1 Introduction to Corporations

Question 1

Dueling purposes of law for organization of business enterprises

Answer 1

1. Induce investment
2. Protect people

Question 2

Define “Sole Proprietorship”

Answer 2

A business carried on by a single individual where he or she is the business, although there may be employees.

Question 3

Define “Partnership”

Answer 3

subsists between persons carrying on a business in common, with a view of profit; but the relationship between members of an incorporated company or association is not a partnership within the meaning of this Act (s. 3 of the Partnership Act (Manitoba)).

Question 4

Define “Corporation”

Answer 4

“the entity created by incorporation under the Canada Business Corporations Act or the statutes modeled after it.”

Question 5

What are the three centers of power in a corporation?

Answer 5

1. directors
2. officers
3. shareholders
   (A person can have one or more of these roles at any time.)

Question 6

What do shareholders do?

Answer 6

Give capital to the business and in return at least some receive the power to elect the directors.

Question 7

What do directors do?

Answer 7

Supervise the activities of the corporation and are given the power to appoint the officers; set the broad parameters of the strategy for the business; Usually meet infrequently.

Question 8

What do officers do?

Answer 8

Run the business at a day-to-day level, executing the broad policy set by the directors.

Question 9

How does corporate law increase returns?

Answer 9

1. Reducing transaction costs.
2. Limiting the liability of those who invest.

Question 10

How does corporate law reduce risk?

Answer 10

1. Investor can determine the amount of assets that are at risk in the business
2. Fiduciary duty and the duty of care are designed to protect the corporation and the money invested in it (Parke v. Daily News: Money spent has to be for the benefit of the corporation).
3. Rules designed to protect minority shareholders
   (Conrad Black: Leveraged two corporations he owned for the benefit of only one of the corporations, exploiting shareholders of one of the companies).

Question 11

What are the sources of business organizations law?

Answer 11

• Corporate statutes (Canada Business Corporations Act (the CBCA))
• Partnership statutes
• Securities statutes
• Common law

Question 12

Who/what is a stakeholder?

Answer 12

Anyone who has an interest in the success or failure of a business
* Management and other employees;
* Trade and financial creditors;
* Customers;
* The public;
* Government; and
* Shareholders.