Question 1

What is the term, in some jurisdictions, for a corporation that does NOT offer its shares for sale to the public?

Accepted Answer

A closely held corporation is a type of corporation where the shares are not publicly traded. Instead, the shares are held by a small group of individuals or entities, such as family members or business partners.

Question 2

What must be present with respect to each class of shares issued by a corporate entity?

Accepted Answer

Each class of shares issued by a corporate entity must have the right to receive dividends, to vote, and to share in the proceeds on dissolution. This is the basic framework of shareholder rights in a corporation. Preference shares may be issued with additional rights such as priority for receiving dividends or proceeds in the event of dissolution, but these rights must be in addition to the basic rights mentioned above. Choice B is incorrect because it mentions the right to receive preference shares, which is not a right that a shareholder has, but rather a type of share that may be issued by the corporation. Choice C is incorrect because it mentions the right to preference on dissolution, which is a specific right that may be attached to preference shares, but is not a requirement for all classes of shares. Choice D is incorrect because it mentions the right to receive remuneration, which is not a standard right of shareholders.

Question 3

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?

Accepted Answer

Marjorie's shares have redemption rights, which means that under certain circumstances (as outlined in the agreement), the entity has the right to buy back her shares at a predetermined price of $30. This is a common provision in shareholders' agreements, which provides a mechanism for shareholders to exit the business in certain circumstances, such as retirement or disagreements with other shareholders.

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?

Accepted Answer

Shares with preferred rights on dissolution would provide Amarilla with a qualified assurance of the return of her share capital if the business winds down. These shares would have priority over other classes of shares in the distribution of any remaining assets in the event of dissolution. Redemption rights and buyback options may provide some assurance, but they do not have the same priority as preferred shares on dissolution. Preference shares with redemption rights may also provide some assurance, but they do not necessarily have priority over other classes of shares in the event of dissolution.

Question 5

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?

Accepted Answer

Marcella must answer the question of how many classes of shares should be issued and what are the rights and privileges for each. This is because this will impact the structure and control of the business entity. Additionally, Marcella should consider the voting power of each class of stock and whether they carry any dividend rights or preferences.

Question 6

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?

Accepted Answer

The answer of Rain Water Recycling Inc. has negotiated with...

Question 7

Gwen and Ross are contemplating the frequency of the declaration of dividends regarding each of the classes of shares recommended by their accountant. What undertaking is Gwen and Ross most likely involved in?

Accepted Answer

Gwen and Ross are discussing the frequency of dividend declaration for each class of shares, which suggests that they are involved in the process of deciding on a new legal entity's share structure as incorporators.

Question 8

What is the legal term for decision makers who enter contracts on behalf of an artificial entity?

Accepted Answer

Internal stakeholders are individuals or groups within an organization (such as employees, managers, or owners) who are directly involved in its operations and decision-making processes, including entering contracts on behalf of the entity.

Question 9

What distinguishing characteristic does Nova Scotia share in common with British Columbia with respect to incorporating a business entity?

Accepted Answer

The answer of What distinguishing characteristic does Nova Scotia share...

Question 10

Which of the following is synonymous with the term "closely held" with respect to corporate entities?

Accepted Answer

A closely held corporation is also known as a private corporation, as opposed to a public corporation which is widely held by a large number of shareholders. Private corporations are typically owned and operated by a small group of individuals or a family, and are not publicly traded on a stock exchange. Choices A and B (unlimited liability corporation and limited liability corporation) are not synonymous with the term "closely held".

Question 11

Ivoe and Juri are meeting with their lawyer to discuss the incorporation of X-treme Trivia Corp. They hope for the broad distribution of their product. What type of incorporation will their lawyer most likely recommend?

Accepted Answer

For broad distribution of their product, federal incorporation is the best option as it allows the company to operate and sell products across Canada.

Question 12

Which of the following is a distinguishing characteristic of a corporation?

Accepted Answer

Corporations have the distinguishing characteristic of allowing easy transfer of ownership through the buying and selling of stock.

Question 13

What legislated process do the province of Quebec and the province of Prince Edward Island share in common?

Accepted Answer

Both Quebec and Prince Edward Island use the process of issuing letters patent for the creation of corporations in their jurisdiction. Letters patent is a legal document issued by the government that creates and sets out the rules for a corporation.

Question 14

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?

Accepted Answer

This outcome is seen as perfectly legitimate and eminently just due to the principle of limited liability, which protects shareholders from being personally liable for the debts of the corporation beyond their investment in the company.

Question 15

Which of the following reflects the opinion held by the court with respect to the concerns of creditors in the historical case of Salomon v. Salomon Ltd., [1897] A.C. 22 (H.L.)?

Accepted Answer

In the case of Salomon v. Salomon Ltd., the court held the view that the fact of a single or a few shareholders limiting their liability by incorporating a company is not relevant. The court stated that the corporate form is a legal entity separate from the shareholders, and once the company is incorporated, it becomes an artificial person with its own rights and obligations. The shareholders are not liable beyond their investment in the company unless they have given personal guarantees or have engaged in fraudulent or improper conduct. The court upheld the principle of limited liability and recognized that creditors may face risks by dealing with a corporate entity, but that is the natural consequence of participating in commercial transactions. The court's opinion is therefore consistent with option C.

Question 16

Which of the following is synonymous with the term "widely held"?

Accepted Answer

"Widely held" typically refers to a company that has many shareholders, which is characteristic of a public corporation as they have shares that are available for purchase by the general public.

Question 17

What is the most compelling reason for the creation of a corporate business entity?

Accepted Answer

The most compelling reason for the creation of a corporate business entity is to limit owners' liability in the event of bankruptcy. This means that the owners or shareholders of the corporation will not be individually responsible for the debts or liabilities of the corporation beyond the amount of their investment in the business. This protects their personal assets from being seized to pay off debts or legal judgments against the corporation.

Question 18

Why are corporations seen as being capable of remedying many of the shortcomings found in the sole proprietorship and partnership business forms?

Accepted Answer

Corporations are seen as being capable of remedying many of the shortcomings found in the sole proprietorship and partnership business forms because of a corporation's existence as a separate legal entity. This means that the corporation has its own legal identity and can own property, enter into contracts, sue or be sued, and issue stocks to raise capital. Therefore, the owners' liability is limited to their investment in the corporation, and the corporation can continue to operate even if one or more owners leave or pass away. This makes it easier for corporations to raise capital, attract investors or shareholders, and expand their operations.

Question 19

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?

Accepted Answer

Incorporation documents must specify the maximum number of shares or state that the number of shares is unlimited for each class of shares that can be issued. This is to provide transparency and clarity to potential investors and shareholders. A and C are incorrect as they do not provide a specific number or limit, while D restricts the number of shares that can be issued, which may not be ideal for a company's growth and expansion plans.

Question 20

Which of the following would a lawyer most likely require the parties to determine before preparing and filing incorporation documents?

Accepted Answer

The answer of Which of the following would a lawyer...

Quiz 15: The Corporate Form: Organizational Matters