External Responsibilities of a Corporation Flashcards
What is the main way stakeholders are protected from the actions of corporations?
Legislation that imposes liability on the corporation, directors, officers, and auditors
How can a regulatory offence be proven?
It is enough to show that an ordinary person would’ve realized their conduct was an offence. The need for mens rea is reduced
How are creditors protected from the actions of corporations?
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
What is the solvency test?
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
What is the maintenance test?
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
How are investors protected from the actions of corporations?
The securities act, licensing requirements, corporate governance requirements, prospectus requirements, public accounting, and takeovers
How does the securities act protect investors?
Delegates control of the public offering of shares to provincial commissions to ensure integrity, fairness, efficiency of the market, and promoting investor confidence
How do licensing requirements protect investors?
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
How do corporate governance requirements protect investors?
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
What is a prospectus?
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
How does a prospectus protect investor interests?
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
How does continuing disclosure protect investor interests?
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
How does public accounting protect investor interests?
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
How are investor interests protected from takeovers?
Shareholders who receive a takeover bid are given sufficient information to study the merits of the bid and decide how they would vote
How is the environment protected from the actions of corporations?
The Environmental Protection ACT and provincial statutes create strict liability offences for corporations, directors, and officers when regulations are breached
What is the only defence to a strict liability offence under the EPA?
Establishing due diligence was performed
What happens when a corporation is charged under the EPA?
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.
How can a corporation be liable in tort?
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
What is the indoor management rule?
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
What is a pre-incorporation contract?
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
How is mens rea determined for a corporation in criminal liability cases?
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
How can prosecution prove negligence against a corporation?
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
How can the prosecution prove intent other than negligence against a corporation?
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
