Corporate Law: Oppression Remedy & Derivative Action

Questions and Answers

What is the primary purpose of a prospectus in securities legislation?

To facilitate communication between corporate officers.

To provide details about an investment offering to the public. (correct)

To inform shareholders about their voting rights.

To outline the financial health of a corporation.

Which of the following describes equity financing?

Acquiring funds by issuing bonds.

Selling shares in the corporation to raise capital. (correct)

Investing corporate profits back into operations.

Raising capital through loans.

Who has the authority to appoint corporate officers within a corporation?

The board of directors. (correct)

The president of the corporation.

The shareholders.

The state government.

What is defined as financial instruments representing ownership or creditor relationships with a corporation?

Securities. Signup and view all the answers

Which class of shares may allow holders to accumulate unpaid dividends?

Cumulative shares. Signup and view all the answers

What characteristic is unique to preference rights associated with certain classes of shares?

Claim to dividends before other shares in liquidation. Signup and view all the answers

Which of the following is a possible right associated with shares in a corporation?

The right to receive dividends based on share class. Signup and view all the answers

What document serves as the foundational charter of a corporation detailing its structure and purpose?

Articles of incorporation. Signup and view all the answers

What is the primary purpose of a Derivative Action?

To enforce a corporate cause of action Signup and view all the answers

Under what condition can self-dealing contracts be accepted?

If they benefit the corporation Signup and view all the answers

Which of the following best describes a shareholder's rights?

To vote and receive financial information Signup and view all the answers

What is an oppression remedy commonly used for?

To address actions that have oppressed shareholders' interests Signup and view all the answers

What must directors ensure when managing corporate finances?

To fulfill their fiduciary duties in the best interest of the corporation Signup and view all the answers

Which of the following does NOT typically invoke an application to pierce the corporate veil?

Minor shareholder disputes not affecting corporate governance Signup and view all the answers

What is the significance of the authority to declare dividends?

It rewards shareholders with distributions from corporate earnings Signup and view all the answers

What can potentially undermine a director's fiduciary duty?

Entering into contracts that benefit them personally Signup and view all the answers

What is the primary reason shareholders enjoy limited liability?

They only lose what they invested in the corporation. Signup and view all the answers

Under what circumstances can shareholders face personal liability despite limited liability principles?

In instances of fraud or personal guarantees. Signup and view all the answers

What does the NUANS report help to verify?

The availability of a business name for registration. Signup and view all the answers

What constitutes insider trading?

Trading shares based on non-public material information. Signup and view all the answers

Who can be considered the 'directing mind' of a corporation in the context of liability?

An individual exercising decision-making authority on corporate policy. Signup and view all the answers

What does 'lifting the corporate veil' enable a court to do?

Disregard the corporation's separate legal personality and hold shareholders personally liable. Signup and view all the answers

What is a key consequence of buying shares from competitors?

Regulatory scrutiny and strategic considerations. Signup and view all the answers

What motivates a corporate executive to engage in insider trading?

Desire to manipulate stock prices for personal gain. Signup and view all the answers

Study Notes

Application

Rarely invoked, requiring evidence of corporate facade for improper conduct.
Typically occurs with total domination by shareholders, using corporate status to shield wrongful actions.

Oppression Remedy & Derivative Action

Oppression Remedy: Legal claim from shareholders alleging corporate actions wrongfully affect their interests.
Most commonly employed solution for shareholder disputes.
Derivative Action: Lawsuit filed by a shareholder on the corporation's behalf to address corporate wrongs and protect against self-serving director actions.

Directors possess authority to declare dividends, distributing corporate earnings to shareholders.
Delegation is an essential function of the board in managing finances and rewarding stakeholders.

Self-Dealing Contracts & Fiduciary Duty

Self-Dealing Contracts: Contracts where fiduciaries have conflicts of interest, such as selling personal goods to the corporation.
Such contracts may be permissible if they provide benefits to the corporation but require careful management to avoid conflicts.
Fiduciary Duty: Obligation of directors and officers to act honestly, in good faith, and prioritize the corporation's interests above personal gain.

Duties of Shareholders

Shareholders hold rights such as voting, information access, and financial benefits like dividends but lack fiduciary responsibilities.

Personal Liability in the Corporation - and Exceptions

Limited liability protects shareholders from personal responsibility for corporate debts beyond their investment.
This protection can be challenged in fraud cases or where personal guarantees exist.

What Is Insider Trading - Give an Example

Insider Trading: Trading shares based on material non-public information.
Example: An executive sells shares after learning about an impending major loss announcement.

Naming Your Business - What Is the Database Search Called?

NUANS Report: A document that confirms a business name is not already in use, necessary before finalizing a corporation's name.

Buying Shares from Competitors

Purchasing shares in a competitor can be strategic for investment insights or competitive influence, subject to regulatory oversight.

Identification Theory

Theory assessing when a corporation is liable for wrongs based on actions of its "directing mind" who makes corporate policy decisions.

Lifting the Corporate Veil

Legal process where courts ignore the distinct legal status of a corporation, holding shareholders personally liable.

Defining Document of a Corporation

Articles of Incorporation: Fundamental document defining a corporation's structure, objectives, and core characteristics, filed during incorporation.

What Are Securities?

Securities: Financial instruments indicating ownership (e.g., shares) or creditor relationship (e.g., bonds) with a corporation, including shares, bonds, and debentures.

Who Hires Corporate Officers?

Corporate Officers: High-level executives like the president, secretary, and treasurer are appointed by the board of directors.

What Is a Prospectus?

Prospectus: Required document by securities law detailing investment offerings, ensuring investors receive essential information for decision-making.

Differences in Classes of Shares

Varied share classes may have different rights:
- Voting Rights: Some shares enable greater voting power.
- Financial Rights: Rights to dividends and profit-sharing.
- Preference Rights: Priority in dividends or liquidation.
- Cumulative Rights: Ability to accumulate unpaid dividends.
- Redemption Rights: Rights for the company to repurchase shares.

What Is Equity Financing?

Equity Financing: Raising capital by issuing shares, providing an adaptable funding method and allowing investors partial ownership with growth potential.

Rights to Dividends

Dividends: Payments from corporate profits to shareholders, varying according to the class of shares held.

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Description

Explore the legal intricacies of the oppression remedy and derivative actions in corporate law. This quiz covers scenarios where shareholders may seek legal recourse due to unfair treatment or domination by other shareholders. Test your knowledge on the protections available against oppressive conduct in a corporate setting.