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What are corporations
Are separate legal entities Recognized by law as having rights and duties
Are distinct from the people who own them and manage them
Formed by incorporation according to prescribed procedure (formal steps and $$$)
Shareholders’ liability is limited to the amount they invest in the corporation
Advantages of corporations
Limited liability: Protects shareholders, subject to exceptions
Ease of ownership transfer: Shares are easily transferrable.
Separation of ownership and management: Shareholders are not necessarily involved in day-to-day operations.
Perpetual existence: The corporation continues to exist even upon the death of a shareholder.
No loyalty requirement: Unlike partnerships, loyalty is generally not a prerequisite.
Disadvantages of corporations
Formalities: More stringent regulatory and filing requirements.
Double taxation
Money to formalize
A court will only lift the corporate vield if
A shareholder controlled the corporation and exercised fraud or breach of duty which caused the plaintiff’s injury.
Dividends
Paid out of profits only (solvency test and maintenance of capital test)
Solvency test:
Would the corporation be unable to pay its liabilities as they become due?
Maintenance of Capital test:
Would the realizable value of the corporation’s assets be less than its liabilities plus its stated share capital?
3 purposes of a corporation
Share Primacy Theory
The primary purpose of the corporation is to maximize shareholder value.
Stakeholder Theory
The corporation should consider the interests of all stakeholders (employees, customers, local communities), not just shareholders
Corporate Citizenship Theory
Corporations are akin to citizens and should act responsibly within the framework of social, economic, and environmental norms
Directors
Run the corporation and assume the rule of trustee for the corporates assets for the benefit of shareholders
Fiduciary duties of directors
They own fiduciary duties to the corporation and shareholders
General duty not to compete or take opportunity for personal gain
Avoid conflicts of interest
What are directors liable for
Improperly declared dividends.
Failure to remit taxes.
Environmental violations.
Unpaid wages (up to six months) if the corporation becomes insolvent.
Shareholders
owners of a company
duties and rights of a shareholder
no duties to corporation or other shareholders
3 key rights, to vote, to receive dividends, and residual claims on assets
Rights to Information
To receive the financial statements at the annual general meeting
To appoint an auditor, responsible to them, to report on the financial statements
May apply to court to appoint inspector, but must show serious mismanagement
To inspect the minutes of shareholder meetings, articles and registers
Appraisal Remedy
Shareholder may apply to court to have shares appraised and purchased back by corporation
Reason: fundamental change in nature of business
Winding Up
Shareholder may apply to court to have corporation wound up i.e. discontinued
Only wound up if it is “just and equitable” to do so
No wrongdoing is required
Oppression Remedy
Shareholder (and some others) may apply for a personal remedy for the acts of the corporation
Must show that acts were:
“Oppressive or unfairly prejudicial” of shareholder’s interests or unfair in disregarding the shareholder’s interests
Acts need not be wrongful or in bad faith (but this is a factor)
Derivative Action:
Allows a shareholder or other relevant party to bring an action against directors on behalf of the corporation when directors fail to act.
The four statutory preconditions for a derivative action are:
Directors refuse to initiate or pursue the action.
The complainant provides reasonable notice of their intention.
The complainant acts in good faith.
It is in the best interest of the corporation or subsidiary to proceed with the action.
