Deck 16: The Corporate Form: Operational Matters

Question 1

Which statement best exemplifies the standard of care expected of directors?

A) The care,diligence,and skill that a reasonable shareholder would expect in comparable circumstances.
B) The care,diligence,and skill that the average person would exercise in comparable circumstances.
C) The care,diligence,and skill that a professional would exercise in comparable circumstances.
D) The care,diligence,and skill that a reasonably prudent person would exercise in comparable circumstances.

Answer 1

D

Question 2

Ingel is a director in MIV Inc.,a large,successful software development company.He entered into a contract involving the sale of software he developed to MIV Inc.In law,this is a self dealing contract.Why is it enforceable?

A) Political lobbying efforts have successfully avoided a blanket prohibition of self dealing.
B) Ingel's self dealing is permissible if the governance committee has given assurance it is not a rip off.
C) Ingel provided a written disclosure and abstained from voting on the fair and reasonable deal.
D) Self dealing contracts are permissible if an oversight committee has confirmed the deal is not a rip off.

Answer 2

C

Question 3

What is the authority an individual must possess to trigger an organization's criminal liability?

A) the authority to enact organizational policy
B) the authority to act as a subordinate manager
C) the authority as the directing mind who commits the offence
D) a combined authority with two or more individuals in a single chain of command

Answer 3

A

Question 4

In litigation involving a promoter,one of the parties named in a contract is described as an entity yet to be incorporated.Under what circumstances will a court find the promoter NOT to be personally liable?

A) if a specific advantage of a valuable business opportunity exists
B) if a specific provision expressly relieves such liability
C) if the corporation has committed a crime
D) if the directing mind has committed a crime

Question 5

The senior vice president of marketing surprised everyone at the meeting with his decision to use the initials "HjW" on the labels of T Shirt Corp.'s toddlers' T shirt line.The likelihood of ensuing confusion with a competitor's products in that market was obvious to all present.If asked to assess responsibility for liability for wrongdoing in these circumstances,would a court apply the theory that holds a corporation directly at fault for the commission of this wrongful act?

A) Yes,through the application of vicarious liability principle.
B) Yes,through application of the identification theory.
C) No; the area of primary liability is inherently problematic.
D) No; the courts generally have not followed this approach.

Question 6

What is the role of the fiduciary principle in matters with respect to corporate law relating to governance?

A) to impose duties owed to the board of directors
B) to impose duties owed to the corporation
C) to uphold duties owed to creditors
D) to uphold duties owed to a group of shareholders

Question 7

The directors of ABC Corporation have voted to form a strategic alliance with Atlas Supplies Ltd.,a corporation owned by a block of ABC's shareholders.They plan to pay a premium over the market rate for the services of Atlas in recognition of their close relationship.Which statement best describes this situation?

A) The directors have entered into a self dealing contract.
B) The directors have breached their duty of competence.
C) The directors have breached their fiduciary duties by favouring on particular group of shareholders.
D) The directors have mis used a corporate opportunity.

Question 8

Why is it preferable for risk management to use a shelf company as the vehicle for taking prompt advantage of a valuable business opportunity?

A) Outsiders retain liability if the corporation fails to come into existence.
B) It facilitates direct entrance into contractual obligations by the corporation.
C) It facilitates the ability of promoters to sign in a personal capacity.
D) Outsiders are restricted from relying on the apparent authority of agents.

Question 9

Which of the following individuals might be classified as a 'directing mind' of a corporation?

A) a shareholder
B) a supervisor
C) a corporate officer
D) an agent

Question 10

Which of the following is a requirement of the CSA?

A) Public corporations must ensure financial statements are independently audited.
B) Public corporations must ensure their boards have foreign representation.
C) Public corporations must explain why the corporation is not adhering to best practices.
D) Public corporations must publish quarterly financial statements.

Question 11

What type of liability is imposed by a court where it is not open to the accused to show he was without fault?

A) primary liability
B) absolute liability
C) vicarious liability
D) strict liability

Question 12

Which of the following describes a role of the Canadian Securities Administrators (CSA)?

A) to enforce mandatory guidelines that increase the lifting of the corporate veil
B) to establish best practices for corporate governance
C) to license directors and officers to oversee the financial affairs of public corporations
D) to impose licensing requirements for all directors of public corporations

Question 13

Under what circumstances will a court find that a corporation is bound by a contract entered into by an agent of the corporation?

A) where the agent is a promoter of the corporation
B) where the corporation will benefit from the contract
C) where the agent was acting with actual or apparent authority
D) where the contract terms were reasonable

Question 14

Which statement best describes a corporation's liability in criminal law?

A) Corporations cannot be jailed,and therefore criminal law has no application.
B) Corporations can be liable for criminal negligence but not for crimes requiring intent.
C) Corporations can be liable for intentional and negligence criminal offences.
D) Corporations are liable only if intent and the guilty act reside in the same person.

Question 15

What do primary liability and vicarious liability have in common?

A) A corporation is subject to accountability for both.
B) A corporation cannot be assessed for either using the identification theory.
C) Both require the directing mind to share liability from the corporation.
D) Both are irrelevant to actual or apparent authority.

Question 16

Which statement best describes the 'directing mind' of a corporation?

A) The shareholders are the directing mind of a corporation.
B) Any level of employee may be a directing mind depending on the circumstances.
C) There may be more than one directing mind of a corporation.
D) The incorporators are the directing mind of a corporation.

Question 17

Remy is the president of Envirotox Inc.,a corporation that specializes in the storage of toxic waste.One of Envirotox's trucks was in an accident while transporting toxic waste,and the corporation is expecting prosecution under environmental protection legislation.Which of the following describes Remy's personal liability under environmental legislation?

A) He will only be personally liable if he was driving the truck.
B) It is possible he will face personal liability because he is an officer.
C) Only the corporation itself can be liable for environmental offences.
D) He can be personally liable only if it is proven that he ordered the wrongful conduct.

Question 18

What are the two distinct forms of corporate tort liability?

A) direct and indirect
B) primary and secondary
C) primary and vicarious
D) statutory and vicarious

Question 19

Which of the following is a distinguishing feature of self dealing contracts?

A) They are in the best interests of the corporation.
B) They have a very high revenue potential.
C) They can be either pursued or declined.
D) They give rise to conflict of interest situations.

Question 20

Which statement best describes the relationship between directors and officers in a corporation?

A) Directors and officers are elected by the shareholders.
B) Directors are appointed by officers.
C) Officers are appointed by directors.
D) Directors but not officers are the directing mind of the corporation.

Question 21

Kramer is the sole director and shareholder of a failing corporation.In his role as director,Kramer has elected to declare dividends even though doing so will cause the corporation to default on its outstanding loan from the bank.Which statement best describes Kramer's risk of liability for this decision?

A) Kramer is immune from liability because of the separate legal existence of the corporation.
B) Kramer can be personally sued for breaching his duty of care to a creditor of the corporation.
C) Kramer is immune from liability because he is a director of the corporation.
D) Kramer can be personally sued by the creditor because he has breached his duty of competence.

Question 22

The exercise of which of the following is required by a duty owed by directors or officers that compares them to a reasonably prudent person in comparable circumstances?

A) honesty,skill,and care
B) diligence,honesty,and fairness
C) diligence,skill,and care
D) prudence,fairness,and honesty

Question 23

A court has examined evidence regarding how clearly an opportunity had been identified by a corporation and how close it was to acquiring the opportunity.What subject was the court seeking to determine?

A) the amount of knowledge the fiduciaries possessed
B) the position or office held by the directors or officers
C) the nature of the corporate opportunity
D) the nature of the fiduciary's obligation

Question 24

In which situation might a shareholder exercise the right of dissent and appraisal?

A) where the directors have refused to declare dividends
B) where the directors are in a conflict of interest
C) where the shareholder dissents in a vote to amalgamate with another corporation
D) where a director has breached the duty of competence

Question 25

Isabella and Emily both attended a recent seminar for directors regarding corporate governance.The seminar focused on the recent departure of certain courts from the traditional shielding of directors from personal liability where their actions were taken in furtherance of their duties to the company and their conduct was justifiable.What type of liability are Emily and Isabella concerned with?

A) liability in tort
B) liability in contract
C) statutory offence liability
D) criminal offence liability

Question 26

Which of the following would a court most likely require in order to find there is no legal impediment to Marion proceeding to pursue a corporate opportunity declined by the corporation in which she holds a fiduciary position?

A) a resolution enacted by the corporation declining the corporate opportunity
B) a consenting resolution passed by the directors of the corporation
C) a consenting resolution passed by the shareholders of the corporation
D) a resolution enacted by the corporation's consenting shareholders and directors

Question 27

Which of the following would be NOT be a responsibility of the directors of a corporation?

A) calling a special shareholders' meeting
B) the appointment of executive managerial officers
C) the drafting of corporate bylaws
D) the declaration of dividends

Question 28

A court is satisfied with plaintiff counsel's efforts to establish that,based on the facts of the matter,the defendant corporation is the agent of its shareholders.In presenting this argument,what legal feat was plaintiff's counsel attempting to accomplish on his client's behalf?

A) lifting of the identification principle
B) lifting obligations for a personal guarantee
C) piercing the indemnification veil
D) piercing the corporate veil

Question 29

Why is knowing whether directors have been purchasing shares of a corporation a fundamental right belonging to the shareholders of a corporation?

A) It permits shareholders to maintain the optimum proportionate share of ownership.
B) It is the simplest and least costly method of earning capital gains.
C) It is the simplest and least costly method of soliciting proxies.
D) It permits shareholders to determine the use of confidential information for personal profit.

Question 30

What is a distinguishing characteristic attributable to preferred shares?

A) They include a right to vote.
B) They must state "nonvoting" on the share certificate itself.
C) They have a preferential right in the distribution of proceeds on dissolution.
D) They do not usually share in dividends.

Question 31

In which situation might a shareholder resort to the oppression remedy?

A) to authorize the issuance of shares
B) to obtain leave to bring an action on behalf of the corporation
C) to prevent the directors from favouring one shareholder over another
D) to permit a shareholder to authorize someone else to exercise his or her voting rights

Question 32

What is the legal term for the shareholder remedy where the court orders the corporation to purchase the shares of a shareholder at a reasonable price?

A) compensation remedy
B) dissent an appraisal
C) oppression remedy
D) derivative action

Question 33

What evidence would strongly support a judge's examination of facts and matters giving rise to a question of whether an individual is in breach of a fiduciary duty with respect to an alleged misappropriation of a corporate opportunity?

A) the quantum of knowledge possessed and factors influencing it being obtained
B) the amount of profits earned by the individual committing the breach of duty
C) the circumstances under which the employment relationship of the officer arose
D) the duration of time an individual has held a fiduciary position with the entity

Question 34

Under what circumstances would a court "lift the corporate veil"?

A) where the corporation has committed a criminal offence
B) where the corporation is a "mere facade" concealing the true facts
C) where there are fewer than 50 shareholders
D) where the corporation's shares are traded on the stock exchange

Question 35

What must be used in order to circumvent the general powers of the directors of a corporation to manage or supervise the ongoing business and affairs of a corporation?

A) provisions made in the bylaws or unanimous shareholders agreement
B) resolution of the majority shareholders of the corporation
C) provisions contained in the bylaws or a shareholders' agreement
D) unanimous resolution of majority and minority shareholders

Question 36

Three directors of a courier business who became aware of a business opportunity resigned and formed their own corporation in order to take advantage of the opportunity.The opportunity turned out to be very lucrative.Which of the following remedies is a court most likely to order in this situation?

A) specific performance
B) mandamus
C) an accounting of profits
D) lifting of the corporate veil

Question 37

A dispute has arisen among the various factions of shareholders over the proposed change of name of SunEnergy4U Inc.,a publicly traded company.What would a corporate lawyer believe to be important to each of the competing shareholder groups?

A) applying the statutory oppression remedy
B) exercising their automatic pre emptive rights
C) applying the shareholders' agreement
D) successfully soliciting proxy votes

Question 38

Of the 1000 issued and outstanding common voting shares of Trunda Adventures Corp.,Isaac holds 501,Marielle holds 250,and Lorenzo holds the remaining 249.Which of the following rests only with Isaac based on this arrangement?

A) the right to ask questions
B) the right to attend meetings
C) the right to control the company
D) the right to introduce motions

Question 39

Why is it important that the Supreme Court of Canada has set law in place allowing creditors to pursue an action based on the obvious and more open ended duty of care?

A) The law extends a change in duty in the vicinity of insolvency.
B) The law extends the duty of care beyond the corporation.
C) The duty of care is to be judged subjectively.
D) The court will disregard socioeconomic conditions.

Question 40

In Peoples Department Stores v.Wise (2004),244 DLR (4th)564 (S.C.C.),the court noted that it may be legitimate for directors to consider inter alia the interests of shareholders,employees,suppliers,creditors,consumers,governments,and the environment.How does this ruling affect the fiduciary duty owed by directors to act in the best interests of the corporation?

A) It complicates matters,because directors are now bound to consider these outside interests.
B) It is inconsequential,because directors are not bound to consider those interests.
C) Duties to the corporations are confounded by duties of corporate social responsibility.
D) It is inconsequential,because the duty owed to the corporation is relieved by social responsibility.

Question 41

What is the most important factor that contributes to a minority shareholder's ability to commence a derivative action?

A) The action must arise from discrimination against minority shareholders.
B) The action must be a pursuit of proper and adequate disclosure of material information.
C) The action must arise as a direct result of a fundamental change to the corporation.
D) The action must be in the corporation's cause as a result of some injury to it.

Question 42

A director does not generally attract liability for the corporation's contracts.

Question 43

SunDials4U Inc.will bear vicarious liability for the commission of torts by its directors and executive officers.

Question 44

What is the most important factor contributing to a shareholder's decision to exercise her pre emptive right?

A) a desire to inspect the register of share transfers
B) a need to ask the court to appoint an inspector
C) a desire to maintain her current level of control
D) a need to know if directors are purchasing shares

Question 45

A corporation's preferred shares generally carry the right to share in dividends,the right to vote,and a right to share in the proceeds on dissolution.

Question 46

A corporate opportunity is a contract in which an officer of the corporation has an interest.

Question 47

A shareholder has no right to have dividends just because the corporation has earned large profits.

Question 48

Directors can be personally liable if a corporation fails to remit required taxes.

Question 49

Clifton has purchased shares in a corporation that carry a pre emptive right.What right does this confer to Clifton?

A) the right ask questions at the annual shareholders' meeting
B) the right to vote at the annual shareholders' meeting
C) the right to purchase new shares before they are offered to outsiders
D) the right to sell his shares back to the corporation

Question 50

Which of the following are uncommon remedies available to a corporation's minority shareholders through common law and legislation?

A) appraisal and the return of surplus assets
B) winding up and derivative action
C) appraisal and derivative action
D) winding up and the return of surplus assets

Question 51

The directors' fiduciary duty changes when the corporation moves into the vicinity of insolvency.

Question 52

Corporations are immune from criminal law because they cannot be incarcerated.

Question 53

Identification theory holds that a corporation is liable when the person committing the wrong is the corporation's directing mind.

Question 54

Jeremy is an elected member of the board of directors of the same corporation where Johanna holds the position of chief financial officer.Their positions require each of them to uphold their fiduciary duties to act honestly and in good faith with regard to the best interests of the corporation.

Question 55

The exercise of care,diligence,and skill in the performance of their duties is seldom enough to reduce the exposure to personal liability that corporate directors face.

Question 56

Service on a board of directors carries significant risk.

Question 57

The oppression remedy is a personal action that can be brought by shareholders,creditors,directors,and officers.

Question 58

Traditionally,courts have shown little reluctance to say that a director or officer is automatically liable for a tort he or she committed on company time.

Question 59

The preferred shares of a corporation typically carry the priority right to the distribution of dividends and the proceeds on dissolution.

Question 60

By a two thirds majority vote,EcoGreen Inc.'s shareholders approved a proposed amendment to the articles of incorporation allowing for the public ownership of the company's shares and the adoption of a dual class share structure.Zoe voted against the change.What is Zoe's best solution to her dissatisfaction?

A) seeking a court ordered oppression remedy
B) commencing a derivative action
C) soliciting proxy votes
D) exercising her dissent and appraisal right

Question 61

What is a unanimous shareholder's agreement,what purpose does it serve and what might it typically contain?

Question 62

Identify two situations where a director may face personal liability in contract for a corporation's contracts.

Question 63

The dissent and appraisal remedy can be utilized to require a corporation to buy the shares of a shareholder who dissents from certain fundamental changes.

Question 64

What is identification theory and how does it assist the courts to impose criminal and tort liability in the case of corporate wrongdoing?

Question 65

In assessing a claim for oppression,a court must,among other things,determine whether the evidence supports a reasonable expectation of the stakeholder.

Question 66

In assessing a claim for oppression,a court must determine (i)whether the evidence supports the reasonable expectation of the stakeholder,and (ii)whether the reasonable expectation of the stakeholders was violated by the oppressive conduct.Identify the factors that must be considered by the court in order to answer both of these questions.

Question 67

Unlike a derivative action,which is brought on behalf of the corporation,the oppression remedy is a personal action,which can be brought by shareholders and specified stakeholders.

Question 68

A unanimous shareholder agreement is an agreement that defines the relationship among people who have an ownership interest in a corporation.

Question 69

The purpose of a unanimous shareholders' agreement is to convince the court that the directors are in the wrong and have been oppressive.

Question 70

General commercial practice
2.Nature of the corporation
3.Relationship between the parties
4.Past practice
5.Steps the claimant could take to protect itself
6.Representations and agreements
7.Resolution of conflicting interests between corporate stakeholders
To answer the second question,a claimant must show that the failure to meet reasonable expectations was the result of unfair conduct.