Week 8 (Corporations) Flashcards
in what instances can directors not declare/pay dividends?↓
Solvency test - if paying dividends would render the company insolvent
What are the roles of the board of directors
1.Issues shares of corporation
2.Declares dividends to shareholders
3.Adopts by-laws
4.Calls meetings of shareholders
5.Delegates other responsibilities to officers
public corps must have 3 directors w 2/3 being independent
What does section 134 of the OBCA address?↓
explains what is required of directors and officers
Fiduciary duty - act honestly and in good faith in best interests of the corporation
Standard of care - what would be reasonably expected of someon
who do directors of corporations owe a duty to - list the section of the act that pertains to this topic↓
Section: Section 122 of the CBCA
directors owe duty to:
shareholders - not just majority shareholders, minority shareholders, future shareholders, etc.
corporation - act in best faith of the corporation
public - employees, government, overall community, suppliers
“Defences against a breach of duty for directors” refers to legal arguments or justifications that directors can use to defend themselves if they are accused of not fulfilling their duties properly. Here are a few examples:
Acting in good faith
reasonably relied on others
Interest in contracts: If a director also owns part of the company they’re doing business with, they have to tell everyone about it.
Taking business opportunities: Directors can’t keep good opportunities they find for themselves if it’s something the company could benefit from.
Personal benefits from company opportunities: If a director gets something good from a deal that should’ve gone to the company, it’s a problem.
Competing with the company: Directors can’t start their own businesses that compete with the company unless they get permission first.
If a company becomes insolvent, then what are directors liable for
They are strictly liable for 6 months’ back wages of employees
what is SEDI
SEDI: system for electronic disclosure by insiders
*It is an electronic system in Canada that facilitates the filing and public disclosure of insider trading information.
*Insiders, such as officers, directors, and significant shareholders of publicly traded companies, are required to report their trades and holdings in the securities of their company through the SEDI system
What are the rights/duties of shareholders
Rights:
-attached to the shares
-right to vote
-right to receive dividends if declared
-right to remaining assets after dissolution
Duties:
-vote however they want
-no fiduciary duty
what does it mean when it is said that a shareholder is locked in? what are some ways a shareholder can be locked in
locked in - shareholder cannot sell the shares of the private corp, either because most private corporation share transfers are restrictive, and shareholders may have great difficulty finding a buyer for minority shares in a private corporation
What are the methods of protecting minority shareholders?↓
- Appraisal remedy - corporation is proposing to change the business of the company, minority shareholder has the right to get their shares appraised and get bought out of company
- derivative action - a shareholder can go to court as a complainant and apply for permission of court to bring a derivative action on behalf of corporation against the directors
- windup
- oppression remedy - board is treating shareholder oppressively, prejudice, or disregards the interest of any shareholder
when is a company exempt from a prospectus requirement (allows them to sell shares more quickly and less expensively
“Closely-held Issuer” Exemption
Permits issuers to raise up to $3 million, through any number of financings, from up to 35 investors (other than “accredited investors” described below and current or former directors, officers and employees)
“Accredited Investor” Exemption
Permits issuers to raise any amount at any time from any person or company defined as “accredited investor”, including:
Sophisticated institutional investors (eg. banks, trust companies, insurance companies, pension funds and government)
“Wealthy individuals” (financial assets more than $1million or net income more than Cdn. $200,000 or $300,000 with spouse)
Corporations, LLP’s etc. with net assets of at least Cdn. $5 million
Persons in “close relationship” to issuer (eg. spouse, parent, grandparent or child of officer or director of issuer, or “control block” shareholder)
Sale of shares - shot gun
In a “shotgun” clause for a sale of shares, if one shareholder makes an offer to buy another shareholder’s shares, the other shareholder has the option to either sell their shares at that price or buy the other shareholder’s shares at the same price. It’s like a quick way to resolve disagreements about the value of shares between shareholders.
What is Mens Rea
“Mens rea” is a legal term that refers to the mental state or intention behind committing a crime. It’s Latin for “guilty mind.” In simpler terms, it’s about whether someone meant to do something wrong or if they had bad intentions when they committed a crime.
-acting with guilty intention must be proven for offences
what are the 3 classes of offences
- men rea offences
-prosecution must prove a guilt mind - offences of strict liability
-doing something against the law but explaining you took everything you could to be cateful - offences of absolute liability
-just doing the act against the law make you guilty regardless if u meant to