CORPORATE GOVERNANCE

Question 1

Internal Affairs of a Corporation

Answer 1

1) Directors
* supervise the officers
2) Officers
* run the business of the corporation
3) Shareholders
* owners of the corporation
4) Stakeholders
* other interested parties, e.g. employees, creditors, community, etc.

Question 2

General Power of Directors

Answer 2

Manage or supervise the management of the corporation’s business and affairs.

Question 3

Specific Power of Directors

Answer 3

Power to Issue Shares
Power to Declare Dividends
Power to Adopt By-laws
Power to Call Meetings of the Shareholders

Question 4

CBCA - rules about directors

Answer 4

CBCA requires a corporation to have 1 or more directors; and for a publicly held corporation minimum of 3 directors
* Shareholders cannot direct directors

Question 5

How are directors chosen?

Answer 5

Initial directors are appointed by Articles of Incorporation, but must hold General Meeting of Shareholders within 18 months of incorporation

Subsequent directors are elected by SH
A director can sit for 3 years before the need to be re-elected but can be removed earlier by a Special Meeting of the SH

Question 6

Duties of directors

Answer 6

Fiduciary Duties
Duty of care

Question 7

A director can be personally liable if:

Answer 7

• If a director acquiesces in situations of misconduct or negligence
• If a director votes for a decision that is financially detrimental to the corp. & the corp. becomes insolvent (for employees unpaid wages)
• If taxes are not paid (HST, and employee deductions)

Question 8

Defences for Duties of Care and Skill torts

Answer 8

• Due diligence: Acted diligently and Relied on audited financial statements
• Business Judgment Rule

Question 9

Fiduciary Duties

Answer 9

• Must place corp. ahead of own interests
• Must avoid conflicts of interest
• Must declare a conflict of interest and cannot vote on the matter
• Cannot intercept a Corporate Opportunity
• May not carry on business in competition with the Corp.

Question 10

Breach of a fiduciary duty

Answer 10

Any property acquired by the director as part of the breach will be held in the name of the corporation as a constructive trust

Where property has been transferred to a bona fide purchaser for value, director will be liable to account for profits.

Question 11

Illegal Insider Trading

Answer 11

– the use of confidential information relating to a corporation in dealing in its securities

Having material information not known to the public and you trade based on that information

Question 12

Ordinary vs. Special Resolutions

Answer 12

Ordinary Resolutions: Require a simple majority vote.
- Election of Directors, Approval of Financial Statements, Appointment of Auditors

Special Resolutions: Require a 2/3 majority vote.
- Amendments to Articles of Incorporation,
Approval of a Merger or Amalgamation, Voluntary Dissolution

Question 13

ROI (Return on Investment)

Answer 13

Shareholders expect to gain through dividends or capital growth.

Question 14

Appraisal Remedy

Answer 14

– allows a minority SH who dissents on changes to the corporation to have the corporation buy back his/her shares

Where a price cannot be decided, then the court will set a price

Question 15

Winding Up

Answer 15

Dissolution for liquidation of a corporation

Courts are often reluctant to do this if the corporation is viable and of a reasonable size

Question 16

Oppression Remedy

Answer 16

Statutory procedure allowing individual shareholders to seek a personal remedy if they have been unfairly treated

Plaintiff must show that the action complained of:
* Has been oppressive or unfairly prejudicial; or
* Unfairly disregards the interests of the complainant

Remedy is usually to have corporation buy back the complainant’s shares at fair market value

Question 17

Derivative Action

Answer 17

when a shareholder sues on behalf of the corporation for a wrong done to it.

The shareholder must obtain leave (permission) and show:
1. The directors won’t take action themselves.
2. The shareholder is acting in good faith
3. The action is in the best interest of the corporation or its shareholders.

The court may:
- Order the corporation to cover the shareholder’s legal costs.
- Direct that any damages won from the lawsuit be paid to the shareholders instead of the corporation.

Question 18

What is insolvency?

Answer 18

Insolvency means either:
1. Having liabilities greater than the realizable value of assets, or
2. Being unable to pay debts as they fall due.

Question 19

What is the “Maintenance Test” under CBCA Section 42?

Answer 19

A corporation cannot declare a dividend if:
(a) It would be unable to pay its liabilities as they become due; or
(b) Its realizable assets would be less than the total of its liabilities and the stated capital of all classes.

Question 20

What law governs environmental offences in Ontario?

Answer 20

The Environmental Protection Act, R.S.O. 1990, c. E.19, regulatory offences

Question 21

Who can be held personally responsible for environmental damage?

Answer 21

1. The actor who caused the damage, and
2. Directors/officers if they allowed or acquiesced to the hazard