exam business framework
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Carleton University *
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Jan 9, 2024
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docx
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Chapter 3 : Slide Question :
Discuss the history of the development of modern-day Corporate Law in Canada, including any out-of-country and internal influences.
Answer: English and American antecedents were developed by corporate law, Before the 19th century, only two types of incorporation were developed for the English and Canadian legal systems. 1)
Royal prerogative
: the crown issued a letter patent “ royal charter” created for colonization purposes and trade. Shareholders remain liable for corporate obligations 2)
A special act of legislation:
Canadian legislation has passed a special act to permit the incorporation of a corporation for a particular purpose. Early Canadian Statues ●
In 1894 the English Joint Stock Companies Act was established, this permitted incorporation of any type ( less restrictions ) and you only needed to register using specific documents ●
Followed a registration approach only for limited purposes ●
1850 more general approach was established (an expansive approach like an American - permitting various businesses like road, mining, etc. ) this to answer the out the country's influences on Canada
●
early statues have two defining characteristics that we associate with modern
corporation 1)
Separate legal personality
,: the corporation has its rights and can enter into a contract by itself as well as sue by itself. Has its rights 2)
Limited liability:
Shareholders are not liable for any damages incorporated from the companies only in certian circumstances Early statues differences : 1)
Limited to only 50 years of legal life Internal influences of modern day corporate law ●
1975 new CBCA created ●
2001
new wave of corporate reform to acknowledge the advancement in technology ( ec-commence , e-voting , etc ) ●
2007 changes to the business act where made to copy the changes in the 2001 CBCA
Chapter 4: Slide Question : Discuss why incorporation under the CBCA may be preferred over incorporation under the OBCA?
OBCA is made after the older beginning format for the CBCA , which is why some would prefer the CBCA over the OBCA because it is the newer more updated model for business Chapter 5 : Slide question : Business enterprises need to be
concerned with many different areas of law.
Discuss (worth 5 marks) what tort law is and
why business enterprises need to know about it.
Tort Law:
refers to a branch of civil law that deals with civil wrongs or injuries caused by one party to another, resulting in legal liability. It provides a framework for businesses or individuals seeking compensation Why business enterprises need to aware : 1)
Liability for tortious acts: Business can be held liable for tortious acts committed by their employees or agents directly or vicariously. this means that if an employee or agent of the business commits a tort while acting within the scope of their employment or agency the business can be held responsible for the resulting harm or damages 2)
Risk Management:
identify potential risk to minimize the likelihood of tortious acts, this includes implementing proper training programs, establishing clear policies and procedures and ensuring compliance with legal standards to reduce risk liability 3)
Contractual obligations:
Tort law intersects with contract law in certain situations. Businesses need to be aware of tortious interference with contractual relations, which occurs when a third party intentionally disrupts a contractual relationship between two parties. understand helps business understand their contractual rights and seek remedies for any interferences. 4)
Reputation and public perception:
A tortious act can harm a business's reputation and public perception being aware of tort law allows businesses to take steps to prevent actions that could lead to negative consequences such as defamation, product liability, or negligences. Understanding tort law helps business protect their reputation and maintain positive relationships with customers and stakeholders
5)
Compliance and legal obligations: business enterprise has a legal duty to comply with tort law and ensure their action do not harm others, understanding tort law helps business navigate their legal obligation avoid potential legal disputes, and maintain ethical business practices 4.
Discuss (worth 5 marks) in what instances
a corporation may be found criminally liable.
1)
identification theory: listed below 2)
Vicariously liable:
for torts committed by its employees or agents, meaning the corporation can be held responsible for the wrongful acts of its employees or agents even if the corporation itself did not commit the tort ( legal concept) 3)
Can be found liable if the corporation commits the tort itself meaning the corporation is directly responsible for the wrongful act 4)
Bears the risk associated with unauthorized activity and no simple statement of policy that crimes should not be committed will save the corporation from liability 5.
Critically discuss (worth 10 marks) the
differences among absolute liability, strict
liability and men's rea offenses, including any
defenses that are available to corporations
for each type of offense
●
Differences Offenses Absolute liability offense
: type of offense where guilt is established without the need to prove a guilty mind or men’s reas. In the context of corporate liability absolute liability offense imposes liability on a corporation if a person acting on behalf of the corporation engages in the prescribed behavior, once the behaviour is proven, no defense is available to the corporation Strict Liability offenses:
are offences that can be imposed on a corporation if a person
acting on behalf of the corporation commits a proscribed act. These offenses do not require proof of intent or fault but rather focus on the act itself. The defense available for strict liability is the “ due diligence defense” which requires the accused to prove that
they took reasonable precautions to prevent the offenses Men’s rea Offence: require guilty states of mind to be proven, these offences involve mental elements such as intention, knowledge, or recklessness. corporate liability for mens rea offenses can arise if the directing mind and will of the corporation commits or authorizes the offenses. The mental state of the accused is an essential element that
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needs to be proven for a conviction. derives from common law. Historically corporations have been exempt from being convicted of offences requiring men’s rea. However with the introduction of “ identification theory, “ it holds a corporation criminally liable if the person committing the offenses on behalf of the corporation has the necessary mental state and is considered the corporation for the offenses -
Defense: 1) the defense of mistake of facts may be applicable in mens rea offenses where the accused can argue that they made an honest mistake about a relevant fact; not available for absolute liability offenses. -
Identification theory: is a legal concept that hold corporation criminally liable for the actions of individuals acting on their behalf. The theory focuses on whether the identity of the corporation and that of the individuals is a vital organ or a directing mind and will of the corporation. Not necessary for the directing mind to have general decision-making power over the corporation's business Chapter 6 : Rights to the classes of shares?
●
Types of shares
-
Shares;
is a bundle of rights against a corporation, representing a claim but not a property right in the corporation assets or proportionate ownership interest in the corporation itself - Common shares:
the most basic type of shares typically having voting rights and the ability to
receive dividends and the remaining asset upon dissolution - Preferred Shares; usually do not have voting rights but have preferences in terms of receiving fixed dividends and priority in receiving the capital invested upon dissolutions ●
What is a Shareholder
-
A shareholder is an individual or entity that owns one or more shares of a corporation -
The right to vote at any meeting shareholders -
Right to receive dividends declared by the board of directors -
Right to receive the property of the corporation remaining after creditors and any other person with claims against the corporation are paid in the vent of the corporation dissolutions ●
The basic rules of shares?
-
Have the right to vote at any meeting of shareholder, recieve dividends declared by the board of directors, and receive the remaining property of the corporation after creditors and other claimants are paid -
If a corporation has only one class of shares, all shareholders have equal rights and must have the three basic rights mentioned aboved ●
Issue of shares and shares non-assessable?
-
Issues of shares;
refers to the process of offering and distributing shares to investors or
shareholders
-
When a corporation decides to raise capital by issuing shares it can do so through various methos such as initial public offerings ( IPOS) , private placement or rights offering -
Number of shares issued and the price at which they are offered are determined by the corporation -
The issuance of share may require compliance with legal and regulatory requirements such as filing necessary documents with relevant authorities -
Shares -Non-Assessable
-
In the past Shareholders could be asked by the corporation directors to contribute additional funds to the corporation as needed these shares were called assessable shares
-
However under the current statutory scheme, all shares are non-assessable meaning shareholders are not required to make additional contributions beyond initial purchased price of their shares ●
What are dividends?
○
The profits of a corporation belong to the corporation and not to its shareholders. The board of directors of a corporation may distribute profits
to shareholders by declaring a dividend.
○
Each share has an equal right to receive any dividend declared by a corporation.
○
Dividends re paid to preferred share first why?
●
Declaration of dividends? ○
Can only be declared if there are reasonable grounds for believing that the corporation can meet the following tests
○
The corporation can pay its liabilities after payment ○
Assets are not less than liabilities ●
Shareholder vs stakeholder?
●
Types of Stakeholders
●
External stakeholders - suppliers and investors, creditors, customer Internal stakeholders- owners, employees and managers What are the rights of shares ●
●
The potential liability of shares?
-
Directors : may be personally liable if they fail to ensure that the consideration received for the share is not worth less than the fair equivalent of the money that the corporation would have received if the shares had been issued for money -
Maybe be personally liable if they fail to exercise the care, diligence, and skills a reasonably prudent person would have exercised in comparable circumstance, including
relying on the fair value of the consideration received for the shares -
Issuing shares for less than their worth may be considered a breadth of fiduciary duty by the directors potentially leading to legal consequences -
Shareholders : who pledge their shares as security for a loan may face risk of losing their shares if they fail to repay the loan, as the corporation may dispose of the shares to pay itself back
-
●
Stated Capital Account
○
Separate account of each class of and series of shares a corporation issues ○
The historical total of the amount paid into a corporation ○
Stated capital per share: is simply the total for the class divided by the number of shares, even if shares of a class are issued or different prices at different times.
○
Stated capital IS NOT CASH
○
STATED CAPITAL REMAINS THE SAME WHETHER MONEY, PROPERTY OR PAST SERVICES ARE WASTED OR SAVED ○
Must be decreased when share reacquired ●
No par Value?
○
All shares have a nominal or par value ○
however : par value has been abolished by the CBCA in all provinces other than: Quebec, Nova scotia, New Brunswick, British Columbia, and Prince edward
Island. ○
All shares issues under the CBCA are without nominal or par value ○
●
What is Distributing Cooperation?
-
●
Chapter 7 : What is a “proxy” under the CBCA and what are the circumstances
under which it can be used as well as how it can be revoked? Critically discuss using material from the lectures, readings, and class discussions.
Proxy:
under the CBCA refers to a document that authorizes a person to vote on behalf of a shareholder at a meeting of shareholders, it can be used in various circumstances such as as dissident proxy circulars in connection with non-distributing corporations. As well as the CBCA also allows for target solicitation by the public or less
than 16 shareholders. -
Shareholders can revoke a proxy by signing a new proxy or by attending the meeting and voting in person Chapter 9 :
The law provides that Directors and Officers
of a Corporation are legally responsible for all
requirements under the Canada Business
Corporations Act (“CBCA”).
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1. What are the duties and obligations imposed
on directors and officers and what must they
do to fulfill them? (This question is worth 10
marks)
1)
Duty of care: must exercise care in decision making and ensure they act honestly and in good faith with a view in the best interest of the company. requires them to keep themselves informed about the business and the affairs of the corporation, including attending board meetings regularly and maintaining general familiarity with the financial status of the corporation through regular review of it’s financial statements. -
Not required to audit financial records, however, they must have some level of competencies and monitor the corporation's policies and affairs -
If a financial statement has a problem they have a duty to inquire about it and take further action failure to do so results in a breach of care 2)
Fiduciary Duty:
act in the best interest of the corporation, to act honestly and in good faith, essentially a general standard of behavior imposed on directors and officers in relation to their dealings with and on behalf of the corporation. Fiduciary duties are similar to the obligation of a trustee to the beneficiary. Duty of care is a component of fiduciary duty
Obligation to treat stakeholders fairly and resolve conflict between stakeholders, n 3)
Reasonable alternative:
alternative schemes to save contracts where the requirement has not been complied with. The contract may be enforceable if the director fulfilled their fiduciary duty and duty of care plus Three requirements need to be meant
-
1) an interim or other financial report of the corporation presents the financial position of the corporation fairly -
2) a report or advice of an officer or employee of the corporation is reasonable to rely on -
3) the contract is fair and reasonable to the corporation -
All three meant the contract is neither void nor voidable 4)
Due Diligence defense
: requires the officer to do what's reasonable in circumstances to prevent the offense from occurring. determining what is reasonable is similar to determining the scope of the duty of care 2. If they do not fulfill these requirements,
what legal recourse do shareholders have
against them? (This question is worth 5
marks).
1)
Initiate derivative action: 2)
Seek relief:
if requirements of the contract are not met under section 120
of the CBCA
3)
Action for oppression:
under section 241
of the CBCA if their interest have been oppressed by the directors 4)
Seek dissolution
: under section 214 of the CBCA if the actions of the directors are oppressive Chapter 10 : 1. Identify (worth 5 marks) and briefly describe
three sections of the
CBCA which provide
remedies to shareholders against the corporation.
●
Section 229-236:
comprehensive scheme for an investigation into the business and affairs of a corporation or its affiliates. can be ordered by the court on grounds of the intent of defrauding, oppressive, or unfair conduct towards the security holder, formation for fraudulent or unlawful purposes, or other specific grounds. *
The right for an investigation to be done ●
Section 237-247; dissent and appraisal rights for shareholders. Allows for shareholders to dissent certain transactions, such as amalgamations or going-
private transactions, and have their interest in the corporate securities terminated
( dissenting means: hold or express opinions that are at variance with those previously, commonly, or officially expressed. Example; Two members dissented from the majority )
In this context the freedom of expression?
●
Sections 238
: seeking relief from oppression not only to shareholders but to security holders, officers, and directors appointed under the CBCA. can be granted to other categories of individuals deemed “ proper persons “ * Relief
2. List (worth 5 marks) and briefly describe 5
factors which courts may take into account in
determining whether an act of oppression has
Occurred.
1)
Conduct:
the conduct of the corporation’s directors and officers, whether they have acted in a manner that is unfairly prejudicial or oppressive towards the shareholders 2)
Relationships:
Courts may examine the relationship between the shareholder and the corporation, including the expectation and reasonable belief of the shareholder regarding their investment and participation in the corporation
3)
Actions:
The court may assess whether the actions of the corporation have unfairly disregarded the interest of the shareholder, resulting in a lack of fair treatment or benefit to the shareholders. 4)
Financial impact:
The court may consider the financial impact on shareholders, looking into whether actions by the corporation have caused a financial loss or detriment to the shareholders
5)
Overall Fairness
: the court will evaluate the overall fairness of the actions taken by the corporations, taking into account certain circumstances 3. List (worth 5 marks) and briefly describe 5
remedies which a court may order if it finds that
oppression has occurred.
1)
Rectification of Matters Complained of:
The court may order to rectify the specific matter that has been complained of by the oppressed shareholders 2)
Interim or Final order: the court has the power to make any interim or final order it deems necessary to address the oppression, which can be temporary or final 3)
Amendment of Bylaws and Shareholder Agreements: the court may direct the amendment of by-laws or shareholder agreements to address the acts or omissions constituting oppression 4)
Appointment of Receivers: The court may appoint receivers to oversee the affairs of the corporation and ensure fair treatment of shareholders
5)
Investigation and Creation of Pre-emptive Rights:
Courts have made orders for an investigation into the actions of the corporation and the creation of a pre-
emptive right to address oppression in specific cases 4.
How (worth 5 marks) has the oppression
remedy under the
CBCA changed corporate law, if
at all?
●
Enhances the protection of minority shareholders
; by addressing the inadequacy of existing corporate laws which showed a high degree of deference to management decision-making and limited access to remedies ●
Broader standard of relief:
by allowing shareholders to seek remedies for actions that are oppressive or unfairly prejudicial or unfairly disregard their interest
●
More shareholder-centric approach in corporate law
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Slides 5
Slide 6 ●
CBCA definitions 2 ( 1) - corporation means a body corporate incorporated or continued
under this act and not discontinued under this act ●
OBCA corporation means a body corporate with share capital to which this act applies The Canada Business Corporations Act -
Purpose of the act: to revise or reform the law applicable to business corporations incorporated to carry on business throughout Canada, to advance the cause of uniformity of business corporation law in Canada, and to provide a means of allowing an orderly transference of certain federal companies incorporated under various acts of parliament to this act Differences between the CBCA and OBCA -
The CBCA and the OBCA are both statutes governing the incorporation and operation of
corporations in Canada ‘the CBCA is a federal statute, while the OBCA is specific to the province of Canada -
OBCA is based on the CBCA model but has some variations and amendments specific to Ontario -
The CBCA has been in effect since 1975 and has served as a model for corporate legislation in other provinces. it underwent major amendments in 2001, resulting in differences from provincial legislation based on the original Slide 7: Corporation in action
●
Vicarious Liability Slide 9 Slide 10 Slide 11 Slide 12: Library (typeset.io)