Docstoc

Business Associations Exam

Document Sample
Business Associations Exam Powered By Docstoc
					Law 315– Business Associations Fall 2002

1 of 6 Professor Gillen Code Name____________________

UNIVERSITY OF VICTORIA FACULTY OF LAW LAW 315 – BUSINESS ASSOCIATIONS FINAL EXAMINATION, FALL 2002 PART II – OPEN BOOK DATE: TIME: PLACE: Wednesday, December 18, 2002 9:30 a.m. - 12:10 p.m. Room 158 PROFESSOR MARK GILLEN

This part of the exam consists of 6 pages. Please check to be sure that you have received all the pages for this part of the exam. DO NOT USE YOUR REAL NAME; use your CODE NAME ONLY on the paper and print it clearly in the space near the top of each page of the exam paper and in the “Permanent Reg. No.” space on EACH examination booklet used. IF YOU USE YOUR REAL NAME YOU WILL RECEIVE A GRADE OF "0" ON THE EXAM. AT THE END OF THE EXAM PLEASE HAND IN THE ENTIRE EXAM. IF YOU DO NOT HAND IN THE ENTIRE EXAM YOU WILL RECEIVE A GRADE OF “0”. ____________________________________________________________________ INSTRUCTIONS:
1. 2. 3. 4. There are two hours and forty minutes available for this part of the exam. There are four questions. Do all four questions and every part of each question. Please indicate which question, and which part of the question, you are answering. Put your answers in the examination booklets provided. In this PART II of the exam all the facts that have appeared from the beginning of PART II down to the box where a particular question appears may be relevant to the answer to that question. This part of the exam is OPEN BOOK. You may use your notes, the casebook and the statutory supplement. You may NOT use any of the texts, case report volumes or library materials. The whole exam will count for 60% of your final mark. This part of the exam will be marked out of 90. The marks allotted to each question are noted. Please allocate your time accordingly. Unless otherwise indicated, all events occur in the province of British Columbia. A reference to the "CBCA" is a reference to the Canada Business Corporations Act, R.S.C. 1985, c. C-44 as amended. A reference to the Partnership Act is a reference to the Partnership Act, R.S.B.C. 1996, c. 348. If you feel additional information is required to answer the question please indicate the additional information you feel necessary and explain why the additional information is necessary.

5.

6.

7. 8.

9.

Law 315– Business Associations Fall 2002

2 of 6 Professor Gillen Code Name____________________

Anders, Bolt, and Carty, long-time fishing buddies, have decided to open a retail outfitting store together in Campbell River, British Columbia. They have an opportunity to obtain a lease on some space in a small shopping plaza. Together they plan to invest funds needed to make necessary leasehold improvements to prepare the space for their outfitting store and purchase inventory for the store. Anders, Bolt and Carty will each invest $30,000 and supplement this with a bank loan. Anders, Bolt and Carty expect that it will take some time to develop awareness of the store and that the business will thus likely incur losses in the first year or two. Anders, Bolt and Carty each have their own consulting businesses and they plan to arrange the operation of the outfitting shop so that they can continue to earn income from their personal consulting businesses.

QUESTION ONE [10 marks; suggested maximum working time of 17 minutes] If the choice of the form of business association were between a corporation or a partnership, which would you recommend? Explain why.

Anders, Bolt and Carty decided to form a partnership, by the name of ABC Outfitters, in which they would make equal contributions of $30,000 and would share equally in the profits. However, they were unable to obtain the required bank loan to start the business so they approached Dober, another fishing buddy. Dober was willing to make the investment of $160,000 that Anders, Bolt and Carty felt was necessary. Anders, Bolt and Carty were unlikely to be able to make interest payments for some time so Dober agreed not to have any right to receive interest payments but to receive instead a 40% share of the profits of the business (leaving Anders, Bolt and Carty to share 20% each). This share of profits would not be limited to any pre-determined amount. Dober has no intention of taking part in the business in any way. The loan agreement would not put any restrictions on the conduct of the business by Anders, Bolt and Carty. There would be nothing in the loan agreement restricting the assets Dober would have recourse to for repayment of the loan. The agreement for the loan would be in writing and would be

Law 315– Business Associations Fall 2002

3 of 6 Professor Gillen Code Name____________________

signed by Anders, Bolt, Carty and Dober. Anders, Bolt, Carty and Dober are all individuals over the age of 18.

QUESTION TWO [38 marks; suggested maximum working time of 1 hour and 5 minutes] (a) Would Dober be considered to be a partner with Anders, Bolt and Carty? Explain why or why not citing relevant authority. [16 marks; suggested maximum working time of 28 minutes] What risk might Dober face if restrictions on the conduct of the business were put in the loan agreement, particularly if these restrictions allowed Dober to make decisions with respect to the conduct of the business in certain situations (such as where there have been no profits for some period of time specified in the loan agreement)? Explain citing relevant authority. [3 marks; suggested maximum working time of 5 minutes] Suppose Dober was not considered to be a partner and the arrangement was just a loan. If the retail outfitting business did not do well and there were insufficient assets available in the retail outfitting business to pay off the loan from Dober, would Dober have recourse to any other assets to pay off the loan? Explain citing relevant authority. [5 marks; suggested maximum working time of 8 minutes] If the recourse referred to in (c) above were taken where would Dober stand relative to other creditors of the person (or persons) against whom such recourse was taken if such person (or persons) was (or were) insolvent? Explain citing relevant authority. [7 marks; suggested maximum working time of 12 minutes] Would your answer in (d) above be any different if the loan were not in writing but was merely an oral arrangement? Explain citing relevant authority. [3 marks; suggested maximum working time of 5 minutes] Would your answer in (d) above be any different if the 40% share of the profits was capped at an amount that would repay the principal amount of $160,000 on the loan plus interest at 7% (which would be the prime rate of interest plus 2%)? Explain citing relevant authority. [4 marks; suggested maximum working time of 7 minutes]

(b)

(c)

(d)

(e)

(f)

Law 315– Business Associations Fall 2002

4 of 6 Professor Gillen Code Name____________________

Anders, Bolt, Carty, and Dober carried on the business for a few years and it went quite well. They have now decided to form a corporation, ABC Outfitters Ltd., under the CBCA. The plan is to issue 4,000 class A common shares with 1,000 shares being issued to each of Anders, Bolt, Carty and Dober. The class A shares are to have 10 votes per share. The current plan is that there would be no authorized limited on the number of shares that could be issued. There will be no provision in the articles altering the rights of the class A shares given in paragraphs (a), (b) or (e) of s. 176(1) of the CBCA. Dober will also receive 5,000 class B preferred shares with a right to a cumulative dividend of $2.40 per share per annum before any dividends are paid on the class A shares. The class B shares would also be entitled to $24 per share on a liquidation before any payment on the liquidation to the class A shares. The class B shares would not carry a general voting right but would carry a right to vote on the question of whether dividends would be declared, on the issuance of shares, and on the creation of any new class of shares. In each of these cases the class B shares would have one vote per share. The votes on dividends and the issuance of shares would require a resolution passed by not less than 50% of the votes cast on the resolution by the class A and class B shares combined. Votes on the creation of any new class of shares would require a resolution of a majority of not less than two-thirds of the votes cast in respect of the resolution. The current plan is that there would be no authorized limited on the number of class B shares that could be issued. There will be no provision in the articles altering the rights of the class B shares given in paragraphs (a), (b) or (e) of s. 176(1) of the CBCA. All four shareholders are to be members of the board of directors. Also, Anders is to be the president, Bolt the treasurer and Carty the Secretary of ABC Outfitters Ltd. The shareholders are to decide on the issuance of shares and the declaration of dividends.

QUESTION THREE [27 marks; suggested maximum working time of 45 minutes] (a) How could it be assured that each of Anders, Bolt, Carty and Dober are elected directors, cannot be removed as directors, and will be re-elected directors at each annual meeting of shareholders at which directors are to be elected? Explain citing relevant authority. [4 marks; suggested maximum working time of 7 minutes] Explain three ways in which it can be assured that Anders is appointed the president, Bolt the treasurer and Carty the Secretary of ABC Outfitters Ltd.? Explain citing relevant authority. [5 marks; suggested maximum working time of 8 minutes]]

(b)

Law 315– Business Associations Fall 2002

5 of 6 Professor Gillen Code Name____________________

QUESTION THREE (CONTINUED) (c) How can it be arranged that the shareholders decide on the declaration of dividends and the issuance of shares? Explain citing relevant authority. [7 marks; suggested maximum working time of 12 minutes] Instead of giving the shareholders the power to issue the shares, what could be done, contrary to the current plan, to control the issuance of shares in a way that would ensure that no further shares could be issued without the approval of shareholders? Explain citing relevant authority. Please be quite specific in explaining how this would apply on the facts given. [4 marks; suggested maximum working time of 7 minutes] In addition to incorporating ABC Outfitters Ltd. under the CBCA what other step must be taken for ABC Outfitters Ltd. to carry on the Campbell River, British Columbia retail outfitters store business? Simply state the requirement. You need not cite authority. [1 mark; suggested maximum working time of 1 minutes] What other steps might Anders, Bolt and Carty, as former partners, want to take to avoid liability that may arise out of dealings ABC Outfitters Ltd. has with persons that had dealt with ABC Outfitters before the incorporation of ABC Outfitters Ltd., or other persons who had no prior dealings with ABC Outfitters but who may have been aware of its existence before the incorporation of ABC Outfitters Ltd.? Explain citing relevant authority. [6 marks; suggested maximum working time of 10 minutes]

(d)

(e)

(f)

After operating the store through ABC Outfitters Ltd. for another two years it was decided to move to a larger floor space. This would allow for a larger inventory to be carried. It also required more funds so it was proposed that a new class of shares, the class C shares, be created and issued. The proposed class C shares would have no voting rights but would receive a cumulative annual dividend of $10 per share before any dividends could be paid on either the class A shares or the class B shares. The class C shares would also be entitled to $100 per share on a liquidation before any payment on the liquidation to either the class A shares or the class B shares. Anders, Bolt, Carty and

Law 315– Business Associations Fall 2002

6 of 6 Professor Gillen Code Name____________________

Dober each continue to hold 1,000 shares of the only outstanding class A shares and Dober continues to hold all 5,000 of the only issued and outstanding class B shares.

QUESTION FOUR [15 marks; suggested maximum working time of 25 minutes] What resolutions would be required to create the class C shares? Explain citing relevant authority and note specifically what this means in terms of which individual shareholders would have to vote their shares in favour of the resolutions assuming everyone voted on the resolutions.


				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:88
posted:11/3/2009
language:English
pages:6