External Responsibilities of a Corporation

Question 1

What is the main way stakeholders are protected from the actions of corporations?

Answer 1

Legislation that imposes liability on the corporation, directors, officers, and auditors

Question 2

How can a regulatory offence be proven?

Answer 2

It is enough to show that an ordinary person would’ve realized their conduct was an offence. The need for mens rea is reduced

Question 3

How are creditors protected from the actions of corporations?

Answer 3

They are entitled to the leftover assets when the corporation dissolves and laws attempt to ensure stated capital is not improperly reduced by preferring the rights of shareholders over creditors

Question 4

What is the solvency test?

Answer 4

See if the realizable value of the corporation’s assets are less than total liabilities or if they are unable to pay debts. Then, they are insolvent.
If payments such as share repurchases and dividends are given while the company is insolvent, the directors can be held liable for the deficiency

Question 5

What is the maintenance test?

Answer 5

The net assets after a dividend cannot be less than the amount of stated capital.
Corporations cannot pay a dividend of the corporation would be unable to pay liabilities as they come due and the value of assets would be less than liabilities and stated capital of all share classes

Question 6

How are investors protected from the actions of corporations?

Answer 6

The securities act, licensing requirements, corporate governance requirements, prospectus requirements, public accounting, and takeovers

Question 7

How does the securities act protect investors?

Answer 7

Delegates control of the public offering of shares to provincial commissions to ensure integrity, fairness, efficiency of the market, and promoting investor confidence

Question 8

How do licensing requirements protect investors?

Answer 8

Registers people engaged in the securities industry. These people must be registered and commissions have the authority to revoke licenses. This helps protect investor money

Question 9

How do corporate governance requirements protect investors?

Answer 9

Ensures decision makers are free from conflicts, decisions are made in an open process, information is available, decision makers are held responsible. This is ensured by the provincial commissions enforcing standards

Question 10

What is a prospectus?

Answer 10

A document submitted to and approved by the securities commission that provides relevant facts about the company including the nature of the business, info about the directors, a dividend record and more

Question 11

How does a prospectus protect investor interests?

Answer 11

By requiring a standard document with all the information, it gives investors an easy way to assess risk of the company before deciding to invest

Question 12

How does continuing disclosure protect investor interests?

Answer 12

By requiring that companies make annual and quarterly filings with the securities commission it ensures that correct, up to date information about the standing of the company is readily available for investors

Question 13

How does public accounting protect investor interests?

Answer 13

The Canadian Public Accountability Board sets standards for public accountants and promotes quality auditing. This ensures that the records produced by companies and the audits being performed are done to a high standard so investors have the best info

Question 14

How are investor interests protected from takeovers?

Answer 14

Shareholders who receive a takeover bid are given sufficient information to study the merits of the bid and decide how they would vote

Question 15

How is the environment protected from the actions of corporations?

Answer 15

The Environmental Protection ACT and provincial statutes create strict liability offences for corporations, directors, and officers when regulations are breached

Question 16

What is the only defence to a strict liability offence under the EPA?

Answer 16

Establishing due diligence was performed

Question 17

What happens when a corporation is charged under the EPA?

Answer 17

They must show they have an effective system that is studied and improved to prevent offences. Senior officers and directors can also be liable as being in charge of the activity if they weren’t reasonably diligent in their duties. The corporation is fined according to the seriousness of the breach.

Question 18

How can a corporation be liable in tort?

Answer 18

By the wrongful or negligent act of an employee. The corporation may be solely responsible if each part of the tort was committed by a different employee

Question 19

What is the indoor management rule?

Answer 19

Says the a third party can rely on the regularity of a corporate act just as they may rely on the apparent authority of an agent

Question 20

What is a pre-incorporation contract?

Answer 20

A contract made by a person and a corporation before it comes into existence. When the corporation is created, it may or may adopt the contract. Whether or not it is adopted, it will be enforceable by the other party

Question 21

How is mens rea determined for a corporation in criminal liability cases?

Answer 21

Uses the “Directing Mind Principle”. Tries to find a guilty mind in an active director or a directing mind at the centre of the personality of the corporation

Question 22

How can prosecution prove negligence against a corporation?

Answer 22

Must find that one of its representatives is party to the offence and the senior officer responsible for that aspect of the organization’s activities departed from the expected standard of care

Question 23

How can the prosecution prove intent other than negligence against a corporation?

Answer 23

If one of its senior officers with intent to benefit the organization is party to the offence. Or, the required intent directs the work of others so they commit the specified act. Or, knowing that a representative will be party to an offence, they don’t take reasonable measures to stop them