4 Corporate Personality Flashcards

1
Q

Where is the statutory basis for separate legal personality found?

A

In two provisions of the CBCA:
- 15(1): a corporation has the capacity and, subject to this Act,
the rights, powers, and privileges of a natural person(separate from
those who own its shares and from management); and
- 45: the shareholders of a corporation are not, as shareholders, liable for any liability, act, or default of the corporation

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2
Q

What are the underpinning theories of separate legal personality?

A

1) Realist Theory
2) Fiction Theory
3) Concessionist Theory

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3
Q

What is “realist theory”?

A

The corporation is in reality a different person from the individuals involved, not because the law says that it is separate, but the reality is that “corporate” decision is not the same decision-making that any one person involved would make if left to their own devices.

Says if s.15 and 45 were deleted, it would not matter because they only codify a separate legal personality, the statutory sections do not create a separate legal personality of the corporation.

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4
Q

What is “fiction theory”?

A

The personhood of the corporation does not exist, this is a convenient fictional legal device to achieve certain policy ends.

Says that if s.15 and 45 were deleted, it would fundamentally change everything, believes that the realist theory is just a fallacy.

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5
Q

What is “concessionist theory”?

A

Agree that the realist theory is unsupported by practice, but SLP is the product of a power granted by the government. Proponents of the concessionist theory are very similar to the fiction theory.

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6
Q

What are the consequences of separate legal personality?

A

1.Corporation gets to determine what areas of business it will enter;
2.Shareholders can be on the other side of the corporation (can sue, can be secured creditors);
3. The shareholder may be hired as an employee;
4.Property used in the business is owned by the corporation, and the corporation can sue and be sued in its own name;
5. “limited liability”/ no liability (CBCA, s.45).

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7
Q

What is a creditor?

A

People who are owed debt by the corporation. Debt holders must be paid before shareholders.

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8
Q

What/who are “residual beneficiaries”?

A

Equity holders such as shareholders. They get paid once everyone else gets paid, no limit as to how much they can get paid.

Referred to as “residuals” because they receive the “residuals” of the corporations profits.

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9
Q

What does the term “security” refer to in corporate law?

A

Two main meanings:
1. “Securities” general name for debt and equity instruments; and
2. “Securities Law” refers to the trading of these instruments on the public markets.

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10
Q

What is an “unsecured security”?

A

If there is a default by the debtor, then the creditor must sue on the promise to pay. The creditor has to hope that there are sufficient assets for the debtor to be able to pay the creditor the amount owing.

I.e. 1) Sue; 2) Prove the debt; 3) Hope to find unencumbered assets.

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11
Q

What is a “secured security”?

A

If there is a default by the debtor, then the creditor can sue on the promise to pay and the creditor is given an interest in some or all of the debtor’s property. If there is a default on the loan, rather than sue, the creditor simply seizes the property of the debtor in which the creditor has an interest.

I.e. 1) Find out what you have; 2) Seize it; 3) Sell it; 4) Apply that money to the debt the debtor owes you.

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12
Q

What is the ratio from Salomon v. A. Salomon Ltd.?

A

The purpose of the separate legal personality of a corporation is to limit liability.
- A corporation is an entity separate from its shareholders (CBCA, s-s. 15(1)).
- Shareholders are not liable for the debts of the corporation (CBCA, s.45).

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13
Q

What is a “trustee in bankruptcy”?

A

The trustee in bankruptcy is there to protect the interests of the unsecured creditors because the secured creditors can protect themselves through their seizure of the assets over which security has been granted.

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14
Q

What is the ratio from Lee v. Lee’s Air Farming?

A

One person may function in dual capacities within a corporation (e.g. employee and director). The corporation is a separate legal personality from its directors and therefore an employee/director can make a contract with the company, so long as they are actually an “employee”.

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15
Q

What is the ratio from Kosmopolous v. Constitution Insurance Co.?

A

The corporation is in general responsible for its assets. “Piercing the corporate veil” is when the courts will choose to ignore the separate legal personality of the corporation.

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16
Q

What protections exist so that people are not deceived by the separate legal personality of a corporation?

A
  • A corporation must use the cautionary suffix (inc. or ltd.);
  • Maintenance of capital;
  • Oppression remedy;
  • Directors’ duties; and
  • Statutory liability on directors.
17
Q

What does “maintenance of capital” refer to in the context of protections against separate legal personality?

A

A company cannot pay dividends to shareholders if it would make the company insolvent. Must be able to pay debts when they come due.

18
Q

What does “oppression remedy” refer to in the context of protections against separate legal personality?

A

Can be used by creditors/shareholders if the directors are running the business of the corporation in a way that unfairly disregards their interests.