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

Accepted Answer

In a pre-incorporation contract, there is no existing corporate entity yet and therefore, it is important to indicate who will be liable if the new entity does not come into existence. Failure to do so may result in confusion and disagreements between the parties.

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

Accepted Answer

The CSA requires companies to create an audit committee composed of directors who are independent of management. This is aimed at ensuring the accuracy and transparency of financial reporting. Choice A is incorrect as the CSA does not mandate creating an oversight committee composed of subordinate directors. Choice C and D do not accurately reflect the requirements of the CSA rules on corporate governance reforms.

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

Accepted Answer

The fact that Ravi Inc. has been fined 10 percent of the amount it owed suggests that the offence is related to a monetary transaction, such as failing to remit income tax deducted at source. Options A and D suggest more serious offences that would likely result in a higher fine or penalties beyond just a monetary fine. Option B is possible, but the language "wilfully neglecting" suggests repeated offences rather than a first offence.

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

Accepted Answer

Directors have the authority to approve financial statements themselves, and such authority cannot be delegated to others.

Answer: None 
 All of the choices fall within the general authority of directors with respect to their management of a corporate entity.

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

Accepted Answer

Rules were developed to determine the legal consequences of corporate behaviour in the areas of torts, contracts, crimes, and regulatory offenses. These areas deal directly with corporate actions and the impact they have on others, such as customers or shareholders, and the wider community. The areas of agency and equity are also important for corporate law but do not necessarily address the legal consequences of corporate behaviour.

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

Accepted Answer

Showing reasonable care and due diligence is a common defense to strict liability offenses. It involves demonstrating that the party took all reasonable steps to prevent the offence from occurring, even if it still happened. This defense is often available in cases involving product liability, environmental offences, and health and safety violations.

B, C, and D are not valid defenses to strict liability offences. Showing a lack of moral blameworthiness or the potential for rehabilitation may be relevant to sentencing, but it does not excuse the commission of the offense itself. Publishing the offence in the media is not a defense at all, as it does not affect whether the offense was committed or not.

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.

Accepted Answer

The answer of Which of the following is a valid...

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

Accepted Answer

The doctrine of constructive notice required third parties to investigate the authority of corporate agents to contract, even if those agents appeared to have the authority. This created an inconvenience for commercial transactions, as it was difficult and time-consuming for third parties to verify the actual authority of each agent. The abolition of this doctrine allows third parties to rely on the apparent authority of corporate agents, making it easier and more efficient for commercial transactions to take place.

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

Accepted Answer

A probation order giving court oversight and regulation of reforming efforts would be the most effective option to ensure that the oil company takes remedial steps to prevent the likelihood of a subsequent offence. This would give the court direct control over the company's efforts to reform and would ensure that they are making necessary changes to their operations to prevent further harm to the environment. Fines and accounting of profits may provide some deterrence, but they are not as effective in ensuring long-term reform.

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.

Accepted Answer

Both a duty of competence and a fiduciary duty are obligations owed by a director that cannot be delegated to other individuals or officers. A duty of competence requires directors to possess the necessary skills and knowledge to perform their duties adequately, while a fiduciary duty requires directors to act in the best interest of the company and its stakeholders.

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.

Accepted Answer

Both primary liability and vicarious liability involve the accountability of a corporation. Primary liability refers to the direct responsibility of the corporation for its own actions, while vicarious liability refers to the responsibility of the corporation for the actions of its employees or agents. Both types of liability hold the corporation accountable for the actions of those acting on its behalf.

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

Accepted Answer

The answer of What factor would a court now consider...

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

Accepted Answer

Absolute liability is a type of liability where the accused is held responsible regardless of their fault or intention. In this type of liability, the accused is unable to defend themselves by showing that they were not at fault.

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.

Accepted Answer

Pre-incorporation contracts are governed by federal and provincial statutes, which provide the legal framework for their enforceability and the obligations of the parties involved.

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.

Accepted Answer

The identification theory holds the corporation directly liable for the wrongful act of an individual employee or agent who is authorized to act on behalf of the corporation. In this case, the senior vice president of marketing was an authorized agent of T-Shirt Corp. and his decision to use confusing initials on the labels of the toddlers' T-shirt line was a wrongful act that could lead to liability for the company. Therefore, the identification theory would likely be applied if liability for wrongdoing were assessed in these circumstances.

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

Accepted Answer

If a specific provision in the contract expressly relieves the promoter of personal liability, the court will find them not to be personally liable. This means that the other party agreed to release the promoter from any personal liability, typically in exchange for some other benefit or consideration. However, if such a provision does not exist, the promoter may still be held personally liable for any breach of contract or other wrongdoing. The other options (A, C, and D) are not relevant to whether the promoter is personally liable or not.

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

Accepted Answer

The answer of What is the authority an individual must...

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.

Accepted Answer

Using a shelf company facilitates direct entrance into contractual obligations by the corporation, which can help take prompt advantage of a valuable business opportunity. Risk management may prefer this because it allows for a streamlined process and reduces the risk of delays or complications that can arise when forming a new company from scratch. The other options do not directly relate to the advantages of using a shelf company for risk management purposes.

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

Accepted Answer

The answer of What must be used in order to...

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

Accepted Answer

The fiduciary principle imposes duties on the directors and officers of a corporation to act in the best interest of the corporation and its shareholders. This duty is owed to the corporation itself, not to any individual or group of shareholders specifically. As such, the fiduciary principle plays a crucial role in matters of corporate governance, ensuring that directors and officers act with integrity and in the best interest of the company as a whole.

Quiz 16: The Corporate Form: Operational Matters

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?

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

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?

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

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

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

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?

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

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?

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

What do primary liability and vicarious liability have in common?

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

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

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

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?

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

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

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?

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