business associations - winter 2009

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EXAMINATION CODENUMBER OF EXAMINATION BOOKLETS SUBMITTED: _UNIVERSITY OF WINDSOR, FACULTY OF LAWLAW 98-877 - BUSINESS ASSOCIATIONS

Dr. Leonard I. RotmanFINAL EXAMINATION - APRIL 17,2009

FORMAT: 2 hours, open book. No library books or electronic devices are allowed.INSTRUCTIONS: THIS EXAMINATION CONTAINS 3 QUESTIONS ON 6 PAGES.

There is 1question in Part I and 2 questions in Part II. Please ensure that youhave the entire examination before you begin.1. You must answer ALL of the questions set out (other than the bonus question). Always cite

all relevant case law, common law principles, and statutory provisions where appropriate.2. Your answers should be as full and ample as appropriate given the nature ofthe question and

the marks available. Clarity and conciseness are valuable characteristics of qualityanswers and will be rewarded accordingly.

3. Think about your answers before you begin writing the examination.4. No one may depart the examination room during the last 15minutes of the examination

period unless absolutely necessary. If you leave the examination room before this time,please do so quietly to minimize the disruption to other students.

5. You must stop writing immediately upon the end of the examination. Failure to do so mayresult in the refusal to accept/grade your exam or a reduction in the grade assigned.

6. Questions are NOT of equal value; apportion your time appropriately.7. You must write your answers in ink, not with a pencil. Please DOUBLE SPACE your

answers. Answers that I cannot read cannot receive credit as beine correct.8. The examination is worth 100% of your grade in this course. There are 100 marks available

on the examination.

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PART I - UNINCORPORATED ASSOCIATIONSQUESTION 1 - 20 MARKSINSTRUCTIONS: Indicate the appropriate response(s) in the boxes provided.NOTE: There are5 correct statements below; each correctly identified statement is worth 4marks. I will mark only the first 5 answers provided.

(a) A federally-incorporated company has the right to engage in business asa partnershipin any province;(b) the sole proprietor must always register the name of hislher business under theBusiness Names Act;(c) a limited partner may act as an employee in the partnership from time to time;(d) a partner is always an authorized agent of the partnership;

(e) partnership profits are taxed at lower rates than individual tax rates;(f) a limited partnership may be created by express action or inferred from conduct;(g) a partnership can be a subsidiary of a corporation;(h) all partners owe fiduciary duties to their other partners, whether in a general orlimited partnership;(i) a limited partnership iscreated upon the filingof a declaration oflimited partnership;0 ) all partnerships are dissolved by the bankruptcy of a partner;(k) a silent partner is always a limited partner;(1 ) sole proprietors may be employees of the sole proprietorship;(m) a partnership must be ofa defined duration of time;(n) partners without authority may bind a partnership in some situations;(0) the limited partner in a limited liability partnership is responsible only for the actionsof those persons directly under hislhercontrol;(p) all partnerships terminate upon the death of one of the partners;(q) the limited partnership is subject to the terms of the Partnerships Act;(r) a partner cannot assume liability for debts arising prior to joining the partnership;(s) the liability of partners in a general partnership is always joint and several;(t) theability to create a limited liability partnership inOntario isdeterminedexclusivelyby the terms of the Partnerships Act.

r----~--~-----------------------.-.--- ..-------.-------~---~--------.-----~,-

iANSWERS:I11 . 2 . . . 3. 4 . 5 .

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PART II - INCORPORATED ASSOCIATIONSThere are 2 questions in this section, worth a total of 80 marks. You are to answer both questions.The first question is to be answered in the box provided on the next page. The second question is tobe answered in your exam booklets.

QUESTION 1 - 36 MARKSIn the spaces provided in the box on the next page, match up the terms in the left hand column withthe appropriate definition in the right hand column [e.g.: (19) - (z)]. The terms below are as definedunder the common law, statute or in lectures. There are 8 correct matches, worth 4.5 marks each.I will mark only the first 8 answers provided.

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(1) identification theory(2) special resolution(3) conspiracy

( 4 ) right of first refusal(5) subjective best interests test(6) shotgun clause(7) oppression remedy(8) director(9) buyback clause(10) share(11) organic theory

(12) compliance order(13) proxy(14) takeover bid(15) quorum(16) objectionable purpose(17) officer,..---_.._--_._- - ._._--_._._---_._-_._-_

IAnswers: [e.g.: (19)-(z)]Ii 1. 2 ..,6 .. 7 .

(a) results in absolute liability.(b) removes corporate liability.(c) may not be used as a defence if the corporation

benefits.(d) applies to articles of incorporation.(e) may exist between director and corporation.(f) basis for assigning liability to corporations.(g) gives holder the right to vote.(h) may be a partial or complete defence to liability.(i) appointed by incorporator.(j) cannot give rise to remedy based on application.(k) requires written consent of at least 2/3 of thevotes cast at a meeting called for the purpose ofconsidering the resolution.(1 ) consequence is the sale of shares to shareholder.(m) must be present throughout meeting.(n) forces shareholders to sell shares to corporation.(0) limits directors' use of powers.(p) renders contracts void or voidable.(q) may only be revoked in person.

3 . 4. 5 .

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QUESTION 2 - 44 MARKSCONSERV ATIVECO Ltd. ("CONSER VATIVECO") is a privately-held mineral exploration anddevelopment company incorporated under the OBCA. Ann Coulter is a director ofCONSERV ATIVECO, as well as one of its shareholders. Acting on a tip from Coulter,CONSERV ATIVECO learns that some land belonging to a non-related company calledNONPARTISANCO ("NPC") has great uranium potential. CONSERVATIVECO makes an offerto purchase the land in question from NPC for $387 million. An agreement-in-principle betweenCONSERV ATIVECO and NPC for the sale of the land was reached on November 5, 2008.Under CONSERV ATIVECO' s by-laws, any acquisitions of mineral-bearing land must be approvedby special resolution of the directors and the eligible voting shareholders of the corporation. A noticeof meeting of directors was sent out on November 6,2008 to vote on the agreement-in-principle. Allof CONSER VATIVECO's directors attended the directors' meeting, which was held on November19,2008. All of the directors, save for Coulter, who abstained from voting, approved the agreement-in-principle in accordance with OBCA requirements.On November 21,2008, CONSERV ATIVECO issued a notice of meeting of shareholders to be heldon December 6, 2008. One of the items of business at that meeting, as indicated in the notice, wasthe purchase of land from NPC. Along with the notice was an information circular which includeda copy of the resolution, discussed the price and rationale behind the acquisition, and explained howthe transaction fit within CONSERVATIVECO's global vision. The timing of this meeting was adeparture from CONSERV ATIVECO practice - the company has always held its shareholdermeetings on December 20 since it was incorporated 25 years ago. At the December 6th meeting, theagreement-in-principle was approved by the shareholders.Al Franken, an independent director of CONSERV ATIVECO who owns no shares in thecorporation, returned from his sixteen week vacation on December 17,2008. After reading throughhis mail, he discovered that the transaction with NPC, which he had not known about, was approved.Franken strongly believes that the transaction is a bad one for CONSER VATNECO and that Coulteris evil and self- interested. He contacts you on December 29,2008 for your advice on how to overturnthe transaction or to hold Coulter personally accountable for any profits derived from it .CONSERV ATIVECO has only 1 class of shares, all of which are issued and outstanding. Theproperties in question were formerly owned by one Dick Cheney, a current partner of Coulter in ajoint venture called CONSERVATIVESRULECO. Cheney sold the lands to NPC 19 months agofor $258 million.You take on the case and discover that NPC is a closely-held corporation with only threeshareholders: Pat Buchanan, Rush Limbaugh, and Coulter. Neither Buchanan nor Limbaugh haveany connection to CONSERVATIVECO. You also discover that Coulter had requested that theextent of her interest in NPC be entered into the minutes of the directors' meeting, which wassubsequently done, and that the information circular sent to shareholders prior to the December 6

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meeting also indicated the nature and extent of her interest in NPC. Your investigation also revealsthat the value of lands in the area in which the properties in question are located had risen by anaverage of 200/0 in the last 18 months.In answering the following questions, ensure, where applicable, that your answers include referencesto applicable case law and statutory provisions. Do not make any assumptions that are inconsistentwith the facts as outlined above.1. What is the nature of the "business" being conducted at the December 6 meeting? (2 marks)2. Explain the basis for your answer to Question # 1. (4 marks)3. To which shareholders would the notice of this meeting need to be sent to and how do you

determine this? Be specific. (6 marks)4. Identify the 2 main potential causes of action that can be brought by Franken as a result of

this scenario? (12 marks)5. What are the arguments in favour of bringing the 2 causes of action identified in Question

#4 and which of these may be successful? (16 marks)6. Is the statutory "Investigation" remedy applicable to this scenario? Explain, with reference

to the facts and the legislation (4 marks)

BONUS QUESTION - 1 MARKYou may answer only one of the following questions in your examination booklet for 1bonus mark.Providing answers to more than one question will disqualify you from obtaining a bonus mark.A maximum of one bonus mark will be awarded. No part marks will be awarded.WARNING - the following questions are silly and you are not advised to spend much time thinkingabout them at the expense of the other, substantive questions on the exam.1. What is the connection between the Big Bend Hotel case and the TV show "House"?2. What does Gordon Gekko's son say in French in the movie "Wall Street" and what is he doing

at the time?3. What is the connection between one of the actors in the movie "Wall Street" and the "Batman"

movies?- END OF EXAMINATION -

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business associations - winter 2009

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