Corporate Law: Understanding Corporations

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Questions and Answers

What is a characteristic of shareholders in a corporation?

Shareholders can directly manage the corporation.

Shareholders can use the assets of the corporation as they wish.

Shareholders have specific rights attached to their shares. (correct)

Shareholders have unlimited liability for corporate debts.

What is the primary difference between federally and provincially incorporated corporations?

Provincially incorporated corporations require more financial disclosure than federally incorporated ones.

Provincially incorporated corporations have more rights than federally incorporated ones.

Federally incorporated corporations can carry on business in multiple provinces; provincially incorporated corporations cannot. (correct)

Federally incorporated corporations can only operate in the province of incorporation.

Which of the following is NOT a decision to be made during the pre-incorporation stages?

Deciding the share structure of the corporation.

Deciding whether to incorporate federally or provincially.

Choosing the name of the corporation.

Determining the internal governance roles. (correct)

External stakeholders in a corporation typically include which of the following?

Customers Signup and view all the answers

Which option correctly describes the share structure in a corporation?

It includes the class of shares, their rights, and the number issued. Signup and view all the answers

What is the maximum amount eligible issuers can raise through start-up crowdfunding in a 12-month period?

$1.5 million Signup and view all the answers

What is the primary purpose of securities legislation?

To provide a mechanism for the transfer of securities Signup and view all the answers

What is the primary purpose of bylaws in a corporation?

Create rules for day-to-day operations Signup and view all the answers

What is required for a company intending to sell securities to the public in Canada?

Registration with the provincial securities commission Signup and view all the answers

Which of the following is a feature of debt financing?

Involves repayment before shareholders during insolvency Signup and view all the answers

What did the Supreme Court of Canada rule regarding the Cooperative Capital Markets Regulatory System?

It fits within Parliament’s general powers Signup and view all the answers

What document must a corporation publish when offering securities to the public?

Prospectus Signup and view all the answers

What distinguishes equity financing from debt financing?

Equity financing does not require repayment Signup and view all the answers

What must happen within 18 months of incorporation?

Hold the first meeting of shareholders to elect directors Signup and view all the answers

How much can an individual invest in a crowdfunding project if advised by a registered dealer?

$10,000 Signup and view all the answers

What obligation does an issuer of securities have towards the public?

To keep the public informed of activities and notify material changes Signup and view all the answers

Which model of crowdfunding allows the lender to receive nothing in return?

Donation model Signup and view all the answers

What is a characteristic of conversion rights in securities?

They permit the exchange of one type of security for another Signup and view all the answers

What cannot be a reason for the lack of funding for the Cooperative Capital Markets Regulatory System?

Absence of opposition support Signup and view all the answers

In the context of corporate financing, what is a debenture?

Unsecured debt evidence Signup and view all the answers

How can a corporation combine its financing methods?

By utilizing bonds and shares together Signup and view all the answers

Which of the following is NOT a basic shareholder right in a corporation?

The right to sell shares without restrictions Signup and view all the answers

What characterizes a widely held corporation?

Shares are normally traded on a stock exchange Signup and view all the answers

What is a common requirement for a closely held corporation?

Limited number of shareholders Signup and view all the answers

What is the purpose of a 'right of first refusal' in the context of share transfers?

It permits insiders to acquire shares before outsiders Signup and view all the answers

Which of the following types of rights is typically associated with share classes in a corporation?

Preference rights for dividends Signup and view all the answers

In closely held corporations, what is often required for the transfer of shares?

Approval from the majority of shareholders or directors Signup and view all the answers

How may the number of shares in a corporation be structured?

It can be limited or unlimited Signup and view all the answers

Which of the following statements about shareholder rights is true?

Cumulative rights allow shareholders to accumulate unused voting power Signup and view all the answers

What is the primary characteristic that defines a corporation in terms of liability?

The corporation is treated as a legal person. Signup and view all the answers

In the landmark case Salomon v Salomon Ltd, what was established regarding shareholders and limited liability?

There is no issue with a shareholder controlling a one-person corporation. Signup and view all the answers

What distinguishes federal from provincial incorporation?

Federal incorporation is regulated at a national level. Signup and view all the answers

Which of the following best describes internal stakeholders in a corporation?

Individuals or groups involved in governance and operations. Signup and view all the answers

How is a corporation typically created?

By filing articles of incorporation with the appropriate government body. Signup and view all the answers

What is the role of officers in a corporation?

To manage day-to-day operations as appointed by directors. Signup and view all the answers

What can influence a corporation's name selection?

Unique identification and compliance with provincial regulations. Signup and view all the answers

How are securities in a corporation generally regulated?

By federal laws and various regulatory bodies. Signup and view all the answers

What did the Court of Appeal rule in Wong v Pretium Resources Inc regarding the alleged omission?

There was no omission of a material fact. Signup and view all the answers

What constitutes insider trading?

Transactions in securities based on information not known to the general public. Signup and view all the answers

What is a 'tippee' in the context of insider trading?

A person who receives material information from an insider. Signup and view all the answers

What evidence did the Ontario Securities Commission use in the Finkelstein case to prove insider trading?

Circumstantial evidence such as phone call patterns and trade dates. Signup and view all the answers

What penalties were imposed on the lawyer involved in Finkelstein v Ontario?

A 10-year trading ban and $450,000 administrative penalty. Signup and view all the answers

What is the primary focus of the continuous disclosure regime?

To prevent the dissemination of unreliable information. Signup and view all the answers

What was the outcome for the investment advisors involved in the Finkelstein case?

They faced penalties similar to those imposed on the lawyer. Signup and view all the answers

Which of the following actions is prohibited for an insider?

Passing on material information to a tippee. Signup and view all the answers

Study Notes

The Corporate Form: Organizational Matters

Objectives: Understanding a corporation as a legal person, the distinction between federal and provincial incorporation, the corporation's share structure, selecting a name, creation, financing, and securities regulation is essential.

The Corporation Defined

Corporations are predominant business entities, treated as independent legal persons.
Shareholders have limited liability; they are not personally responsible for corporate debts.

Landmark Case: Salomon v Salomon Ltd.

Salomon formed a corporation for his shoe business.
He and his family were the only shareholders.
Salomon controlled the company and acted as a lender.
Despite the significant control, the court upheld the corporation's limited liability.
Creditors could not hold Salomon personally responsible for the company's debts.

Stakeholders in the Corporation

Stakeholders are individuals or groups with interests in the corporation.
Internal stakeholders (shareholders, directors, officers) govern and shape the corporation's mission.
- Officers manage day-to-day operations.
External stakeholders (customers, employees, creditors, government) interact with the corporation.
Conflicts of interest among these groups are regulated through corporate law.

Pre-Incorporation Issues

Key decisions before incorporation involve choosing between federal and provincial incorporation, deciding on share types, and naming the corporation.

Provincial and Federal Incorporation

Both levels of government have regulations for company incorporation.
Federally incorporated companies have broader operating rights across provinces.
Provincially incorporated companies are restricted to operating in the incorporating province, but may be licensed to operate elsewhere.

Shares and Shareholders

Shares represent ownership in the corporation.
Shareholders do not directly manage or control.
Share structure determines the categories, rights, and number of shares.

Availability of Shares

Widely held corporations trade on stock exchanges, subject to security regulations.
Widely held shares are generally available to the public.
Closely held corporations do not sell their shares to the public.
They have tighter restrictions related to shares, lower tax rates.

Who May Own Shares?

Shares are usually freely transferable unless restrictions are in place.
Closely held corporations frequently have provisions.
Right of first refusal allows insiders to acquire shares before outsiders.

Business Applications of the Law: Rogers Communications

Rogers had a dual-class share structure (voting & non-voting).
The case involved legal battles over control after the founder’s death.
Significant voting power was held by a family trust.

A Corporate Name

All jurisdictions mandate a distinctive corporate name.
It must not be similar to existing names or trademarks.
It must include legal designations (like Ltd.).

Case Study: Aquatera Utilities Inc

Names of two corporations were challenged due to confusion.
The court upheld the regulatory decision, citing confusion risks due to identical or similar names.

The Process of Incorporation

Incorporators initiate the incorporation process.
Articles of incorporation define the corporation’s characteristics.
Steps might include submitting articles, registered office details, director information, NUANS reports, and filing fees.

Organizing the Corporation

Directors establish bylaws, governing day-to-day operations.
Share certificates and securities are adopted during corporate setup.
Officers are appointed.
Shareholders must meet within 18 months to elect directors.

Financing the Corporation

Corporations can obtain funding through debt financing (borrowing) or equity financing (selling shares).

Debt Financing

Corporations access funding by borrowing from banks, family, or government.
Debt does not imply ownership.
Bonds and debentures indicate debt owed; bonds often secure assets.

Equity Financing

Corporations raise capital by selling shares.
Equity financing signifies ownership.
Investors receive a share in returns.
This system is flexible for raising funds.

Crowdfunding

Funds a venture through solicitations from people.
It typically happens online (pitch from entrepreneur).
Donation model offers no reward to the lender.
Lending model provides payback to the lender.
Investment model offers some share of the business’ equity, depending on the arrangement.

Securities Legislation

Enforces mechanisms for securities transfer.
Ensure transparency in investor information.
Facilitates public confidence in the marketplace.
Regulates securities trading, prohibiting unfair practices.
Removes individuals in non-compliance with rules.

Case: Wong v Pretium Resources Inc.

Losses arose from omission to disclose a material fact, on an issue related to a gold-mining project.
The court did not accept the investors' claim.

Insider Trading Restrictions

Insider trading prohibits using non-public information for securities transactions by insiders.
Insiders must report transactions and not tip others.
Tippees, who receive information from insiders, also face restrictions.

Case: Finkelstein v Ontario Securities Commission

Investment advisors and a prominent legal professional were found in violation of securities laws concerning tipping and insider trading.
They were sanctioned with trading restrictions and financial penalties.

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Description

This quiz explores key concepts related to corporations, including their legal status as independent entities, the significance of limited liability for shareholders, and the essential features of corporate structure. It also discusses landmark cases such as Salomon v Salomon Ltd., shedding light on corporate governance and stakeholders' interests.