Deck 15: The Corporate Form: Organizational Matters

Question 1

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 1

A

Question 2

Which of the following is a feature of shares in a "widely held" corporation?

A) Shares are almost always freely transferable.
B) There is a limit on the number of shareholders.
C) There are limited rights attaching to a share class.
D) It has a lower income tax rate.

Answer 2

A

Question 3

Which of the following is a disadvantage of the corporation as a business form?

A) It is difficult to transfer ownership.
B) Its shareholders cannot be directors.
C) There are higher costs associated with filing fees and legal costs.
D) It has entirely secured debt arrangements.

Answer 3

C

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

Which of the following best explains why the corporation is the predominant business vehicle in modern commerce?

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 6

Taylor and Ebram are selecting a name for their new corporation and have decided to call the business Taleb Marketers and Design Group.Why will this not be an acceptable name for their corporation?

A) because it uses a combination of their actual names
B) because it is not sufficiently distinctive
C) because the name is too long
D) because it must include a legal element such as Inc.

Question 7

Greta and Raven are going to be the sole shareholders of a new catering business that will operate in their city.What type of corporation are Greta and Raven most likely considering?

A) a closely held corporation
B) an issuing corporation
C) a public corporation
D) a federal corporation

Question 8

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

Question 9

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 10

Ilsa and Suri are meeting with their lawyer to discuss the incorporation of their home renovation company.Which 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 11

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

Question 12

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 13

Which of the following was one of the issues that was resolved by the decision in Salomon v. Salomon Ltd., [1897] A.C. 22 (H.L.)?

A) whether incorporation can be undertaken to limit risk of business bankruptcy
B) whether shareholders are prohibited from becoming highly protected creditors of the company
C) whether companies with few shareholders could be recognized as separate legal entities
D) whether shareholders are totally responsible for their own as well as the entity’s obligations

Question 14

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 15

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 16

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 17

Which of the following is a distinguishing feature of a widely held or public corporation?

A) They are exempt from most of the obligations of security legislation.
B) Letters patent are filed in each jurisdiction.
C) Shares are normally traded on the stock exchange.
D) Articles of association are filed in each jurisdiction.

Question 18

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 19

Which of the following is an example of a right associated with owning a share in a corporation?

A) the right to vote for election of directors
B) the right to manage the corporation
C) the right to buy out other shareholders
D) the right to hire officers

Question 20

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 21

The term "bond" is synonymous with which of the following?

A) preferred share
B) debenture
C) fractional ownership
D) share

Question 22

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 23

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 24

Which of the following is an advantage of a closely held or private corporation?

A) the ability to sell preferred shares on the stock exchange
B) refund of the GST paid on the first $500 000 of annual business income
C) the ability to raise funds by soliciting private investors
D) reduced tax rate on the first $500 000 of business income earned in each fiscal year

Question 25

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 26

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 27

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 28

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 29

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 30

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 31

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 32

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 33

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 34

Which of the following features distinguishes a bondholder from a shareholder?

A) Shareholders are entitled to interest payments before bondholders.
B) A bondholder is a creditor of the corporation,unlike a shareholder.
C) The sale of shares is governed by security legislation,unlike the issuance of bonds.
D) Only shares can come with a conversion right.

Question 35

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 36

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 37

Which of the following describes the purpose of a "prospectus"?

A) to provide notice of changes in directors
B) to forecast expected profits
C) disclosure of financial and other information to potential investors
D) disclosure of insider trading

Question 38

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 39

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 40

"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 41

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 42

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 43

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 44

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 45

All shares carry the right to vote for directors of the corporation.

Question 46

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

Question 49

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 50

Shareholders do not have any power to manage the corporation.

Question 51

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 52

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 53

A NUANS report will list any business and trademark names similar to the name being proposed.

Question 54

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

Question 55

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 56

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 57

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 58

A closely held corporation is typically limited in the number of shareholders in the corporation.

Question 59

In reality,the distinction between federal and provincial corporations is of little practical significance due to provincial laws that permit the operation of out-of-province corporations.

Question 60

The first meeting of shareholders must be called within 18 months of incorporation.

Question 61

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

Question 62

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 63

A successful sole proprietor is considering incorporating.What are some decisions she must make prior to filing incorporation documents?

Question 64

What is a "shelf company," and when might it be used?

Question 65

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 66

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 67

The issuer of securities has an obligation to keep the public informed of its activities.

Question 68

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 69

Unlike bonds,shares provide an opportunity to benefit from the corporation's growth.

Question 70

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 71

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

Question 72

Briefly describe the role and basic features of articles of incorporation.

Question 73

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 74

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

Question 75

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