Yates ch11 - test bank PDF

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Business Law in Canada, 11e (Yates) Chapter 11 Corporations1) Which of the following is true with regard to the characteristics of corporations? A) The corporation is a separate legal person, but can neither sue nor be sued. B) Directors are responsible for the shareholders of the corporation. C) Sh...

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Business Law in Canada, 11e (Yates) Chapter 11 Corporations 1) Which of the following is true with regard to the characteristics of corporations? A) The corporation is a separate legal person, but can neither sue nor be sued. B) Directors are responsible for the shareholders of the corporation. C) Shareholders are liable for the debts and other obligations of the corporation. D) A shareholder's liability is limited to the amount he or she paid for the shares. E) The shareholders would be vicariously liable for any damage caused by an employee of the corporation carrying out his or her duties. Answer: D Diff: 2 Type: MC Page Ref: 345 Topic: Ch. 11 - Separate Legal Entity Skill: Recall Objective: Chapter 11: 1. Analyze the separate legal entity principle. Bloom's Taxonomy: Knowledge 2) Jack Kihn incorporated and put $20,000 into the corporation by way of a shareholder's loan and took back a Security Agreement 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. On these facts, which of the following is false? A) The employee is liable for the tort of battery. B) The employee is liable for his tort and his employer is also liable. C) Kihn himself is vicariously liable for the damage caused by the employee. D) If the corporation went bankrupt, Kihn himself would be a secured creditor. E) Although Kihn is the sole shareholder of the corporation, he is not responsible for company debts. Answer: C Diff: 2 Type: MC Page Ref: 345 Topic: Ch. 11 - Separate Legal Entity Skill: Applied Objective: Chapter 11: 1. Analyze the separate legal entity principle. Bloom's Taxonomy: Knowledge

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3) A real estate agent, by virtue of his fiduciary duty to his principal, is not allowed to buy the property being sold by his principal without full disclosure to and consent from his principal. The real estate agent does not want to disclose that he is the buyer of the property, so he forms a corporation and takes an offer to his principal from the corporation. Based on these facts, which of the following is true if the principal finds out the corporation/buyer is owned by the real estate agent and objects to the contract? A) The court would enforce the contract because the corporation is a separate legal entity in the eyes of the law. B) The court would enforce the contract because this is not a direct breach of the agent's fiduciary duty. C) The court would not enforce the contract and would "lift the corporate veil." D) The court would dissolve the corporation. E) The court would enforce the contract, but the principal would be able to claim any profits from the agent when he took them out of the corporation. Answer: C Diff: 1 Type: MC Page Ref: 345 Topic: Ch. 11 - Separate Legal Entity Skill: Recall Objective: Chapter 11: 1. Analyze the separate legal entity principle. Bloom's Taxonomy: Knowledge 4) In Salomon v. Salomon & Co., Mr. Salomon incorporated a business to which he loaned money, secured by a mortgage on the business assets. When the business failed, the creditors turned to Mr. Salomon, arguing that he should not be able to claim priority as a secured creditor and, in fact, should be responsible for the company's debts. What did the Court find? A) Mr. Salomon, as the incorporator, should be responsible for paying the creditors of his business, on the grounds of unjust enrichment. B) Mr. Salomon could not claim priority as a secured creditor, because this would amount to a conflict of interest. C) The company was a legal entity separate from Mr. Salomon, so Mr. Salomon could have priority as a secured creditor and bore no responsibility for the company's debts. D) The company was a legal entity separate from Mr. Salomon, but it would not be fair to allow him to claim his money ahead of arm's length parties. E) Mr. Salomon, by creating a fictionalized legal entity, had committed a fraud on the business' creditors, and so should bear total responsibility for the creditors' claims. Answer: C Diff: 2 Type: MC Page Ref: 345 Topic: Ch. 11 - Separate Legal Entity Skill: Recall Objective: Chapter 11: 1. Analyze the separate legal entity principle. Bloom's Taxonomy: Knowledge

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5) Four years ago, Ben Ratzi incorporated a corporation and became the sole shareholder, director, and officer. He lent the corporation $10,000 and took a General Security Agreement from the corporation as security for repayment of the loan. The corporation prospered. Last year, your brother began supplying the corporation with office supplies. He was paid at the end of each month for supplies delivered during that month. For the last six months, however, he has not been paid. He learned that other suppliers had not been paid either because sales dropped drastically, apparently due to Ratzi's harsh management style, which upset the entire staff. Which of the following is true? A) If your brother decided to sue for the debt, he could sue Ratzi because he was the sole shareholder and his management style caused all the trouble. B) Your brother could take an action under statutory "relief from oppression" provisions. C) If Ratzi dies, his corporation would automatically die too, and there wouldn't be any person to sue. D) If this corporation were placed into bankruptcy, Ratzi would be in a better position than your brother for receiving proceeds realized from the sale of the assets of the corporation. E) Your brother has no claim against the corporation because it has limited liability. Answer: D Diff: 3 Type: MC Page Ref: 345 Topic: Ch. 11 - Separate Legal Entity Skill: Applied Objective: Chapter 11: 1. Analyze the separate legal entity principle. Bloom's Taxonomy: Knowledge 6) Which of the following is an advantage of incorporation? A) Shareholders are liable for debts of the corporation. B) There are no tax advantages as compared to a sole proprietorship. C) Shareholders can veto decisions of directors. D) Shares are easily transferred. E) Shareholders owe a duty to the corporation. Answer: D Diff: 2 Type: MC Page Ref: 348 Topic: Ch. 11 - Pros and Cons of Incorporation Skill: Recall Objective: Chapter 11: 2. Describe the advantages and disadvantages of incorporation. Bloom's Taxonomy: Knowledge

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7) Which of the following is not an advantage of incorporation? A) Shareholders are not liable for debts of the corporation. B) There may be tax advantages. C) Shareholders can veto decisions of directors. D) Shares are easily transferred. E) Shareholders owe no duty to the corporation. Answer: C Diff: 2 Type: MC Page Ref: 348 Topic: Ch. 11 - Pros and Cons of Incorporation Skill: Recall Objective: Chapter 11: 2. Describe the advantages and disadvantages of incorporation. Bloom's Taxonomy: Knowledge 8) When lending money to a closely held corporation, what will a bank usually insist on from the major shareholders or other principals? A) a debenture B) a negotiable instrument C) a fiduciary obligation D) a pre-emptive right E) a personal guarantee Answer: E Diff: 1 Type: MC Page Ref: 348 Topic: Ch. 11 - Pros and Cons of Incorporation Skill: Recall Objective: Chapter 11: 2. Describe the advantages and disadvantages of incorporation. Bloom's Taxonomy: Knowledge 9) Mark wants to incorporate. Which one of the following statements is correct with regard to incorporating in Nova Scotia? A) Articles of incorporation is the document used to incorporate the company. B) These are "letters patent" jurisdictions. C) The documents to be sent to the registrar of companies are called the "memorandum" and the "articles." D) The "objects" of the company must be set out in the charter document so that the shareholders understand the limits on the capacity of the corporation. E) You can't incorporate a closely held company in this jurisdictions. Answer: C Diff: 2 Type: MC Page Ref: 352 Topic: Ch. 11 - The Process of Incorporation Skill: Recall Objective: Chapter 11: 3. Describe the process of incorporation. Bloom's Taxonomy: Knowledge

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10) 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. A) As a shareholder, you will have the right to vote for the directors, who in turn will choose the officers. B) A shareholder's agreement would lessen any misunderstandings about rights and obligations. C) If you each take one-third of the first allotment of the shares, you will necessarily be a minority shareholder. D) If you have pre-emptive rights and the directors decide to issue a new allotment of shares, the corporation must offer you a portion of the new issue to allow you to keep your proportional share of the corporation. E) If you were voted out as a director by the others, who could show that it was in the best interests of the corporation, you could always sell your shares to any interested buyer without interference from the other directors. Answer: E Diff: 2 Type: MC Page Ref: 356 Topic: Ch. 11 - Funding Skill: Applied Objective: Chapter 11: 4. Discuss the funding of a corporation. Bloom's Taxonomy: Knowledge 11) Another term commonly used where a bond is involved is A) a loan. B) a negotiable instrument. C) a debenture. D) a personal property security. E) a share. Answer: C Diff: 2 Type: MC Page Ref: 356 Topic: Ch. 11 - Funding Skill: Recall Objective: Chapter 11: 4. Discuss the funding of a corporation. Bloom's Taxonomy: Knowledge

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12) The corporation typically makes a debt commitment to a ________, who then issues shares in the indebtedness to individual bondholders. A) creditor B) trustee C) shareholder D) bondholder E) tribunal Answer: B Diff: 2 Type: MC Page Ref: 356 Topic: Ch. 11 - Funding Skill: Recall Objective: Chapter 11: 4. Discuss the funding of a corporation. Bloom's Taxonomy: Knowledge 13) Shareholders are participants in the corporation, whereas ________ are simply creditors. A) receivers B) trustees C) bondholders D) preferred shareholders E) directors Answer: A Diff: 2 Type: MC Page Ref: 356 Topic: Ch. 11 - Funding Skill: Recall Objective: Chapter 11: 4. Discuss the funding of a corporation. Bloom's Taxonomy: Knowledge 14) The corporation can also borrow funds, thereby accumulating A) shares. B) debt. C) bonds. D) assets. E) trustees. Answer: B Diff: 1 Type: MC Page Ref: 356 Topic: Ch. 11 - Funding Skill: Recall Objective: Chapter 11: 4. Discuss the funding of a corporation. Bloom's Taxonomy: Knowledge

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15) When shares are involved, even preferred shares, there is no legal obligation to pay dividends, but a failure to repay ________ constitutes a breach of the corporation's legal obligation. A) debts B) assets C) bondholders D) shareholders E) par-value shares Answer: A Diff: 2 Type: MC Page Ref: 356 Topic: Ch. 11 - Funding Skill: Recall Objective: Chapter 11: 4. Discuss the funding of a corporation. Bloom's Taxonomy: Knowledge 16) The articles of incorporation jurisdictions (except British Columbia) have abolished A) dividends. B) preferred shares. C) par-value shares. D) voting shares. E) promoters. Answer: C Diff: 2 Type: MC Page Ref: 356 Topic: Ch. 11 - Funding Skill: Recall Objective: Chapter 11: 4. Discuss the funding of a corporation. Bloom's Taxonomy: Knowledge 17) Since a variety of rights and restrictions can be incorporated into ________, depending on the interests of the parties, it is important that these matters be negotiated before they are issued. A) preferred shares B) bonds C) par-value shares D) securities E) founders Answer: A Diff: 2 Type: MC Page Ref: 356 Topic: Ch. 11 - Funding Skill: Recall Objective: Chapter 11: 4. Discuss the funding of a corporation. Bloom's Taxonomy: Knowledge

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18) Usually, a ________ will bear a promise to pay a specific dividend each year. A) bond B) par-value share C) preferred share D) debt E) bearer bond Answer: C Diff: 1 Type: MC Page Ref: 356 Topic: Ch. 11 - Funding Skill: Recall Objective: Chapter 11: 4. Discuss the funding of a corporation. Bloom's Taxonomy: Knowledge 19) Long ago, your friend Harry became wealthy through the tremendous success of a gadget he designed that allowed microchips to be produced without being touched by humans. Ever since, he has been invited to sit on the board of directors of different corporations, and has now decided it is time to accept. 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? A) 123456 Canada Ltd.: In a closely held corporation with four members, each owning 25% of the outstanding shares, the two members who served as directors voted to issue more shares, which they sold directly to themselves to give them voting control of the corporation, despite a provision providing for pre-emptive rights in a shareholders agreement. B) 167354 Canada Ltd.: A director who learned of a business opportunity while serving on the board of directors intercepted the opportunity for himself before the company could act on it. C) 1999872 Canada Ltd.: A minority shareholder joined with a group that protested the corporation's involvement in a logging operation and tried to prevent the planned logging. D) 3721956 Canada Ltd.: The majority of the directors voted on a measure that was not in the best interest of the corporation, but that would financially weaken the position of a shareholder whom they personally disliked. E) 12376252 Canada Ltd.: In this broadly held computer software corporation, a director, without the knowledge or consent of the board of directors, started a competing business that he ran from his home. Answer: C Diff: 2 Type: MC Page Ref: 360 Topic: Ch. 11 - Corporate Directors, Officers, and Shareholders Skill: Applied Objective: Chapter 11: 5. Examine the roles of corporate directors, officers, and shareholders. Bloom's Taxonomy: Knowledge

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20) 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? A) The shareholders could force the directors to start the action on the basis of their pre-emptive right. B) If the company failed to commence an action through its authorized agents (e.g., its directors), no action could be taken, because a corporation is merely a legal concept and must act through its authorized agents. C) The shareholder could proceed under the dissent procedure and force the corporation to pay them a fair market value for their shares. D) A derivative action allows a shareholder to commence an action on behalf of the corporation. E) The shareholders could sue the corporation for oppression. Answer: D Diff: 2 Type: MC Page Ref: 360 Topic: Ch. 11 - Corporate Directors, Officers, and Shareholders Skill: Applied Objective: Chapter 11: 5. Examine the roles of corporate directors, officers, and shareholders. Bloom's Taxonomy: Knowledge 21) 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? A) Hollin owed a fiduciary duty to the corporation and breached that duty by his actions. B) If the directors failed to take action, the shareholders could have brought an action on behalf of the corporation against Hollin. C) Hollin must account for any profit made because he failed to disclose his interest and voted on the question. D) The shareholders could proceed under the dissent procedure and force the corporation to buy them out. E) Hollin should have disclosed his interest and refrained from voting or otherwise influencing the decision. Answer: D Diff: 2 Type: MC Page Ref: 360 Topic: Ch. 11 - Corporate Directors, Officers, and Shareholders Skill: Applied Objective: Chapter 11: 5. Examine the roles of corporate directors, officers, and shareholders. Bloom's Taxonomy: Knowledge

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22) Because a director of a closely held corporation breached his duties to the corporation, the corporation lost $15,000. Despite the urging of the shareholders, the board of directors refused to begin an action on behalf of the corporation. Which one of the following provisions would aid the shareholders? A) Relief-from-oppression provisions B) Pre-emptive right provisions C) Indoor-management rule D) Derivative-action provisions E) Dissent procedure Answer: D Diff: 1 Type: MC Page Ref: 360 Topic: Ch. 11 - Corporate Directors, Officers, and Shareholders Skill: Applied Objective: Chapter 11: 5. Examine the roles of corporate directors, officers, and shareholders. Bloom's Taxonomy: Knowledge 23) John and two friends incorporated a closely held corporation. Each bought an equal number of common shares in the corporation. Each became a director, an officer, and an authorized agent of the corporation. Which of the following is true? A) As director, each owes a fiduciary duty to the creditors of the corporation. B) The corporation is more highly regulated and less free of government regulations and control than a broadly held corporation would be. C) Each of them, as directors, owe a fiduciary duty to each of the others, as shareholders. D) Since the corporation is a legal fiction, all of its activities must be carried out through principals. E) If the affairs of the corporation are being conducted in a manner that is unfairly prejudicial to any one shareholder, that shareholder could seek relief from such oppression from the courts. Answer: E Diff: 3 Type: MC Page Ref: 360 Topic: Ch. 11 - Corporate Directors, Officers, and Shareholders Skill: Applied Objective: Chapter 11: 5. Examine the roles of corporate directors, officers, and shareholders. Bloom's Taxonomy: Knowledge

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24) 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 true. A) As a shareholder, you will have the right to vote for the officers of the corporation. B) A shareholder's agreement allows shareholders and not officers to manage the corporation. C) If you each take one-third of the first allotment of the shares, you will necessarily be a minority shareholder, and have no voting rights in electing the directors of the corporation. D) If you have pre-emptive rights and the directors decide to issue a new allotment of shares, the corporation must offer you a portion of the new issue to allow you to keep your proportional share of the corporation. E) If you were voted out as a director by the others, who could show that it was in the best in...