Question 1

Which of the following will NOT end the existence of a corporation?

Accepted Answer

The death of all shareholders in a single accident does not necessarily end the existence of a corporation. In this case, the shares will pass on to the shareholders' heirs or designated beneficiaries, and the corporation can continue to exist.

Question 2

Until the 19th century, all corporations were created by

Accepted Answer

Until the 19th century, corporations were created by a charter, which was a written document issued by the government that granted certain rights and privileges to the corporation. This allowed the corporation to operate as a legal entity with various legal protections and advantages.

Question 3

Which of the following best describes the function of the by- laws of a corporation?

Accepted Answer

The by-laws of a corporation provide the general operating rules to run the business of the corporation, such as rules for holding meetings, electing directors, and handling shareholder issues.

Question 4

Which of the following is included in the Articles of Incorporation?

Accepted Answer

All of the choices listed are included in the Articles of Incorporation. The Articles of Incorporation lay out the fundamental information about a corporation, including its name, purpose, location, and ownership structure. They also include any restrictions on the transfer of shares and the rights and restrictions attached to each share class. Additionally, the Articles of Incorporation may include any other necessary provisions, such as restrictions on the business that may be carried on.

Question 5

Six years ago Michael incorporated his small business in Alberta. Now, in order to do business in Ontario, Michael must

Accepted Answer

In order to do business in Ontario, Michael must register with the Ontario government either as a sole proprietorship, partnership, or corporation. He does not necessarily need to form a corporation federally or with the province of Ontario unless he wishes to switch his business structure. He also does not need to resubmit papers to Alberta or reregister as a federal corporation. The CBCA may be suitable for small businesses, but it depends on the individual circumstances.

Question 6

Jim incorporated his small business so that he would obtain limited liability on company indebtedness. But when he applied for a bank loan, the bank insisted that he give a personal guarantee the loan made to the corporation. Has the incorporating of the business helped Jim as far as limiting his business liability?

Accepted Answer

The answer of Jim incorporated his small business so that...

Question 7

Regarding corporations, which statement follows the principle of limited liability?

Accepted Answer

The principle of limited liability means that the shareholders of a corporation are only liable for the debts of the corporation up to the amount of their investment. Therefore, option A, which states that a corporation is liable for its own debts, follows this principle.

Option B mentions a director being liable for a car accident, which is not related to the principle of limited liability. Option C suggests that a shareholder is liable for the corporation's debt beyond their investment, which contradicts the principle of limited liability. Option D mentions shareholders repaying corporate property, which is not directly related to limited liability. Option E suggests that shareholders are providing personal guarantees for loans, which again goes beyond the principle of limited liability.

Question 8

Jack, who recently retired, wants to invest in a new upstart local company. As part of the deal for investing in The Turmoil Corp., the company has agreed to give Jack "...some sort of maintenance or security job for as long as he feels able". This agreement would best be placed

Accepted Answer

The agreement for a maintenance or security job for Jack is separate from his investment in the company and is a side agreement. Placing it in a separate side agreement will avoid clutter and confusion, as it does not directly relate to the by-laws or charter of the company.

Question 9

In 1975, Parliament passed the Canada Business Corporations Act (CBCA) which adopted a new system for incorporating businesses. It has become the model for most provinces. This system is called

Accepted Answer

The question mentions that the Canada Business Corporations Act (CBCA) adopted a new system for incorporating businesses, and this system is referred to as "articles of incorporation." Therefore, choice E, "the articles of incorporation system," is the best answer.

Question 10

James is retired and wants to invest in a local business. He is wishes to choose a corporation for his business structure because he "likes the separation of ownership and management". This way he

Accepted Answer

James wants to have separation of ownership and management, which means he wants to be a passive investor and not be actively involved in managing the company. By choosing a corporation as his business structure, he can achieve this goal since corporations have a board of directors who are responsible for managing the company. James can simply invest in the corporation and let the board of directors handle all the management responsibilities.

Question 11

The doctrine of ultra vires, as applied to corporations, has now been abolished throughout Canada. This means Canadian corporations

Accepted Answer

The abolition of the doctrine of ultra vires means that Canadian corporations have broadened powers and capacity to contract, as they are no longer restricted to acting only within their authorized powers set out in their charter. The other answer choices are incorrect as they refer to aspects of the doctrine that no longer apply.

Question 12

In addition to the Articles of Incorporation, a corporation needs detailed operating rules. These operating rules that are important enough for director's approval yet not contained in the Charter are called

Accepted Answer

By-laws are the detailed operating rules of a corporation that are important enough for director's approval yet not contained in the Charter. Work rules are specific guidelines for employees, while Charter exhibits are usually additional documents that supplement the Articles of Incorporation. Standard operating procedures (SOPs) and corporate operations rosters are internal documents for a company's own use and do not relate to the by-laws.

Question 13

The classic case that established the existence of the corporation as a separate legal entity is

Accepted Answer

Salomon's Case in 1897 established the existence of the corporation as a separate legal entity. The other options listed are either not relevant or are not accurate.

Question 14

Which of the following is not true about a corporation?

Accepted Answer

Unlike a partnership, a corporation is a separate legal entity from its owners and shareholders, meaning that it exists independently of the people who own it. This is not the same principle as a partnership, making option B incorrect.

Question 15

In comparison with a partnership, which of the following is NOT considered to be an advantage of the corporate form of business?

Accepted Answer

The duty of good faith is a requirement for all forms of business entities and is not unique to the corporate form. Rather, the advantages of the corporate form include limited liability, professional management, transfer of ownership, and continuous existence.

Question 16

A parent corporation will be liable to creditors of a subsidiary corporation:

Accepted Answer

A parent corporation is generally not liable for the debts of a subsidiary unless there is a legal basis to pierce the corporate veil, such as fraud or commingling of assets. Ownership percentage or director overlap alone does not automatically create liability.

Question 17

Associated corporations constitute a statutory limitations on the concept of separate corporate identities. In the legal sense, what is an associated corporation?

Accepted Answer

An associated corporation is where one corporation controls another or where two or more are controlled by the same person. This constitutes a statutory limitation on the concept of separate corporate identities, as the controlling corporation may be held vicariously liable for the actions of its subsidiaries or associated corporations.

Question 18

A shareholder that engages in a conflict on interest with a corporation is which the shareholder holds shares must:

Accepted Answer

The answer of A shareholder that engages in a conflict...

Question 19

Which of the following is TRUE?

Accepted Answer

A corporation is recognized as a legal person in the eyes of the law, meaning it can enter into contracts, sue and be sued, and own property, among other things. The other options are false: A) not all natural persons are recognized as legal persons (e.g. minors); B) limited companies are still a prominent form of business organization; D) corporations are recognized as legal persons; and E) limited partnerships are not more important than corporations in the business world.

Question 20

To incorporate under the Canada Business Corporations Act is most suitable for

Accepted Answer

The Canada Business Corporations Act is most suitable for large businesses that carry on their activity nation-wide, as it provides a framework for governance, management, reporting, and disclosure requirements for corporations operating in Canada. It is not necessary or relevant for businesses that only receive federal benefits or bring in goods from other provinces. It may also not be necessary for small businesses aiming at an international marketing niche, as they may choose to incorporate under the laws of the province or territory where they are located.

Quiz 27: The Nature of a Corporation and Its Formation