Two Types of Companies, Incorporation

Question 1

Types of companies (corporations)

Answer 1

Large or Small Corporations

Question 2

Large Companies
- Dominate type of traded
- Advanced technology leads to
- Owners don’t have specific skills therefore
- rivalry amongst 2 positions

Answer 2

Publicly traded
Role specialization
distinction of managers and owners
Shareholders and Managers

Question 3

Why do Shareholders and Managers have a rivalry?
what do shareholders want?
what do managers want?

Answer 3

Executive compensation affects shareholders.
Shareholders want capital gains and dividends
Managers want salaries, pension, benefits

Question 4

Small Companies
- Dominate type of traded
- Owners roles

Answer 4

Privately traded
actively participating in management or labour

Question 5

Small Companies - Oppression of minority shareholders: Locked in vs frozen out

Answer 5

locked in: can’t sell shares except at discounted price as no one wants to be minority shareholder

frozen out: no influence on management with a minority

Question 6

How to resolve Oppression of minority shareholders and one example

Answer 6

1. Provisions in shareholder agreement
   Ex. shotgun clause

Question 7

Shotgun clause

Answer 7

make an offer to the other party at a price per share, and their choice whether to buy or sell

Question 8

why is Shotgun clause not always fair and how would price per share be determined

Answer 8

1. One party is undercapitalized, can’t buy them out
2. determined by someone else so price considered

Question 9

When would a court ignore the separate entity principle (pierce the corporate veil) (4 -situations)

Answer 9

Taxation, Residency, Agency Principles, Fraud

Question 10

court ignores the separate entity principle - Taxation Situation
Include tax percentages*
What happens when withdraw money from Corp as personal income

Answer 10

share first $400,000, sole proprietor taxed 45%, corporation is 11%. Money stay in corporation but when withdrawn taxed as personal income

Question 11

court ignores the separate entity principle - Residence of corporation

Answer 11

not where it is formed but where controlling shareholder resides

Question 12

court ignores the separate entity principle - Agency Principle and what you need?

Answer 12

whether agency or shareholders, need written agreement

Question 13

court ignores the separate entity principle - Fraud
What case and what does it say

Answer 13

Patton Case - won’t allow separate entity principle to be instrument of fraud

Question 14

Methods of Incorporation:
(3)

Answer 14

Royal Charter, Special Act, General Act

Question 15

Methods of Incorporation: Royal Charter
- how is it created
- what its it used for

Answer 15

• royal prerogatives - residue of unilateral powers of monarch
• Create companies for a fee, how monarchs made money

Question 16

Methods of Incorporation: Special Act (Statutes)
- what its it used for (2)
- Examples

Answer 16

• major public works and crown corporations
  Examples CPR, CNR, MPI

Question 17

Methods of Incorporation: General Acts (3)

Answer 17

English System of registration
Letter paten system
Certification of incorporation: provincial vs federal

Question 18

How to incorporate a company in Manitoba Process (3 steps)

Answer 18

1. Corporate name search and create unique name 35$
2. submit to corporation branch: Articles of incorporation which include name of company, corporate head office, nature of business etc
3. Submit fee of $300, $400 for extra service

Question 19

Component Part of Constitution - Articles of incorporation (constitution of company)
What is required to change
What is entrenched?

Answer 19

want to change, need 2/3 majority of every class of shares.

Entrenched (restriction on business carried on/changed): Name, register office, classes of shares (Max# and restriction), Limitations to transfer, # of directors

Question 20

Component Part of Constitution - Bylaws
- entrenched or not?
- who changes them
- who first creates and where

Answer 20

not entrenched, changed by shareholders, created by first directors at first meeting

Question 21

Component Part of Constitution - Bylaws Purpose (6)

Answer 21

Regulation for general governance corporation
1. Changes board of directors
2. Min number for director and shareholder meeting
3. Notice Provisions and votes
4. Officers of corporations: duties assigned
5. Signing authority
6. Fiscal year of corporation

Question 22

3 big Business Participants of Corporation (3)

Answer 22

Shareholder, Director, Officer

Question 23

Shareholders

Answer 23

investors, purchase shares with money or capital, given rights to corporation

Question 24

Share

Answer 24

bundle of rights, privileges against corporation, proportionate ownership in corporation, has risks associated, degree of contorl

Question 25

Share Basic rights (3)

Answer 25

receive dividends from BOD, on dissolution of corporation, receive property based on priority, right to vote

Question 26

Shares and voting (2)

Answer 26

vote for directors, approve changes made to corporation (undertaking, changing or amending)

Question 27

Types of shareholders (3)

Answer 27

voting rights, dividend rights, redemption value rights

Question 28

Share Redemption

Answer 28

Opportunity for corporation to buy back shares from shareholder

Question 29

Share Retraction

Answer 29

Force corporation to buy back shares from shareholder

Question 30

Why have different classes of shares

Answer 30

different amount of income and rights distributed

Question 31

Common Shares Can you vote? Dividend rate

Answer 31

right to vote, no predetermined dividend rate or right

Question 32

Preferred Shares Vote? Dividend return? How does it rank to common holder?

Answer 32

don't vote, entitled to dividends to % of return, rank above common shareholders

Question 33

Directors What are they in charge of What can’t they be?

Answer 33

charge with management of corporation and cannot be shareholders

Question 34

Director duties (3)

Answer 34

1. exercise power of corporation 2. Adopt by laws 3. elect officers

Question 35

Officers What do they do (2) How r they then position?

Answer 35

run corporation on daily basis, delegate management, elected

Question 36

Public Company vs Private company - in corporation act - consensus defintion

Answer 36

no definition distribute public shares or sales in stock market

Question 37

Public company under security act, what the act prevents

Answer 37

Not being what is defined for private company and to prevent fraud on potential investors in public trading or share distribution

Question 38

Private company - security act Incorporation articles (3)

Answer 38

1. transfer shares restricted 2. number of shareholders limited to 50 3. invitation to public to subscribe is prohibited

Question 39

Board of directors are __f____ because they are ___a___

Answer 39

fiduciaries, agents

Question 40

corporate law and apparent authority of agent

Answer 40

agent requires authority from past manner of transacting business by principle or trade custom

Question 41

trade custom

Answer 41

stocker broker or lawyer, enter contracts on your behalf

Question 42

corporate law and apparent authority of agent with express authority

Answer 42

circumstance can make it appear to third parties that agent has authority but in fact the agent does not have any real express authority

Question 43

Apparent Authority Manifested in 3 ways

Answer 43

Effect of publicly filed documents Indoor management rule Pre-incorporation contract

Question 44

Apparent Authority Manifested - effect of publicly filed documents -> prohibition of certain act

Answer 44

If documents prohibited either corporation or officer from carrying our certain act, third party could not rely upon what otherwise might be officer's apparent authority to perform acts

Question 45

Flaws with prohibition rule and what it lead to (2)

Answer 45

- substantial injustice and abolished by statute - certification of corporation abolished rule of apparent authority

Question 46

Apparent Authority Manifested - Indoor management rule and example

Answer 46

Requirements in corporation's constitution and governing act to be performed in specific manner for validation ex bylaws, all contracts signed by board of directors

Question 47

Apparent Authority Manifested - Indoor management rule 1. What if contracts don't meet requirements

Answer 47

1. invalid, punishment for people who enter into contracts with corporation

Question 48

Apparent Authority Manifested - Indoor management rule - What is the effect upon innocent third party if corporate act performed in irregular manner 1. Case 2. Ratio

Answer 48

1. Royal British Bank V Turquand 2. in absence of notice of irregularity or of suspicious circumstances everything which appears regular on its face may be relied upon by outsider and will bind company

Question 49

Apparent Authority Manifested: Pre-incorporation contract

Answer 49

corporation cannot ratify a pre-incorporation contact - made before it came into existence

Question 50

Apparent Authority Manifested: Pre-incorporation contract: Based on provincial Statutes (2)

Answer 50

corporation is bound by contract and entitled to benefits as if it existed at day of contract Person who purported act in name of corporation ceases to be bound or entitled to benefits