Business Structures in Canada
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Questions and Answers

What is a primary requirement of fiduciary duty for directors?

  • Acting in the interests of shareholders only
  • Acting honestly in the best interests of the corporation (correct)
  • Prioritizing the interests of all stakeholders equally
  • Resolving conflicts primarily in favor of the corporation

    • Which of the following describes the duty of care for directors?

  • To act as a mediator between employees and shareholders
  • To neglect conflicts if they are financially beneficial
  • To gather support only from corporate shareholders
  • To remain informed about the corporation's financial status (correct)

    • What does the term 'directors' liabilities' refer to?

  • Statutory obligations that directors share with the corporation (correct)
  • Liabilities that directors can ignore
  • Financial benefits received for fulfilling their roles
  • Positive outcomes resulting from shareholders' decisions

    • Which of the following is true about private corporations?

    <p>They require a prospectus when soliciting many shareholders</p> Signup and view all the answers

    What is a conflict of interest for a director?

    <p>Taking actions that benefit one group of stakeholders to the disadvantage of others</p> Signup and view all the answers

    In fiduciary duty, what must directors ensure regarding stakeholders?

    <p>Conflicts are resolved fairly and in the corporation's best interests</p> Signup and view all the answers

    What is a defining characteristic of a sole proprietorship?

    <p>The owner is personally liable for business debts.</p> Signup and view all the answers

    What is often a characteristic of private corporations?

    <p>They usually have fewer shareholders, often related parties</p> Signup and view all the answers

    Which of the following best describes a partnership?

    <p>An arrangement where multiple individuals conduct business for mutual benefit.</p> Signup and view all the answers

    What liability can directors face under certain statutes?

    <p>Joint liability with the corporation for financial obligations</p> Signup and view all the answers

    What happens to personal assets in the case of a sole proprietorship's debt?

    <p>They can be claimed by business creditors.</p> Signup and view all the answers

    Which business structure allows for limited liability among partners?

    <p>Limited liability partnership</p> Signup and view all the answers

    Under what condition could a sole proprietor's personal creditors access business assets?

    <p>When there is no distinction between personal and business finances.</p> Signup and view all the answers

    What is generally required for a partnership to exist?

    <p>It involves at least two individuals cooperatively managing a business.</p> Signup and view all the answers

    What differentiates a public corporation from a private corporation?

    <p>Public corporations have more regulatory requirements.</p> Signup and view all the answers

    How are liabilities treated in a sole proprietorship?

    <p>They reside with the proprietor and are personally managed.</p> Signup and view all the answers

    What is a primary role of a receiver in insolvency proceedings?

    <p>To take possession of the debtor's property and manage its sale</p> Signup and view all the answers

    What is required for someone to be elected as an inspector?

    <p>They must be an individual</p> Signup and view all the answers

    What is the role of a monitor in insolvency situations?

    <p>To report to creditors regarding the debtor's activities</p> Signup and view all the answers

    What distinguishes a receiver-manager from a regular receiver?

    <p>A receiver-manager can protect and liquidate the debtor's assets</p> Signup and view all the answers

    Who can appoint a monitor in a private appointment scenario?

    <p>A secured creditor who is concerned about the viability of the debtor</p> Signup and view all the answers

    What is true about the role of an LIT in an insolvency proceeding?

    <p>An LIT must treat all parties reasonably and fairly</p> Signup and view all the answers

    In which situation are inspectors not required?

    <p>In summary administrations</p> Signup and view all the answers

    What defines an interim receiver?

    <p>They are a trustee protecting the debtor's property during proceedings</p> Signup and view all the answers

    What is the primary role of a guarantor in a loan agreement?

    <p>To act as an additional party that creditors can pursue for repayment</p> Signup and view all the answers

    Which group generally recovers last in an insolvency proceeding?

    <p>Shareholders</p> Signup and view all the answers

    Under what circumstances can a creditor pursue a guarantor?

    <p>When the primary debtor defaults on their agreement</p> Signup and view all the answers

    What is a choice concerning being a guarantor?

    <p>It is a voluntary decision, not a requirement</p> Signup and view all the answers

    What type of claims are prioritized first in the scheme for asset distribution during insolvency?

    <p>Trust claims, including statutory trust claims</p> Signup and view all the answers

    Who is held financially responsible for the corporation's conduct?

    <p>Officers and directors</p> Signup and view all the answers

    What commonly happens to shareholders in an insolvency proceeding?

    <p>They are unlikely to receive any recovery of their investment</p> Signup and view all the answers

    What occurs when the primary debtor encounters an event of default?

    <p>Creditors can seek repayment from the guarantor</p> Signup and view all the answers

    What is the primary purpose of the BIA in relation to creditors?

    <p>To facilitate collective action among creditors.</p> Signup and view all the answers

    Which creditors are recognized in the distribution scheme of the BIA?

    <p>Secured, preferred, and ordinary unsecured creditors.</p> Signup and view all the answers

    How do federal and provincial legislations interact concerning insolvency in Canada?

    <p>Federal statutes are paramount over provincial statutes in matters of bankruptcy and insolvency.</p> Signup and view all the answers

    Which section of the Constitution Act grants Parliament exclusive jurisdiction over bankruptcy and insolvency?

    <p>Section 91(21)</p> Signup and view all the answers

    What would likely occur if each creditor pursued their claims individually without the BIA?

    <p>Creditors would scramble to realize assets ahead of others.</p> Signup and view all the answers

    In Canada, what type of legal systems coexist in relation to insolvency?

    <p>Common law and civil law systems.</p> Signup and view all the answers

    What is the role of the trustee in relation to creditor claims?

    <p>To facilitate the distribution of claims collectively.</p> Signup and view all the answers

    What is indicated by the term 'bijural' in the context of Canadian law?

    <p>Two coexisting legal systems operate simultaneously.</p> Signup and view all the answers

    Study Notes

    Business Structures in Canada

    • Three primary forms of business structures: sole proprietorships, partnerships (including limited liability partnerships), and corporations (both public and private).
    • A sole proprietorship is owned and operated by a single individual, who is personally liable for business debts; personal and business assets are not distinct.
    • In a partnership, multiple individuals work together for mutual benefit; fiduciary duties are required to act in the best interests of the business.

    Corporation Responsibilities

    • Directors have a fiduciary duty to act honestly and in good faith for the corporation’s interests, resolving conflicts appropriately.
    • Directors are accountable to shareholders and must stay informed about the corporation’s financial status, including compliance with payroll and tax obligations.
    • Directors may be held jointly liable with the corporation for certain obligations under laws, including CBCA Section 119.

    Types of Corporations

    • Private corporations typically have fewer shareholders, often connected by a common interest and are subject to limits on share solicitation.
    • Public corporations are open to broader investor participation and disclosure requirements.

    Insolvency Concepts

    • Receivership involves appointing a receiver to manage and liquidate a debtor's assets for creditors.
    • An interim receiver protects a debtor's property during insolvency proceedings, while monitors review debtor activities and report to creditors and courts.
    • A LiT (Licensed Insolvency Trustee) monitors insolvent individuals under Part III of the BIA (Bankruptcy and Insolvency Act).

    Guarantors and Claims

    • Guarantors provide additional security to creditors, with the option not to become one; they are pursued if the primary debtor defaults.
    • In insolvency proceedings, shareholders are the last to receive any recovery after trust claimants, secured creditors, preferred creditors, and ordinary unsecured creditors.
    • Canada operates under a bijural system where federal and provincial laws coexist, with federal statutes on bankruptcy/insolvency taking precedence.
    • Key federal legislation includes the Bankruptcy and Insolvency Act, impacting the rights of creditors and insolvency procedures.
    • Courts play a vital role in overseeing insolvency proceedings and enforcing laws related to bankruptcy and creditor claims.

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    Related Documents

    CQP - Introduction to Insolvency 2023 PDF

    Description

    This quiz explores the required readings on the different types of business structures in Canada, including corporations and their characteristics. Focus will be on the general differences between business entities rather than taxation specifics. Key legislation such as the Canada Business Corporations Act will be considered.

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