Midterm Study Guide

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University of Toronto Scarborough
Management (MGS)
Jeff Rybak

Corporations - Indoor Management Rule: corporation is bound when its employees/agents act in a way that seems regular even if it’s not - Is a natural person but only applies to powers of contract and ownership - Don’t conduct business like a natural person o Exclusive profit motive o Relationship to risk o Decision making cannot be truly defused within the whole o Problem of short term management incentives (Control for 4 years then change) - Natural Person o Actual person, “owns” self o Full contractual capacity o Full rights protection at law o Dies natural death - Legal Person o Creation of a statute, subject to state for existence o Owned by investors o Full contractual capacity (through agents) o Some rights protection at law o Dies at wind-up or dissolution - Limited Liability o Must be signalled in name - “Lifting the corporate veil” o Courts typically very reluctant o Shareholder must control the corporation o Control must be exercised to commit fraud, tort, or breach of duty o Misconduct must cause injury complained of - Private corporations o Not subject to most controls (audit, general meetings, etc.) o Resembles an incorporated partnership - Dissolution o Dispersal of assets – purchaser gets to pick and choose which assets to buy o Sale of shares – seller sells shares of the company, representing net of good and bad - Responsibility o Professional managers (executives) manage day-to-day but directors ultimately responsible for the company o Directors have fiduciary duty to shareholders as a whole, not to individual shareholders o Directors liable for 6 months unpaid wages and unpaid tax withholdings o Directors have strict liability for improper share redemptions and illegal dividends o Auditors duty to shareholders not directors - Anybody can be a director, no requirement of professionalism or specialized knowledge - Meetings o Shareholders can demand a meeting by petition, usually need at least 5% of shares o If petition is made and ignored, shareholders can hold their own meeting at expense of business – Doomsday Clauses - Shareholders may apply to court for corporation to be wound up, must show is just and equitable and does not require any wrong doing (typically resisted by courts unless total deadlock) - Oppression o Shareholders can apply for personal remedy from acts of corporation o Must show that acts were oppressive to shareholder’s interests, does not need to be wrong or in bad faith o Usual remedy is to be bought out by corporation/other shareholders Torts - Vicarious liability – superior liable for act
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