Deck 16: The Corporate Form: Operational Matters

Question 1

Which of the following is a requirement of the CSA rules with respect to corporate governance reforms?

A) an oversight committee composed of subordinate directors
B) an audit committee composed of autonomous directors
C) avoidance of appointment of a maverick individual to the position of chair
D) avoidance of circumstances enabling boards to act independently of management

Answer 1

B

Question 2

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.

Answer 2

B

Question 3

After the enactment of Bill C-45,an Act to Amend the Criminal Code (Criminal Liability of Organizations),which of the following would be considered an offence that requires intent on behalf of a directing mind of a corporation?

A) storage of firearms
B) flamboyant standard of care
C) fraud, theft, and bribery
D) safety of others

Answer 3

C

Question 4

Which of the following would strongly support the avoidance of the imposition of strict liability for a statutory offence?

A) reasonable care and due diligence
B) lack of moral blameworthiness
C) prospects of rehabilitation
D) media publication of the offence

Question 5

Which of the following is a distinguishing characteristic of pre-incorporation contracts?

A) They can be entered into only on behalf of a shelf company.
B) They are the sole vehicle for doing corporate business quickly.
C) They are governed by federal and provincial statutes.
D) They pose the same conceptual problems as tort liability.

Question 6

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 7

The judge's review of the evidence confirmed the lack of an indication as to who the parties intended to be liable should the contemplated new corporate entity fail to come into existence.In which of the following circumstances is such a finding likely to be most problematic?

A) pre-incorporation contract
B) the identification theory
C) doctrine of constructive notice
D) criminal liability of a corporation

Question 8

What commercial inconvenience involving corporations was resolved by the abolition of the doctrine of constructive notice?

A) inability to delegate corporate signing authority to the officers
B) specific limitation of the authority of a corporation's agents
C) inability to rely on apparent authority of corporate agents to contract
D) specific limitation of an agent's authority to contract

Question 9

Which of the following is a valid criticism of the CSA corporate governance polices adopted as "best practices" guidelines in June 2005 by the Canadian Securities Commissions?

A) Enforced mandatory guidelines increase lifting of the corporate veil.
B) They fail to nationally harmonize securities regulation policy.
C) They fail to enforce effective oversight of the auditing profession.
D) Non-mandatory guidelines are ineffective compared to enforceable deterrents.

Question 10

Which of the following 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 11

In what way are a duty of competence and a fiduciary duty similar?

A) Both are obligations owed to a corporation's creditors.
B) Both are strict liability obligations owed to external stakeholders.
C) Directors are relieved from them by delegating authority to officers.
D) Neither is an obligation owed by a director that can be delegated.

Question 12

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

A) the ability to enact organizational policy
B) the ability to act as a subordinate manager
C) criminal liability arises solely where the directing mind commits the offence
D) combining authority with two or more individuals in a single chain of command

Question 13

Which of the following would a litigation lawyer most likely indicate as being the type of liability 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 14

In litigation involving a promoter,one of the parties named in a contract is described as an entity yet to be incorporated.Any statutory protections from contractual liability available to a promoter have been strictly construed by the courts.Accordingly,in these circumstances,the promoter will be bound by personal liability in the eyes of a court finding the absence of which of the following?

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

Question 15

An oil company has been found guilty of an environmental crime.In order to ensure remedial steps are undertaken to prevent the likelihood of a subsequent offence,which of the following must a court use?

A) summary conviction for the offending act, together with a fine of up to $100 000
B) impose a probation order giving court oversight and regulation of reforming efforts
C) accounting of profits from economic advantage gained by commission of crime
D) summary conviction for the offence and a fine of greater than $25 000.

Question 16

Assessing a corporate entity's responsibility is complicated by the necessity of human agents to direct the acts of corporations.To resolve such complications,rules were developed to determine the legal consequences of corporate behaviour in which areas of law?

A) torts, crimes, agency, equity
B) torts, contracts, crimes, or regulatory offences
C) agency, torts, contracts, equity
D) agency, contracts, torts, or regulatory offences

Question 17

Which of the following would be outside of the general authority of directors with respect to their management of a corporate entity?

A) the delegation of approval of financial statements
B) the appointment of executive managerial officers
C) the drafting of corporate bylaws
D) the preparation of corporate records

Question 18

Ravi Inc.has been fined 10 percent of the amount it owed because it was the organization's first offence.Which of the following denotes the most likely offence Ravi has committed?

A) workplace safety offence causing loss of a worker's limb
B) willful neglect of paying fines for parking violations
C) failure to remit income tax deducted at source
D) failure to create a buffer zone to prevent damage to wildlife habitat

Question 19

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 20

In what way do primary liability and vicarious liability share a commonality?

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 21

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.Which of the following would a corporate litigation lawyer most likely indicate as being the subject the court was seeking to determine?

A) the amount of knowledge fiduciary's 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 22

Which of the following is a commonly held characteristic of corporate opportunities?

A) Most tempt fiduciaries to act with self-interest.
B) They have very high revenue potential.
C) They can either be pursued or declined.
D) Most give rise to conflict of interest situations.

Question 23

Which of the following common law decisions provides the leading analysis of the principles underlying the corporate opportunity doctrine?

A) Liquor Barn Income Fund et al. v. Mather et al. (2008)
B) Canadian Aero Service Ltd. v. O'Malley [1974] S.C.R. 592
C) Peoples Department Store v. Wise (2004), 244 DLR (4th) 564 (S.C.C.)
D) BCE v. 1976 Debenture Holders (2008) SCC 69

Question 24

With respect to an alleged misappropriation of a corporate opportunity,a judge's examination of facts and matters giving rise to a question of whether an individual is in breach of a fiduciary duty would be strongly supported by evidence of which of the following?

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 25

Why would a court consider an accounting of profits to be an appropriate remedy for breach of the corporate opportunity doctrine?

A) It is the most obvious remedy available to the courts.
B) It facilitates the return of something that belonged to the corporation.
C) It is a readily available calculation to be made.
D) It facilitates quick and effective punishment for white collar crimes.

Question 26

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.

Question 27

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

A) 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) Permits shareholders to determine use of confidential information for personal profit.

Question 28

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) complicating, as they are now bound to consider these outside interests
B) inconsequential, as they are not bound to consider those interests
C) duties to the corporations are confounded by duties of corporate social responsibility
D) inconsequential, as the duty owed to the corporation is relieved by social responsibility

Question 29

With respect to liability for contractual obligations,which of the following would a law professor most likely say operates in such a way that a corporation is liable to the outsider as opposed to the directors who acted on the corporation's behalf?

A) doctrine of constructive notice
B) principles of indemnification
C) identification principle
D) principles of agency

Question 30

In order to find an absence of a legal impediment to Marion proceeding to pursue a corporate opportunity declined by the corporation in which she holds a fiduciary position,which of the following would a court most likely require?

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 31

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.Based on this arrangement,which of the following rests with Isaac?

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 32

A dispute has arisen between the various factions of shareholders over the proposed change of name of SunEnergy4U Inc.,a publicly traded company.In circumstances such as these,which of the following would a corporate lawyer indicate to be important to each of the competing shareholder groups?

A) the statutory oppression remedy
B) exercise of their automatic pre-emptive rights
C) the shareholders' agreement
D) successful solicitation of proxy votes

Question 33

The corporate practice of paying the litigation expenses of officers and directors for lawsuits related to corporate affairs is legally described by which of the following terms?

A) compensation
B) indemnification
C) ratification
D) surety

Question 34

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

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

Question 35

In BCE v.1976 Debenture Holders,(2008)SCC 69,the court opined that the directors need to treat affected stakeholders fairly,commensurate with the corporation's duties as a responsible corporate citizen.Which of the following is a valid criticism of the Supreme Court's ruling in this matter?

A) Directors are not bound to consider the interests of various outside stakeholders.
B) Directors are not bound to reverse the effects of pollution on the environment.
C) Little recognition is given to stakeholders such as employees and the community.
D) It fails to elaborate on a corporation's duties as a responsible corporate citizen.

Question 36

Which of the following is a distinguishing characteristic attributable to preferred shares?

A) They give the right to a priority interest in a liquidated corporation's assets.
B) They must state "nonvoting" on the share certificate itself.
C) They give the right to be given notice of shareholders' meetings.
D) They must be issued as nonvoting shares with dividend rights.

Question 37

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 38

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 39

Which of the following is a business law professor most likely to indicate as being the reason for the codifying of the standard of care of a corporation's directors and officers?

A) The law required an objective standard to ensure fiduciaries strive for perfection.
B) The unduly low common law standard of care compromised the duty of competence.
C) Fiduciaries had to exhibit a greater degree of skill than could reasonably be expected.
D) Fiduciaries were held to an unreasonably exacting duty of competence.

Question 40

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 41

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 42

A regulatory offence will only arise where a corporation's actions are contrary to private interests.

Question 43

A shareholder who is unable to attend a meeting can exercise voting power through a proxy.

Question 44

Which of the following is the most important factor contributing to Wilbur's decision to exercise his 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 his 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

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

A) seeking a court-ordered oppression remedy
B) commencement of a derivative action
C) solicitation of proxy votes
D) exercising her dissent and appraisal right

Question 47

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

Question 48

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

Question 49

If a corporation fails to file its annual corporate returns,which of the following is most likely to be the result?

A) winding up of the corporation
B) court-ordered termination
C) being struck from the registrar
D) dissolution of the corporation

Question 50

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 51

Which of the following is the most important factor contributing 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 fundamental change to the corporation.
D) The action must be in the corporation's cause as a result of some injury to it.

Question 52

The higher the position in an organization held by a director or managerial officer,the higher their fiduciary duty.

Question 53

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 54

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

Question 55

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

Question 56

The identification theory makes a corporation's liability directly attributable to the acts of a corporation's directing minds.

Question 57

Statutory procedures were enacted to avoid a blanket prohibition on self-dealing contracts.

Question 58

A promoter is an individual who participates in setting up a corporation.

Question 59

Which of the following would a law professor most likely indicate to be uncommon remedies available through common law and legislation to a corporation's minority shareholders?

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

Question 60

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

Question 61

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

Question 62

Identify and briefly explain the factors that a court must consider when setting fines or imposing other penalties on a corporation found to be responsible for the commission of a criminal offence.

Question 63

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

Question 64

Briefly discuss statutory derivative actions,including what they permit and what is required for their commencement.

Question 65

Identify and briefly explain the amendments enacted by Bill C-45 to the level of fines that may be imposed on a corporation under Canada's Criminal Code,as a result of a positive finding of that corporation's criminal liability.

Question 66

The existence of the derivative action remedy means that directors are unable to treat the corporation as their own personal fiefdom with impunity.

Question 67

A shareholders' agreement is an agreement among all shareholders that restricts the powers of the directors to manage the corporation.

Question 68

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 69

Briefly discuss the oppression remedy.Identify the categories of conduct a court would usually find to be oppressive in nature.

Question 70

Identify the elements that the court has recommended be examined in order to determine whether the appropriation of a corporate opportunity by a director or officer is a breach of fiduciary duty.

Question 71

Identify the source of and briefly discuss the present standard of care with respect to the duty of competence owed to a corporation.

Question 72

The steps involved in winding up a corporation are relatively simple and straightforward,making it no more or less feasible than simply allowing a company to lapse.

Question 73

Briefly explain how corporate directors are able to meet their statutory standard of care and identify the various methods that directors should employ to achieve this goal.

Question 74

Discuss the amendments to Canada's Criminal Code pertaining to the type of individuals who may trigger an organization's criminal liability.Include an explanation of the law prior to the amendments and the subsequent effects of the amendments.

Question 75

Identify and briefly describe the circumstances that would permit enforcement of a self-dealing contract under the Canada Business Corporations Act.