year to its shareholders.In 2009, Ann and Elroy separated.Elroy did not declare a dividend even though the business was more profitable than ever because he did not want to share the profits with Ann.Which of the following statements best reflects Ann's legal position?

Accepted Answer

A) She has no remedy because the declaration of dividends is a matter within the discretion of the directors. 
B) She has no remedy because Elroy is the controlling shareholder and can do what he wants. 
C) She could seek relief in court on the basis that Elroy and the corporation have defeated her reasonable expectations as a shareholder and thereby oppressed her or unfairly disregarded or prejudiced her interests as a shareholder. 
D) The only way she could seek relief is to apply to the court for permission to bring a derivative action against Elroy on behalf of the corporation for breaching his fiduciary duty. 
E) She has no remedy because the failure to pay dividends is not an action that she can dissent from. 
A) She has no remedy because the declaration of dividends is a matter within the discretion of the directors. 
B) She has no remedy because Elroy is the controlling shareholder and can do what he wants. 
C) She could seek relief in court on the basis that Elroy and the corporation have defeated her reasonable expectations as a shareholder and thereby oppressed her or unfairly disregarded or prejudiced her interests as a shareholder. 
D) The only way she could seek relief is to apply to the court for permission to bring a derivative action against Elroy on behalf of the corporation for breaching his fiduciary duty. 
E) She has no remedy because the failure to pay dividends is not an action that she can dissent from.

Question 9

George wants to get out of his investment in Silver Chair Furniture Inc, a corporation incorporated under the Canada Business Corporations Act.He holds 50 percent of the shares and is fed up with dealing with William, who holds the remaining 50 percent of the shares and will not listen to him.They cannot agree on how the corporation should be run.William is the sole director and officer of the corporation.George has asked William to buy him out or have the corporation buy his shares, but neither William nor the corporation has any money.George is prohibited from selling to a third party under a shareholder agreement he signed with William.Can George have the corporation wound up?

Accepted Answer

A) No, because winding up is available only if all shareholders consent. 
B) No, because George should have protected his interests in a shareholders' agreement. 
C) No, because, while his interests may have been oppressed, winding up is not a remedy that a court can order based on oppression. 
D) Yes, in these circumstances it would be just and equitable to wind up the corporation because the two equal shareholders are deadlocked regarding how to run the corporation and there seems to be no alternative solution. 
E) No, because William may still want to carry on the business. 
A) No, because winding up is available only if all shareholders consent. 
B) No, because George should have protected his interests in a shareholders' agreement. 
C) No, because, while his interests may have been oppressed, winding up is not a remedy that a court can order based on oppression. 
D) Yes, in these circumstances it would be just and equitable to wind up the corporation because the two equal shareholders are deadlocked regarding how to run the corporation and there seems to be no alternative solution. 
E) No, because William may still want to carry on the business.

Question 10

Denise has been asked to join the board of directors of Summit Corp, which carries on a software development business.She is attracted by the prestige and contacts she may gain as a result of joining the board but is concerned about her personal liability.Which of the following is TRUE?

Accepted Answer

A) She has nothing to worry about because corporations are separate legal persons and so there is nothing that she would ever become liable for. 
B) She should worry about being held directly liable for the contracts the corporation enters into. 
C) She should worry about being vicariously liable for torts for which the corporation is responsible. 
D) She should worry about personal liability under regulatory and tax statutes. 
E) She does not need to worry so long as she obtains an indemnity from the corporation because an indemnity will always protect her from all risk. 
A) She has nothing to worry about because corporations are separate legal persons and so there is nothing that she would ever become liable for. 
B) She should worry about being held directly liable for the contracts the corporation enters into. 
C) She should worry about being vicariously liable for torts for which the corporation is responsible. 
D) She should worry about personal liability under regulatory and tax statutes. 
E) She does not need to worry so long as she obtains an indemnity from the corporation because an indemnity will always protect her from all risk.

Question 11

New World Construction Co had contracted to build a new building at the University of British Columbia.New World employed Ellen as a project manager to determine how the construction would be completed and to supervise all aspects of the construction.Ellen was negligent in failing to make sure that a retaining wall was properly built.The wall collapsed, causing substantial property damage.The university is suing New World and Ellen for negligence.Assuming that Ellen is liable personally, explain the bases upon which New World would be responsible for her negligence.

Accepted Answer

New World would be responsible in tort o

Question 12

Which of the following statements best describes the responsibilities of directors under the Canada Business Corporations Act?

Accepted Answer

A) Directors are responsible for managing or supervising the management of the business of the corporation and its internal affairs. 
B) Directors are responsible only for those matters delegated to them by shareholders. 
C) Directors are responsible only for those management activities that they do not delegated to officers. 
D) Directors have no management responsibilities because they are only responsible for supervising others who actually manage the corporation. 
E) Directors are responsible only for the internal affairs of the corporation, such as declaring dividends and issuing shares. 
A) Directors are responsible for managing or supervising the management of the business of the corporation and its internal affairs. 
B) Directors are responsible only for those matters delegated to them by shareholders. 
C) Directors are responsible only for those management activities that they do not delegated to officers. 
D) Directors have no management responsibilities because they are only responsible for supervising others who actually manage the corporation. 
E) Directors are responsible only for the internal affairs of the corporation, such as declaring dividends and issuing shares.

Question 13

Padraig is a director of Eire Inc.Oona, an independent businesswoman, presented Eire with an opportunity to enter into a business venture.The company's board of directors considered the proposal, and identified a number of risks that were associated with it.However, Eire did not reach a conclusion as quickly as Oona had hoped.Even though the board of Eire was still considering the proposal, she took the proposal to Padraig personally.Oona and Padraig had worked together on a number of business ventures in the past.Padraig accepted the proposal within eight hours.Which of the following statements is most likely to be TRUE?

Accepted Answer

A) Eire can successfully sue Padraig for breach of his duty of care but not breach of fiduciary duty of care. 
B) Eire can successfully sue Oona for breach of fiduciary duty. 
C) Eire can successfully sue Padraig only if it can persuade the judge that it had decided to accept Oona's proposal when it learned that Padraig had already done so. 
D) Eire can successfully sue Padraig for any profits that he earns from the venture with Oona. 
E) Padraig could have legally accepted Oona's proposal if he had first resigned his position with Eire. 
A) Eire can successfully sue Padraig for breach of his duty of care but not breach of fiduciary duty of care. 
B) Eire can successfully sue Oona for breach of fiduciary duty. 
C) Eire can successfully sue Padraig only if it can persuade the judge that it had decided to accept Oona's proposal when it learned that Padraig had already done so. 
D) Eire can successfully sue Padraig for any profits that he earns from the venture with Oona. 
E) Padraig could have legally accepted Oona's proposal if he had first resigned his position with Eire.

Question 14

Which of the following statements is TRUE? Under a unanimous shareholder agreement,

Accepted Answer

A) the shareholders can agree on how directors are to vote. 
B) the shareholders can assume all the powers of the directors. 
C) the shareholders are prohibited from assuming only some of the powers of the directors. 
D) the shareholders cannot assume the powers of the directors because the directors would be left with nothing to do. 
E) the shareholders cannot assume the powers of the directors because doing so would be inconsistent with the basic division of powers in the corporation. 
A) the shareholders can agree on how directors are to vote. 
B) the shareholders can assume all the powers of the directors. 
C) the shareholders are prohibited from assuming only some of the powers of the directors. 
D) the shareholders cannot assume the powers of the directors because the directors would be left with nothing to do. 
E) the shareholders cannot assume the powers of the directors because doing so would be inconsistent with the basic division of powers in the corporation.

Question 15

Which of the following statements is TRUE? A corporation is only bound in contract if the person acting on behalf of the corporation

Accepted Answer

A) had actual authority. 
B) had actual authority and apparent authority. 
C) had actual authority or apparent authority. 
D) had apparent authority. 
E) had written authority from the corporation. 
A) had actual authority. 
B) had actual authority and apparent authority. 
C) had actual authority or apparent authority. 
D) had apparent authority. 
E) had written authority from the corporation.

Question 16

Roxanne is a minority shareholder in Sumner Inc.She is very unhappy with the way that the company is being operated.She therefore intends to express her disapproval and advocate changes at the next annual meeting.She will also be encouraging the other 50 shareholders of Sumner to vote against management's proposals.Which of the following statements is TRUE?

Accepted Answer

A) Roxanne is entitled to obtain the minutes of the directors' meetings. 
B) Roxanne is a dissident shareholder. 
C) Roxanne can force the corporation to buy back her shares at the same price that she paid for them. 
D) Roxanne has the right to force the corporation into liquidation. 
E) Roxanne is not entitled to obtain a list of shareholders from the corporation in any circumstances. 
A) Roxanne is entitled to obtain the minutes of the directors' meetings. 
B) Roxanne is a dissident shareholder. 
C) Roxanne can force the corporation to buy back her shares at the same price that she paid for them. 
D) Roxanne has the right to force the corporation into liquidation. 
E) Roxanne is not entitled to obtain a list of shareholders from the corporation in any circumstances.

Question 17

Trudy and Aline have incorporated a corporation to carry on an antique shop business.They each hold 20 percent of the common shares.Aline's aunt, Louise, holds the remaining 60 percent of the common shares.Trudy and Aline will share responsibility for carrying on the business on a daily basis.Louise has no interest in participating in the business.She invested to help out her niece, to get a nice return when she sells her shares and would like to have a veto right over any substantial changes to the corporation.How would the parties set up their desired allocation of power and responsibilities?

Accepted Answer

Trudy, Aline, and Louise could agree in

Question 18

Yasir is a director and the operations manager of Flavell Rubbish Disposal Ltd.All of the financial aspects of the business are the responsibility of John, another director.Yasir heard from one of his employees that a representative from the corporation's bank was in John's office yesterday and there was a lot of shouting.Yasir asked John about it.John said that the corporation was behind in its loan payments, but that Yasir doesn't need to worry about it.John tells him that a big customer will be paying its account soon and that money will be used to bring the loan up to date.Which statement most accurately describes Yasir's legal position?

Accepted Answer

A) Yasir complied with his duty of care by asking about the problem. 
B) Yasir has no duty of care in relation to the loan payments because that is a matter that the directors have delegated to John. 
C) Now that Yasir is on notice that there is a problem, his duty of care requires him to make sure that the customer's payment is received and applied against the loan. 
D) Yasir has no duty because the duty of care is defined by reference to a person in comparable circumstances and Yasir is not in a position to deal with the bank. 
E) Yasir must make the loan payments himself to ensure that the corporation does not go into default. 
A) Yasir complied with his duty of care by asking about the problem. 
B) Yasir has no duty of care in relation to the loan payments because that is a matter that the directors have delegated to John. 
C) Now that Yasir is on notice that there is a problem, his duty of care requires him to make sure that the customer's payment is received and applied against the loan. 
D) Yasir has no duty because the duty of care is defined by reference to a person in comparable circumstances and Yasir is not in a position to deal with the bank. 
E) Yasir must make the loan payments himself to ensure that the corporation does not go into default.

Question 19

The obligation that requires certain people within a corporation to act honestly and in good faith when discharging other responsibilities

Accepted Answer

A) arises under the common law, and not under statute. 
B) imposes liability only if a breach causes the corporation to suffer a loss. 
C) is known as the duty of care. 
D) is broken when a person with this obligation enters into a transaction with the corporation unless certain requirements are met. 
E) was recently abolished because it often prevented the sort of calculated risks that can generate large profits. 
A) arises under the common law, and not under statute. 
B) imposes liability only if a breach causes the corporation to suffer a loss. 
C) is known as the duty of care. 
D) is broken when a person with this obligation enters into a transaction with the corporation unless certain requirements are met. 
E) was recently abolished because it often prevented the sort of calculated risks that can generate large profits.

Question 20

Elise and Kim are trying to decide how to set up the internal management structure of the corporation they have just incorporated to carry on their engineering consulting business.They each hold 35 percent of the shares, with the remaining 30 percent being held by five employees.Elise will run the business.She will be responsible for all aspects of the management of the office.Kim will be a passive investor, but is nevertheless interested in being kept informed regarding what is going on in the business.Kim and Elise decide that they will both be directors and then delegate all management powers to Elise, subject only to an obligation to report to the board every two months as to what is happening.Will this structure work? Support your answer.

Accepted Answer

Kim and Elise hold 60 percent of the sha

Which of the following statements best describes the role of the auditor?

The defence of due diligence

Vanna is a director of Quorn Co, which operates a health food supply business.Vanna manages the business and wants to be the president.Her appointment would have to be approved by the shareholders to be effective.

Denise has been asked to join the board of directors of Summit Corp, which carries on a software development business.She is attracted by the prestige and contacts she may gain as a result of joining the board but is concerned about her personal liability.Which of the following is TRUE?

Which of the following statements best describes the responsibilities of directors under the Canada Business Corporations Act?

Which of the following statements is TRUE? Under a unanimous shareholder agreement,

Which of the following statements is TRUE? A corporation is only bound in contract if the person acting on behalf of the corporation

The obligation that requires certain people within a corporation to act honestly and in good faith when discharging other responsibilities

Risk Management and Sources of Law

Litigation and Alternative Dispute Resolution

Introduction to Torts

Intentional Torts

Miscellaneous Torts Affecting Business

Negligence

The Nature and Creation of Contracts

Consideration and Privity

Representations and Terms

Contractual Defects

Discharge and Breach

Contractual Remedies

Special Contracts: Sale of Goods

Real Property: Interests and Leases

Real Property: Sales and Mortgages

Personal Property: Bailment and Insurance

Intellectual Property

Electronic Commerce

Agency and Other Methods of Carrying on Business

Basic Forms of Business Organizations

Secured Transactions

Dealing With Bankruptcy and Insolvency

Government Regulation of Business

Individual Employment

Organized Labour

Online: Special Contracts: Negotiable Instruments

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Exam 21: Legal Rules for Corporate Governance

Which of the following statements best describes the role of the auditor?

The defence of due diligence

Vanna is a director of Quorn Co, which operates a health food supply business.Vanna manages the business and wants to be the president.Her appointment would have to be approved by the shareholders to be effective.

Denise has been asked to join the board of directors of Summit Corp, which carries on a software development business.She is attracted by the prestige and contacts she may gain as a result of joining the board but is concerned about her personal liability.Which of the following is TRUE?

Which of the following statements best describes the responsibilities of directors under the Canada Business Corporations Act?

Which of the following statements is TRUE? Under a unanimous shareholder agreement,

Which of the following statements is TRUE? A corporation is only bound in contract if the person acting on behalf of the corporation

The obligation that requires certain people within a corporation to act honestly and in good faith when discharging other responsibilities

Risk Management and Sources of Law

Litigation and Alternative Dispute Resolution

Introduction to Torts

Intentional Torts

Miscellaneous Torts Affecting Business

Negligence

The Nature and Creation of Contracts

Consideration and Privity

Representations and Terms

Contractual Defects

Discharge and Breach

Contractual Remedies

Special Contracts: Sale of Goods

Real Property: Interests and Leases

Real Property: Sales and Mortgages

Personal Property: Bailment and Insurance

Intellectual Property

Electronic Commerce

Agency and Other Methods of Carrying on Business

Basic Forms of Business Organizations

Secured Transactions

Dealing With Bankruptcy and Insolvency

Government Regulation of Business

Individual Employment

Organized Labour

Online: Special Contracts: Negotiable Instruments

Filters