Question 1

In jurisdictions where the registration system of incorporation is used,registration is accomplished by filing which of the following combinations of documents?

Accepted Answer

In jurisdictions using the registration system of incorporation, the process typically involves filing the articles of association and the memorandum of association. These documents outline the company's structure and purpose.

Question 2

Jed Wimsey,in auditing the books of various businesses around town,was talking to you,his best friend,about certain practices that he thought improper.Which of the following practices he found would be a breach of fiduciary duty?

Accepted Answer

The partner's actions of secretly starting a competing business without informing his partners is a breach of his fiduciary duty to act in good faith and loyalty to the partnership.

Answer: C
 While it may be disappointing to shareholders, the directors have the discretion to declare or withhold dividends. It does not necessarily constitute a breach of their fiduciary duty.

Answer: D
 The officer's actions of seeking permission from the board and ensuring that the corporation was not interested in the opportunity shows that he acted in good faith and with loyalty to the corporation.

Answer: E
 Being a shareholder does not necessarily mean that the individual is breaching their fiduciary duty. Shareholders have the right to express their opinions and advocate for certain policies, even if they oppose the corporation's policies.

Therefore, the only choice that would be a breach of fiduciary duty is A.

Question 3

With regard to the law of corporations,which of the following is true?

Accepted Answer

Under the law of corporations, a creditor of a corporation could sue for some remedy if the directors of the corporation voted for a resolution to pay a dividend when the corporation was insolvent. This is because in such a case, the directors would have breached their duty of care towards the corporation and its creditors by prioritizing the interests of the shareholders over the company's ability to pay its debts. The creditor could seek relief through an action for oppression or a derivative action on behalf of the corporation. Therefore, option E is the correct answer. The other options are incorrect because: 
A) Pre-emptive rights do not entitle a shareholder to pass on their right to vote to someone else, but rather to purchase new shares in the company before they are offered to the public. 
B) "Lifting the corporate veil" is a legal concept used to pierce the protection of limited liability afforded to corporations in exceptional circumstances, but it is not a remedy available to a minority shareholder who is treated unfairly. 
C) "Relief from oppression" provisions are typically used by shareholders, not parties who have contracted with the corporation, to seek relief if they are being unfairly prejudiced or if the corporation is being mismanaged. 
D) A director of a corporation could be personally liable on a promissory note if they signed it as a personal guarantee, even if they intended to sign on behalf of the corporation. However, if the director signed solely on behalf of the corporation and without any personal guarantee, they would not be personally liable for the debt.

Question 4

If a corporation had been wronged by negligent and fraudulent acts of one of its directors and consequently suffered a $45 000 loss,and the board of directors would not take any action on behalf of the corporation against the wrongdoer,which of the following is true?

Accepted Answer

A derivative action allows a shareholder to commence an action on behalf of the corporation if the board of directors refuses to take action against a wrongdoer. This allows the corporation to seek compensation for the loss it suffered. Options A, C and E are not relevant in this context. Option B is incorrect as a corporation is a distinct legal entity and not a mere concept.

Question 5

Mr.A is the sole shareholder of X Ltd.,and is also a director of Y Ltd.Y Ltd.is negotiating to buy property from X Ltd.Which of the following is false?

Accepted Answer

The answer of Mr.A is the sole shareholder of X...

Question 6

The promoter of a corporation,called Seymour Holdings Ltd.,contracted for $4000 worth of office furniture "on behalf of Seymour Holdings Ltd.," prior to incorporation.After incorporation,the new directors want to ensure that the corporation is bound.They will be able to do so if

Accepted Answer

Ratification is the process by which a corporation, after its formation, approves and adopts a contract entered into on its behalf before incorporation. If the corporation ratifies the contract and such action is permitted in the jurisdiction, then the corporation will be bound by the contract. The other options may be relevant in different scenarios, but ratification is the most appropriate choice for this specific scenario.

Question 7

In 2011,Rambolin incorporated Rambolin Industries Ltd.and became its sole shareholder.He lent the corporation $10 000 and took a chattel mortgage from the corporation as security for repayment of the loan.He became director,president,and secretary of the corporation.The corporation prospered.Last year,you began supplying the corporation with office supplies.You were paid at the end of each month for supplies delivered during that month.For the last six months,however,you have not been paid.You learn that other suppliers have not been paid either because sales had dropped drastically,apparently due to Rambolin's nasty temper caused by ill health.Which of the following is true?

Accepted Answer

Rambolin, as a secured creditor due to the chattel mortgage, would have priority over unsecured creditors like you in the event of bankruptcy.

Question 8

Mr.Ace of Oink Inc.,a closely held corporation,is one of three shareholders.After several years of considerable success,the corporation hit hard times.The other shareholders,Mr.Bane and Mr.Curr,in the best interests of the corporation,voted Mr.Ace out as a director and voted not to renew his employment contract.Upset by these events,Mr.Ace just wanted to sell his interest and leave the corporation.The other two shareholders,however,refused to buy his shares.Furthermore,when he attempted to sell his shares to his brother,who was interested in the corporation,they refused to register the brother as a member.Which of the following is true?

Accepted Answer

If there had been a shareholder agreement in place, it would have specified the procedure for selling shares and transferring ownership. This would have prevented the current situation from occurring. However, since there is no agreement in place, Mr. Ace is not able to sell his shares to anyone he chooses and the remaining shareholders are not obligated to register the new owner.

Question 9

John Hollin was an officer,director,and employee of a large broadly held corporation.At a directors' meeting,he learned that the corporation was voting on a resolution to buy a piece of property from Sam Keanu for $100 000.It happened that Hollin was one of three co-owners of that property.Hollin voted for the purchase and the resolution passed without discussion by a vote of 5-0.Several months after completion of the purchase,the other directors learned of Hollin's ownership and called on him to account to the corporation for any profit made.Which of the following is false?

Accepted Answer

The dissent procedure allows a shareholder who disagrees with a fundamental change in the corporation's structure or operations to force the corporation to buy the shareholder's shares at their fair market value. This is not applicable in this case, as the issue at hand is not a fundamental change in the corporation's structure or operations. Therefore, the shareholders cannot proceed under the dissent procedure and force the corporation to buy them out. The other statements are true, as Hollin breached his fiduciary duty to the corporation, he must account for any profit made, and he should have disclosed his interest and refrained from voting or otherwise influencing the decision. If the directors failed to take action, the shareholders could have brought an action on behalf of the corporation against Hollin.

Question 10

Art Raskle was an officer,director,and employee of a broadly held corporation.At a directors' meeting,he was surprised but pleased to learn that the corporation was discussing a resolution to contract with the firm of Fielding's Office Supply for $200 worth of office equipment.He and a partner had recently bought that business; Raskle has a 45 percent interest.Raskle voted for the contract and the resolution passed without discussion by a vote of 6-0.Several months after completion of the purchase,the other directors learned of Raskle's interest in Fielding's Office Supply and called on him to account to the corporation for any profit made.Which of the following is true?

Accepted Answer

Raskle has breached his fiduciary duty by not disclosing his interest in the transaction and by voting on the matter. As a director and officer of the corporation, he has a duty of loyalty and care to act in the best interests of the corporation. By voting for the contract with Fielding's Office Supply, he may have favored his own personal interest over the corporation's interest. Therefore, he must account for any profit made from the contract.

Question 11

In which of the following relationships is a fiduciary duty owed?

Accepted Answer

The answer of In which of the following relationships is...

Question 12

Which of the following situations would allow a shareholder to sue on behalf of the corporation?

Accepted Answer

A shareholder can sue on behalf of the corporation if the corporation has been wronged but refuses to take any action against the wrongdoer. This is known as a derivative lawsuit.

Question 13

The directors held their last meeting on December 31 at 4:30 p.m.,and it was conducted more like a party than a usual meeting.A director was negligent in signing a promissory note,which cost the corporation $15 000; furthermore,the director was in breach of his fiduciary duty because the note was paid to a corporation in which he had an interest.Which of the following is true?

Accepted Answer

A shareholder may bring an action on behalf of a corporation against a director who breached his fiduciary duty. However, the shareholder must first obtain the court's permission to do so. This is referred to as a derivative action. As the breach of the director's fiduciary duty resulted in a loss of $15,000 to the corporation, a derivative action may be commenced by a shareholder on behalf of the corporation against the director. The other options presented in the question are not applicable in this scenario.

Question 14

Which of the following is an example of a breach of a fiduciary duty?

Accepted Answer

The partner in the firm breached his fiduciary duty of loyalty by failing to disclose the information about the heavy equipment to the partnership and instead buying it for personal gain.

Answer: E
 The shareholder breached their fiduciary duty of loyalty by voting on a matter in which they had a personal interest without disclosing it to the other shareholders.

Question 15

You have been asked by two fellow graduates to join them in incorporating a closely held corporation that would commence a consulting business.One was in your class,so you know him quite well,but the other is graduating from a different school.You have been discussing the law to review the protection it gives you.Read each of the following statements separately and indicate which is false.

Accepted Answer

If the other directors can show that it was in the best interests of the corporation to vote you out as a director, they may also have the right to restrict the sale of your shares to protect the corporation's interests. Therefore, you may not always be able to sell your shares without interference from the other directors.

Question 16

An agent owes a fiduciary duty to his principal; a director owes a fiduciary duty to the corporation; partners owe a fiduciary duty to the firm and to the other parties.Which of the following is not true with regard to one's fiduciary duty?

Accepted Answer

A shareholder does not owe a fiduciary duty to the corporation in the same way that directors, agents, or partners do. Therefore, a shareholder owning a competing business is not necessarily in breach of fiduciary duty.

Question 17

Another term commonly used where a bond is involved is

Accepted Answer

The term commonly used when a bond is involved is a debenture. A debenture is a type of bond that is not secured by physical assets or collateral, but rather by the creditworthiness and reputation of the issuer. It is a debt instrument that allows investors to loan money to the issuer in exchange for regular interest payments and the eventual return of principal.

Question 18

Jack Kihn incorporated and put $20 000 into the corporation by way of a shareholder's loan and took back a chattel mortgage on the corporation's equipment.The corporation created decorative boxes.An employee of the company delivered some boxes to a customer who complained about the colour used.The employee became so angry that he shoved the customer,who fell into a glass display case,causing $30 000 damage to the customer and the case.Given these facts,which of the following is false?

Accepted Answer

Kihn himself is not vicariously liable for the employee's actions; the corporation, as the employer, would be liable.

Question 19

Your friend Harry became wealthy through the tremendous success of a gadget he designed that allowed micro-chips to be produced without being touched by humans.He has been invited to sit on the board of directors of different corporations.He is aware of the increasing number of cases finding directors personally liable.He does not want to be connected with a corporation involved with any wrong-doing.He has hired you to prepare in-depth reports on five corporations.Your reports reveal the following.In which of these is there no legal wrong?

Accepted Answer

In this scenario, the minority shareholder is protesting the corporation's involvement in a logging operation, which is a socially responsible action, but does not involve any legal wrong. The other options all involve actions that are not in the best interest of the corporation or its shareholders, or involve conflicts of interest on the part of the directors, which could make them personally liable for any resulting damages.

Question 20

Which two of the following are examples of breaches of fiduciary duty?

Accepted Answer

A breach of fiduciary duty occurs when a person with a legal duty to act in the best interests of another person or entity fails to do so. In example B, the director of the corporation used their position to gain personal benefit before the corporation could take advantage of the opportunity, which is a breach of their duty to act in the best interests of the corporation.

Answer: D
 A breach of fiduciary duty occurs when a person with a legal duty to act in the best interests of another person or entity fails to do so. In example D, the shareholder started a business that directly competes with the business they have a stake in, which is a breach of their duty to act in the best interests of the corporation and its shareholders.

Quiz 12: Corporations