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Chapter 16 - CHAPTER16 THECORPORATEFORM OPERATIONALMATTERS...

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C HAPTER 16 T HE C ORPORATE F ORM : O PERATIONAL M ATTERS Objectives After studying this chapter, you should have an understanding of: the liabilities of a corporation the duties and liabilities of corporate directors and officers the rights and liabilities of shareholders and creditors how the corporation is terminated Learning Outcomes Recognize when the corporation is responsible for tort, contract, criminal, and regulatory offences (pages 374 – 378) Understand the duties of directors and officers, particularly the fiduciary duty (pages 378 – 383) Understand the liability of directors and officers in tort, contract, and statute and how to reduce that liability (pages 384 – 387) Recognize the rights of shareholders (pages 391) Understand the remedies available to shareholders (pages 392 – 397) Recognize the importance of a shareholder agreement (pages 396) Understand how a corporation is terminated (page 398) Chapter Summary A corporation and its directors and officers all face the risk of potential liability in tort and contract, as well as for criminal and regulatory offences. Directors and officers may attempt to reduce their exposure to risk through an indemnification agreement with the corporation. In addition, directors are responsible for any breach of their fiduciary duty to the corporation. Shareholders do not face such liabilities, unless the corporate form is nothing but a sham to commit fraud. Shareholders enjoy rights to vote, receive information and some financial rights, as well as methods to enforce such rights and protect their interests. In closely held corporations, it is advisable for shareholders to enter into shareholder agreements to define their rights and responsibilities, especially in the event that one shareholder wants to sell shares. © 2008 BY N ELSON , A DIVISION OF T HOMSON C ANADA L TD .
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PART 4: STRUCTURING BUSINESS ACTIVITY Study Outline Use this outline to prepare a complete set of notes for this chapter. Corporate Liability – page 373 _______________________________________________________________________ _______________________________________________________________________ Liability in tort___________________________________________________________ _______________________________________________________________________ Identification theory____________________________________________________ Liability in contract_______________________________________________________ _______________________________________________________________________ Doctrine of constructive notice___________________________________________ Criminal and regulatory liability_____________________________________________ _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ Directors and Officers – page 378 _______________________________________________________________________ _______________________________________________________________________ Duties of directors and officers______________________________________________ The fiduciary duty__________________________________________________ The self-dealing contract_____________________________________________ Corporate opportunities______________________________________________ The duty of competence______________________________________________ Liabilities of directors and officers___________________________________________ _______________________________________________________________________ Liability in tort________________________________________________________ Liability in contract____________________________________________________ Liability by statute_____________________________________________________ Avoiding liability_________________________________________________________ _______________________________________________________________________ Indemnification_______________________________________________________ Shareholders and Creditors – page 388 _______________________________________________________________________ _______________________________________________________________________ Shareholder liability____________________________________________________ Shareholder rights_____________________________________________________ © 2008 BY N ELSON , A DIVISION OF T HOMSON C ANADA L TD . 16-2
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CHAPTER 16: THE CORPORATE FORM : OPERATIONAL MATTERS Right to vote_______________________________________________________ Right to information_________________________________________________ Financial rights_____________________________________________________ Shareholder remedies___________________________________________________ Selling shares______________________________________________________ Derivative action___________________________________________________ Oppression action___________________________________________________ Shareholder agreement remedies_______________________________________ Creditor protection – page 397 _______________________________________________________________________ _______________________________________________________________________ Termination of the corporation – page 398 _______________________________________________________________________ _______________________________________________________________________ SELF-ASSESSMENT Key Terms Briefly define each term in the space provided.
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