Midterm Marking Points
About Corporation Law:
1. Pre-incorporation contract : A has signed the contract/lease on behalf of the company before the company’s
incorporation. This is then a pre-incorporation contract. As long as the new party adopts the contract, A will be
released from obligations and liability under it and the new party will assume those obligations and liability. Otherwise,
A will remain personally liable.
2. Indoor management rule: A is only a shareholder instead of an owner or a director of the company. Thus, A has no
authority to bind the corporation. The indoor management rule, however, may permit B to argue that the company is
bound by the contract.
3. Issue about shares issuing: 1) A is a shareholder, no a director, and therefore does not have the authority to issue
company’s shares. 2) Z as director can indeed appoint Y. Z cannot, however, issue shares unilaterally- the board of
directors must agree. 3) Once the dividends are declared, they should be paid the same on all shares of a class.
4. Issue about dividends: 1) Dividends could be declared if the company can pass the appropriate solvency test which
is its assets exceed the sum of its liabilities and the stated capital for all share classes. In this case, however, there is no
evidence that the company has made any sales. Therefore, the dividend declared is improper, and A is personally liable
to repay it. 2) As well, A has disregarded the preference on dividends- any dividend should have been paid first to the
estate as holder of the preferred shares. A could have paid himself a reasonable director’s fee or a salary as chief
executive officer of the company, but only if it was reasonable and in the best interests of the company. 3) Even if B
and C have shares, they have no right to a dividend until declared. No shareholder can require the declaration of a
dividend and no director can “guarantee” payment of dividends. 4) Capital from the new share issue cannot be used to
pay dividends- it just increases the stated capital.
5. Misappropriate of a corporate opportunity: A as a director has appropriate a corporate opportunity from the
company. Even if the company was not in a position to exploit the opportunity, A breached his fiduciary duty to the
company by acting personally on the opportunity. A should have submitted the opportunity to the other shareholders
before proceeding. In the case, other interests are involved, so the court would not order the return of the business to
the company. Instead, the company would sue A for the lost profits or damages from having lost the opportunity.
Therefore, it would be a personal liability of A.
6. Oppression actions: Given the misappropriation of a corporate opportunity and the unauthorized payment of
dividends, B could use derivative action to sue A for his oppressio