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MGMT 3100 (Business Law) - Final Exam Short Answers (Self-Made w/Solutions).pdf

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York University
MGMT 3100
Peter Mac Donald

MGMT 3100 Final Exam: Self-Made Short Answers 13-04-23 7:16 PM **CH24: SOLE PROPRIEOTROSHIP & PARTNERSHIP What are the basic elements of a partnership relationship? Partnership Act: Section 2 1. Relationship – contractual consensual (written or oral) • Court looks substance relationship regardless what parties call it 2. Between 2 persons – individual or legal (corporations) 3. Carrying business in common – actively as continued activity • Business = every trade, occupation, profession • Not include charities/joint trustee estate 4. View of making profit • Sharing of profits (not costs) • Section 3: 2 exceptions [employment benefit sharing plan/repay loan where lender receive interest varying with profits] What does it mean by “every partners is an agent of firm”? For purposes business partnership, conduct any partner acting behalf partnership ordinary course, bind firm + partners, unless (i) partner authority restricted agreement other partners rd (ii) 3 party knows restriction (in accordance with apparent authority) rule • Apparent authority principle: Act of partner in apparent scope authority and relied rd upon 3 party, binds firms + partners, requires: o (i) Subject matter ordinary scope business rd o (ii) No restriction authority power partner that 3 party aware of How is partnership formed (when necessary be registered)? How terminated? (a) Express (written – Partnership agreement); or; (b) Implied (oral) agreement • Written partnership agreement: not necessary to show partnership exists; court looks for substance o Set business objectives; provide efficient method dissolution Registration: • Through: Declaration of partnership (filing); objective: public notice existence; required to file amendment on retirement • Required for: (a) Limited partnership (b) Limited liability partnership (LLP) o Not general Terminated: Absence provision Partnership Agreement, terminated at will by any partner **Is a well-drafted, carefully thought-out partnership agreement a guarantee of a successful partnership? If not, what is? Decide important issues in advance to prevent misunderstanding/mistrust/conflict **Bill and Joe agreed to form a partnership to carry on their goal of distributing food to the needy as a charitable endeavour. Is this a true partnership? Please explain your answer Steps for retirement? What principal does this apply to? Apparent partner principal: Retired partners free potential liabilities if steps retirement (w/o negligence): 1. Notice official provincial gazette 2. Notice individual clients dealing with 3. Amendment removal name in registration 4. Ensure letterheads discarded LLP? Difference limited partnership? LLP: Every partner remains liable for own negligent acts/omissions and those of others if under direct supervision/control • Firm itself = remain liable • BUT injured person may not look beyond assets firm for recovery Limited partnership: Injured person may look beyond assets to general partners, but limited “silent” partners (who don’t actively engage management) is limited to extent capital contribution Case: • Whether constitutes partnership • 3 Types liability general partnership (contractual/tort fiduciary duty) • Termination partnership o Retirement partnership – steps (any negligence?) CH25: CORPORATION + FORMATION Partnership vs. corporations -Separate legal personalities: Only corps -Limited liability: General partners are; corps not -Ownership transfer: Cannot release unilaterally from partnership; Corp transferable (public shares) -Management: Separation owners/management corps; Partnership (general) participate management -Fiduciary duty: Shareholders none to corp; Partnerships to each other -Perpetual existence: Separate “legal person”; partnership dissolved death/bankruptcy partner -Taxation: Corps are; partnerships aren’t • Disregard separate legal existence corporation and lift veil of incorporation to hold shareholders personally liable 3 conditions shareholder held personally liable, corporate veil lifted: • (1) Individual must control corp • (2) Exercise control to commit fraud/wrong, breach duty • (3) Misconduct must cause plaintiff’s injury Example What is quorum? Where is it found? Quorum in by-laws: internal day-to-day operating rules corp (not necessary, convenient) • Found in general operating rules Quorum: minimum # voting members present in order for decisions made behalf corp What are 2 ways corp raises capital? What factors influence investor’s choice shares and bonds? Sequence corp assets distributed upon liquidation? (1) Equity (share) capital  common/preferred (2) Debt capital  bonds Investor “risk tolerance” key influencing choice: • Bonds = least risky; Preferred = medium; Common = most risky • In terms of order priority payment solvency Bonds: • (i) guaranteed return (provided firm solvent) in form fixed interest • (iii) right redeemed in full at maturity • (iii) very limited voting rights Common share: • (i) no guarantee receive dividend or upon dissolution • (ii) participate capital growth corp • (iii) full voting rights Preferred shares (in between): Closely-held corp (vs. widely): Transferability shares Case: • Lifting corporate veil  controlling shareholder ***CH26: CORPORATE GOVERNANCE ** Difference “business” and the “affairs” of a corporation? Subject to any unanimous shareholder agreements, directors shall manage/supervise management business + affairs corp o Issue shares; Call shareholder meetings; Declare + distribute dividends; Adopt by-laws; Delegate responsibilities + appoint officers Whom are directors/officers duty owed to? 1. Corporation – first and foremost • Present and future • Section 134: Duties directors/officers o Acting best interests corp (fiduciary duty; duty of care; duty comply with act) 2. Shareholders – minority + majority • E.g.: disclose info; notice meetings 3. Public See Ch27 finish answer What is insider trading? Liability of insider? Tipee? Insider trading: use specific confidential info when trading securities corporation that is not yet disclosed to the public • Objective: Maximize profits or prevent loss • Common: Takeover bids Section 138: Insider Liability Insider definition: Corp; affiliate; shareholder > 10% votes; employee or retained; tippee Insider liability: Insider who in connection with transaction security corp, makes use confidential info own benefit if reasonably known may significantly affect value security • (a) Liable compensate corp for any loss suffered as result transaction • (b) Account to corp any benefits received Tippee liable: If trade material info which they know has not yet been disclosed + from obtained insider • Tipper also liable 3 General rights shareholders? Ordinary resolution vs. special resolution? Proxy and quorum? (1) Right vote meetings (2) Right to dividends if declared (3) Right info Ordinary resolution: simple majority vote, 51% • Examples: appoint/remove BOD, change/amend by-laws Special resolution: 2/3 majority • Only for fundamental changes • I.e.: change/amend articles of incorporation Proxy: Shareholder appoints person attend general shareholder meeting and vote on behalf (form) Quorum: Minimum # voting shareholders required present in order decisions made behalf corp • 2 reasons (1) Often in “closely-held” corps  transfer shares restricted = require consent BOD (may refuse) (2) Relatively illiquid, thus lack minority interest Frozen-out: Majority shareholders may • (i) Fire • (ii) Remove them from BOD Thus depriving from salary position • (iii) May increase salaries paid to themselves so corp earns no “apparent” profit, thus unable pay dividends due to “solvency test” **Appraisal remedy? When used? Method protecting rights minority shareholder Where oppose fundamental changes to corp approved by majority shareholders • Fundamental change: Change restriction use/transfer/ownership; Change restriction business compete in; Merging; Selling Right to have shares bought by corp fair price Derivative action? When used? Corp suffered injury/wrongdoing, minority can start action on behalf corp Section 245/246: Derivative action 245: Complainant definition: Current/former shareholder; BOD; officer any other person 246: Complainant may bring action in name/on behalf corp when suffered injury/wrongdoing, • Requires (1) 14 day notice BOD • 3 Criteria court: Reasonable evidence (a) Corp refuses bring action itself (b) Complainant acting good faith (c) Appears best interests corp/shareholders action brought Oppression remedy? When used? Section 248: Oppression remedy Complaint may apply to court when interests/reasonable expectations treated unfairly/oppressively by behaviour corps/directors Must prove • 1) Complaints expectations about interests would be managed = reasonable • 2) How oppressively or unfairly disregards interests What is a Unanimous Shareholder’s Agreement? What affect corp? **Shotgun clause/by sell provision? May form part of shareholder agreement (in addition to right participate management; right of first refusal) Case: • OBCA, Section 134: Duties Directors/Officers o Fiduciary duty (ex): contracts corp (Section 132 – conflict of interest disclosure) /interception contracts/corp info/related party transactions/competing corp o Fiduciary duty: Remedies [Accept/rescind, accounting for profits, damages, injunction] o Cannot issue shares to change control of corp • OBCA, Section 138: Insider Trading Liability (privately held) • Shareholders: Locked in/frozen out o Protection: Appraisal; Derivative (Section 245/246); Oppression (Section 248); ; Winding up; Shareholder agreements (s) CH27: CORPORATE GOVERNANCE: External NO CASES Restrictions corporation paying dividends shareholders? Solvency test: Restrictions pay dividends (or repurchase shares) to shareholders if insolvent/render insolvent (inefficient funds pay creditors). Insolvent if one of 2 things (thus restrictions) • (1) Aggregate amount outstanding liabilities > realizable value assets • (2) Unable pay debts as come due (reasonable grounds) **Principal objectives securities legislation? How purposes achieved? Securities legislation: Assigns government control over public offering shares to provincial securities commission 2 Objectives • (1) Prevent + punish fraudulent practices • (2) Require full disclosure financial info to prospective buyers securities offered 1st time public Enforced through: • (1) Licensing requirements • (2) Creating level playing field o (a) Corporate governance (b) Require filing prospectus (c) Regulating continuous disclosure **What are 2 primary exemptions companies allowed raise money w/o prospectus? 1. Closely-held issuer exemption – focuses nature issuer (corp) • Permit issuer raise up to $3 million; any # financings; up to 35 investors • (1) sophisticated institutional buyer (2) wealthy individual (3) corp LLP (4) closely related issuer • Presumption: have resources/sophisticated due diligence (ss) Ch15 – BAILMENT NO CASES No short answers (doubt)  just MC 3 Types bailment + examples 1. Contractual – both parties benefit • Repair car 2. Non-contractual (gratuitous) – one or both benefit; no consideration/intention create contractual • Lend car friend 3. Involuntary – customer leaves coat restaurant Bailee standard care factors 1. Type bailment • Non-contractual, benefit bailee = highest standard (no consideration) • Non-contractual, Benefit bailor = lowest standard • Contractual = in between 2. Type good bailed • Expensive, valuable = higher standard (s) CH17 – AGENCY DOUBT CASES Perhaps short answer + MC **How is an agency relationship used in a corporation? How is it used in a partnership? [Links Ch24 + 25] Agency relationship used business affairs Corporation: “artificial” person, can only enter into contractual relations when “sub-agents” (officers/employees) act as agents on its behalf • Examples Partnership: each partner presumed (by law) be agent of others; wide authority act behalf firm • (Ch24) Conduct any partner acting behalf partnership ordinary course, bind firm + partners, unless o (i) partner authority restricted agreement other partners o (ii) 3rdparty knows restriction (in accordance with apparent authority) rule Creation: Requires express agreement (oral; writing; under seal); ratification; estoppel Is agent entitled to delegate his/her duties to some other person? Agent duties to principles: Personal performance No delegate duties (third party) unless: • (a) consent principal • (b) industry standards create implied consent (stockbrokers) What terms typically included agency agreeme
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