Deck 16: The Corporate Form: Operational Matters

Question 1

The judge's review of the evidence confirmed the parties did not indicate who they intend to be liable if their contemplated new corporate entity fails to come into existence. In which of the following circumstances is such a finding likely to be most problematic?

A) in a pre-incorporation contract
B) if the identification theory applies
C) where the contract is in writing
D) if there is criminal liability

Answer 1

A

Question 2

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

A) creating an oversight committee composed of subordinate directors
B) creating an audit committee composed of autonomous directors
C) avoiding appointing a maverick individual to the position of chair
D) avoiding circumstances that enable boards to act independently of management

Answer 2

B

Question 3

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

A) a workplace safety offence causing the loss of a worker's limb
B) wilfully neglecting to pay fines for parking violations
C) failing to remit income tax deducted at source
D) failing to create a buffer zone to prevent damage to a wildlife habitat

Answer 3

C

Question 4

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 5

In which areas of law were rules were developed to determine the legal consequences of corporate behaviour?

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

Question 6

Which of the following would allow a party to avoid strict liability for a statutory offence?

A) showing reasonable care and due diligence
B) showing a lack of moral blameworthiness
C) showing the potential for rehabilitation
D) publishing the offence in the media

Question 7

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

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

Question 8

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

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

Question 9

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

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

Question 10

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 11

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 12

What factor would a court now consider when setting fines since the new amendments to the Criminal Code were made?

A) the ability to pay
B) public opinion
C) moral blameworthiness
D) the inexperience of the directors

Question 13

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 14

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 15

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 16

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 17

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

Question 18

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 19

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 20

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 21

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 22

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 23

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 24

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 25

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 fiduciarys 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 26

What is the legal term for the corporate practice of paying the litigation expenses of officers and directors for lawsuits related to corporate affairs?

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

Question 27

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

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

Question 28

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 29

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 30

What common law decision provides the leading analysis of the principles underlying the corporate opportunity doctrine?

A) Re City Equitable Fire Insurance Co. [1925] 1 Ch 407
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 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.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 32

Which of the following operates in such a way that a corporation is liable, with respect to contractual obligations, 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 33

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 34

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 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

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 preemptive rights
C) applying the shareholders' agreement
D) successfully soliciting proxy votes

Question 37

Why was the standard of care of a corporation's directors and officers codified?

A) The law required an objective standard to ensure that 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 38

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 39

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 40

Why would a court consider an accounting of profits to be an appropriate remedy for a 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 41

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

Question 42

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

Question 43

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

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

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 46

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

Question 47

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 48

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 49

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

Question 50

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

Question 51

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

Question 52

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 53

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

Question 54

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

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

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 57

What is most likely to be the result if a corporation fails to file its annual corporate returns?

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

Question 58

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

Question 59

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 60

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 61

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 62

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

Question 63

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 64

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

Question 65

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

Question 66

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 67

Identify and briefly explain the amendments to the Criminal Code regarding the level of fines that may be imposed on a corporation as a result of a positive finding of that corporation's criminal liability.

Question 68

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

Question 69

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

Question 70

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 71

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 72

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

Question 73

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

Question 74

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

Question 75

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.