Business Law Question Pack - Questions

Business Law

1. Lucia is the CEO of a growing Ontario startup planning to raise capital. Her lawyer advises that selling shares to the public without filing a prospectus may violate the Ontario Securities Act (OSA), unless a prospectus exemption applies. Lucia wants to understand the prospectus requirement before exploring alternatives. Her corporate finance advisor explains that the requirement applies broadly and hinges on whether the transaction involves a security, constitutes a trade, and is considered a distribution. Lucia is unsure whether these terms apply to private placements to her existing network of friends and family.

Which of the following best describes the reach of the OSA’s prospectus requirement?

A) It applies only to securities issued by companies listed on a public exchange.

B) It applies to all public offerings but does not cover private placements of shares.

C) It applies to trades that qualify as distributions unless an exemption is available.

D) It applies only to companies that have more than fifty shareholders in Ontario.

2. Andre is incorporating a new Ontario Business Corporations Act (OBCA) corporation and preparing the articles of incorporation. He is advised that the articles must set out the number of directors or a minimum and maximum number. He is also advised that the corporation may change the number of directors later but only through specific means. The initial structure will have a range of three to seven directors. Later, the shareholders want to fix the board at five directors and eliminate the variable range.

What is the correct way to modify the number of directors?

A) Pass a directors’ resolution under the by-laws to fix the number of directors.

B) File a notice of change under the Corporations Information Act.

C) File articles of amendment to revise the minimum and maximum number of directors.

D) Modify the corporate registry listing to reflect the new number.

3. Stephanie was hired under a fixed-term contract to manage a marketing campaign that would end after six months. Three months into the term, her employer terminated her employment without cause and without providing any compensation. Stephanie had no termination clause in her contract. She brought a claim for wrongful dismissal, arguing she was entitled to payment for the remaining three months.

Which of the following best describes her entitlement?

A) She is entitled to compensation for the balance of the fixed term unless the contract states otherwise.

B) She must mitigate her damages by seeking comparable employment.

C) She is only entitled to Employment Standards Act minimum notice.

D) Fixed-term contracts are treated like indefinite-term contracts at common law.

4. Sylvia owns a growing CCPC that earned $2.5 million in 2023 and has taxable capital of $12 million. When preparing her corporate tax return, her accountant advises that the company will only receive a partial small business deduction (SBD). Sylvia is surprised, as she thought the $500,000 SBD limit applied to every corporation. She learns that the SBD is phased out once a corporation’s taxable capital exceeds $10 million and eliminated entirely at $50 million. She is also informed that the company’s passive investment income may trigger an additional SBD clawback. Sylvia now wants to understand how taxable capital affects the availability of the SBD.

Which of the following statements best explains the impact of taxable capital on the SBD?

A) The SBD is eliminated once passive income exceeds $100,000.

B) The SBD is unaffected by the size of the business.

C) The SBD is phased out beginning at $5 million in taxable capital.

D) The SBD is clawed back starting at $10 million in taxable capital and eliminated at $50 million.

5. Jessica is a director of an OBCA corporation and proposes an amendment to the articles to remove a restriction on the business activities the corporation may carry on. The shareholders are notified of a special meeting to consider the resolution. The notice includes the full text of the proposed special resolution but does not mention anything about dissent rights. After the resolution passes, a minority shareholder who opposes the amendment seeks to dissent and be paid the fair value of their shares. Jessica wonders if the omission in the notice invalidates the dissent rights.

Which of the following is most accurate?

A) A shareholder’s dissent rights remain intact even if the notice omits the required statement.

B) Dissent rights are not enforceable if the notice fails to mention those rights clearly.

C) Dissent rights apply only where the amendment directly changes the share structure.

D) A shareholder must proceed through an oppression claim instead of using dissent rights.

6. Kendra was dismissed from her position as a financial analyst after two years of employment. Her employer offered her two weeks’ termination pay in lieu of notice, as provided in the employment contract. Kendra reviewed her contract and discovered that the termination clause did not reference her statutory rights under the Employment Standards Act (ESA). She now claims that the clause is void and that she is entitled to common law reasonable notice.

How should the enforceability of Kendra’s termination clause be assessed?

A) Kendra is limited to the amount specified in her written contract, even if it does not reference the ESA or provide separate common law notice.

B) A termination clause that omits any mention of common law entitlements is automatically void, regardless of its compliance with statutory standards.

C) Even if the clause is unenforceable, Kendra can only claim ESA minimums unless she takes steps to mitigate any further common law damages.

D) A termination clause that fails to meet ESA minimums is void, and the employee is entitled to common law notice.

7. Emma runs a nonprofit arts organization that collects membership information and email addresses to send newsletters and raise funds. A member objects to how their data was collected and asks whether the organization is required to comply with PIPEDA. Emma notes that her organization does not sell or lease any personal information. She wonders whether collecting donations and fees counts as “commercial activity.” Legal counsel reviews the definition under the Act.

Does PIPEDA apply to Emma’s nonprofit organization based on its current activities?

A) No, nonprofits are not subject to PIPEDA unless they engage in commercial activities such as selling or leasing member lists.

B) PIPEDA applies to all organizations in Canada regardless of their nonprofit status or whether they engage in commercial transactions.

C) Yes, activities such as soliciting donations or managing fundraising campaigns are always considered commercial and automatically trigger PIPEDA obligations.

D) Yes, the use of email to distribute newsletters qualifies as a commercial use of personal information and brings nonprofits within the scope of the legislation.

8. Daniel is an Ontario resident and the sole shareholder of a private corporation that pays him an eligible dividend of $100 in 2023. The corporation designated the dividend as eligible because it was paid out of income subject to the general corporate tax rate. Daniel’s accountant explains that this classification allows Daniel to benefit from a 38% gross-up and a dividend tax credit that reflects corporate taxes already paid. The T5 slip Daniel receives shows taxable income of $138 due to the gross-up. He notices his total tax bill on the dividend is lower than it would be for salary of the same amount. Daniel wants to understand the mechanics of this favourable treatment and how it fits into the concept of integration.

How is Daniel’s eligible dividend treated for income tax purposes?

A) The dividend is exempt from personal tax because of the inter-corporate dividend deduction, which applies even to shareholder-employees.

B) The full amount received is reported as income without gross-up or credit, and is taxed like any other form of investment income.

C) It is grossed-up and subject to tax, with a dividend tax credit to offset corporate tax already paid.

D) A separate flat rate applies to eligible dividends, calculated independently from the individual’s marginal tax rate on other income.

9. Kara is the sole shareholder of a CCPC that earned $100,000 in active business income (ABI) in 2023, all of which qualified for the small business deduction (SBD). After paying corporate tax at the reduced rate, the company distributed the remaining profits to her as a non-eligible dividend. Kara, who lives in Ontario and is in the top marginal tax bracket, compared her total tax burden to that of her colleague who earned the same amount directly as self-employed income. She notices that although she received less cash initially due to corporate tax, the dividend she received was subject to gross-up and dividend tax credits. Her accountant mentions the concept of integration but also notes a “nominal tax cost.” Kara wants to understand whether using the CCPC results in double taxation.

Which of the following most accurately describes Kara’s situation?

A) The dividend tax credit effectively removes the burden of personal tax on dividends by compensating for the corporate tax already paid, such that no additional tax is payable at the personal level.

B) Slight under-integration occurs, with a nominal tax cost when ABI is paid as a non-eligible dividend from a CCPC to an individual.

C) There is no tax deferral advantage available in this case because the corporate income was immediately paid out to the shareholder, and therefore no timing benefit was realized from using the corporate structure.

D) Tax on non-eligible dividends is always lower than on eligible dividends.

10. Devon represents a group of unsecured creditors in a CCAA proceeding involving a national construction firm. The initial order granted by the court imposes a stay of proceedings and authorizes interim financing from a third-party lender with a super-priority debtor-in-possession (DIP) charge. Devon’s clients object on the basis that they were not given notice of the DIP motion and that the charge will subordinate their interests in accounts receivable. The monitor confirms that the debtor was acting under urgency and relied on the court’s jurisdiction to approve the DIP on an interim basis. Devon’s clients now seek to challenge the priority of the DIP charge.

What must the court be satisfied of to approve or maintain a DIP charge under the CCAA?

A) The DIP charge must be necessary for the continued operations of the debtor, notice must be provided to affected parties unless urgency prevents it, and the charge must be fair and reasonable in the context of the restructuring.

B) A DIP charge can only be granted with the formal consent of all known creditors, typically by way of a majority vote at a creditors’ meeting convened for that purpose.

C) Before authorizing any DIP financing, the court must receive written confirmation from both the monitor and the Superintendent of Bankruptcy affirming that the charge is justified.

D) The court has jurisdiction to grant DIP charges, but only for interim financing amounts up to $2 million, after which creditor consent is required to extend the charge.

11. Lorenzo is general counsel for a Canadian retail company with liabilities exceeding $25 million. The company is facing severe cash flow issues due to supply chain disruptions and high lease obligations. The board of directors is considering whether to initiate restructuring proceedings under the Bankruptcy and Insolvency Act (BIA) or the CCAA. Lorenzo is asked to advise on the comparative advantages of each regime. He emphasizes the CCAA’s flexible nature, the absence of rigid timelines, and the broader court discretion available to tailor orders to the company’s unique needs. The CEO notes that the company is expecting to require significant DIP financing and may need third-party releases to secure stakeholder support.

Is the CCAA the appropriate restructuring regime for Lorenzo’s company? Why or why not?

A) The CCAA provides a more flexible restructuring environment for companies with liabilities exceeding $5 million, including enhanced court discretion and tools like third-party releases and complex DIP financing orders.

B) The BIA is generally favoured in large restructurings because it mandates strict timelines that ensure prompt resolution and imposes clear limitations on court intervention.

C) The CCAA can only be used by companies with operations in multiple provinces, and is unavailable to regionally based or single-jurisdiction corporations.

D) A debtor must proceed under the BIA rather than the CCAA when restructuring secured liabilities greater than $10 million, to protect creditor rights more effectively.

12. Fiona, a resident of Ontario, files her personal income tax return on April 30, 2023. She subsequently receives a Notice of Assessment from the CRA on May 15, 2023, disallowing certain business expenses and increasing her taxable income. Fiona strongly disagrees with the assessment and wants to file a notice of objection. However, she mistakenly believes that she only has 90 days to file and that this deadline expired on August 13, 2023. Her tax advisor tells her that she may still be within the permitted timeframe under the ITA.

Which of the following is most accurate regarding Fiona’s right to object?

A) Fiona must apply to the Tax Court of Canada immediately, as the CRA can no longer accept objections.

B) Fiona has until May 1, 2024 to file a notice of objection because she is an individual taxpayer.

C) Fiona cannot file an objection since 90 days have already passed.

D) Fiona must pay the disputed tax before filing a valid objection.

13. Noah is acquiring a chain of private gyms in Ontario through a share purchase. While reviewing the target corporation’s contracts, he discovers several major equipment leases containing clauses that terminate the agreement upon a change of control. Noah’s counsel informs him that although a share transaction allows for seamless asset retention, these "change in control" (CIC) clauses could still be triggered. Noah is surprised, having assumed that lease consents were only required in asset sales.

Which of the following best describes the legal effect of a CIC clause in a share transaction?

A) CIC clauses only apply to mergers or amalgamations, not share transfers.

B) Lease obligations are always unaffected in share transactions.

C) CIC clauses are void unless reapproved after closing.

D) CIC clauses can still be triggered in share transactions.

14. Trevor was a senior vice president with extensive control over client relationships and pricing decisions. After he resigned and started a competing business, his former employer alleged that he was a fiduciary and had violated post-employment obligations by soliciting clients and using internal pricing data. Trevor argued that he was not an officer and was free to compete after leaving.

Which of the following is most accurate?

A) As a fiduciary, Trevor may not solicit clients or use confidential information after resignation.

B) Post-employment obligations end once working notice expires.

C) Only officers and directors owe fiduciary duties.

D) A non-competition clause must be present to restrict post-employment activity.

15. Noah finances a printing company and takes a security interest over printing presses. He later learns that the equipment was leased to the company under a conditional sale contract that reserves title in the vendor until paid in full. The vendor did not register its interest under the Personal Property Security Act (PPSA). Noah now questions whether the vendor's retention of title protects it from his claim.

How does the PPSA treat the vendor’s unregistered title retention in this scenario?

A) The vendor’s title retention creates a PPSA security interest and is subordinate if not perfected.

B) The vendor’s legal ownership automatically overrides any subsequent security interests, even if those interests were properly registered.

C) Since the debtor never obtained legal title, any registered security interest in the equipment is unenforceable against the vendor.

D) Conditional sale vendors always hold a superior interest under the PPSA, regardless of registration status or possession.

16. Avery is the sole director of a newly incorporated OBCA company and is negotiating a $500,000 demand loan with a major Canadian bank. The bank provides a detailed commitment letter outlining interest terms, a demand feature, a negative covenant restricting further borrowing, and a requirement for a general security agreement. Avery signs the commitment letter and returns it to the bank but expresses surprise when the bank refuses to advance the funds because certain conditions precedent, including proof of insurance, have not yet been satisfied. Avery believes that once the commitment letter was signed, the bank was legally bound to disburse the loan. Her corporate lawyer explains the difference between a binding commitment and conditions precedent to funding. Avery wants to know whether the bank has breached its obligations by withholding the loan.

Which of the following best reflects the legal effect of the commitment letter?

A) The bank must fund the loan immediately upon execution of the commitment letter.

B) The bank is not obligated to advance funds until all conditions precedent in the commitment letter have been satisfied.

C) The commitment letter is non-binding unless specifically incorporated into the loan agreement.

D) The borrower may waive the conditions precedent unilaterally and require the loan to be funded.

17. Zara is counsel for a private issuer that wants to raise funds from a group of friends and family members. The company has fewer than 50 shareholders, and its constating documents restrict share transfers. Zara suggests using the private issuer exemption, but the CFO proposes issuing shares to a third-party investor unaffiliated with the founders. Zara warns that this may disqualify the issuer from using the exemption in the future.

Which of the following best describes the requirements of the private issuer exemption?

A) The issuer must have no more than 50 beneficial shareholders and only issue securities to permitted persons.

B) It may be used freely if no advertising is done.

C) It requires shareholder approval before each distribution.

D) It applies only to reporting issuers with audited financials.

18. Jayden is investing in a startup that is relying on the minimum amount exemption. He plans to invest $160,000, which he will pay in full on closing. Jayden asks whether he can structure the purchase through his family trust, which holds other investments. The issuer is unsure whether the exemption applies to trusts or only to individuals.

Does the minimum amount exemption under securities law apply to Jayden’s proposed investment through his family trust?

A) The exemption is limited to individuals who invest $150,000 or more, and does not extend to entities like trusts or corporations.

B) It applies to non-individual investors purchasing $150,000 or more in securities as principal.

C) It applies only if the securities are listed on a stock exchange.

D) Any use of finder’s fees or commissions disqualifies the transaction from relying on the minimum amount exemption under NI 45-106.

19. Sarah holds all of the issued and outstanding shares of her OBCA corporation. She prepares a written declaration stating that certain corporate decisions must be approved by her in writing, thereby limiting the directors’ powers. She does not label the document as a unanimous shareholder agreement and does not provide a copy to her accountant. When the CRA requests corporate governance documents during an audit, Sarah’s lawyer identifies the document as a Unanimous Shareholder Agreement (USA). Sarah is concerned about the legal effect of the declaration and whether it binds third parties.

What is the legal effect of Sarah’s written declaration under the OBCA?

A) A written declaration by the sole shareholder restricting directors' powers is deemed to be a USA.

B) A valid USA must be signed by two or more shareholders and cannot be created unilaterally by a sole shareholder.

C) The document is not effective because it was never filed with the Ministry of Government and Consumer Services or disclosed to third parties.

D) To qualify as a USA, the written declaration must be notarized and witnessed by a legal advisor who can confirm the shareholder’s understanding.

20. Melissa is a corporate lawyer retained to incorporate a new business that plans to operate in Ontario and Quebec. The client is uncertain whether to incorporate federally or provincially under the OBCA. Melissa explains that a federally incorporated corporation has the right to carry on business in all provinces, while a provincially incorporated corporation may need to register extra-provincially. The client is also concerned about whether the corporate name will be accepted across jurisdictions. Melissa further notes that some provinces may reject an OBCA name that is acceptable in Ontario. The client wishes to proceed in a way that avoids unnecessary regulatory hurdles for interprovincial expansion.

Which of the following is the most accurate advice regarding jurisdiction of incorporation?

A) Federal incorporation allows the corporation to operate in all provinces without further registration.

B) OBCA incorporation is preferable because Ontario has fewer name restrictions.

C) Federal incorporation is only permitted if 50% of directors reside in Canada.

D) OBCA corporations are automatically granted registration rights in other provinces.

21. Nathan, a status Indian, enters into a conditional sales agreement to purchase equipment for his on-reserve business. The agreement states that ownership remains with the vendor until payment is made in full. Nathan defaults on the loan, and the vendor seeks to repossess the equipment, which is located on the reserve. Nathan argues that section 89 prevents seizure of his property. The vendor insists that it retains title and is exercising a contractual right.

Does section 89 of the Indian Act prevent the vendor from repossessing the equipment located on-reserve?

A) The vendor must first obtain a court order before taking any steps to repossess goods located on-reserve, even under a conditional sale agreement.

B) Section 89 does not prevent a conditional seller from repossessing goods if title has not passed.

C) Repossession of property on a reserve is only permitted if the vendor is either a status Indian or a band under the Indian Act.

D) Conditional sales agreements involving on-reserve property are unenforceable due to the statutory protections in section 89 of the Indian Act.

22. Ethan is appointed as a director of a federal corporation and later declares personal bankruptcy. The corporation’s solicitor immediately recommends that Ethan resign to avoid compliance issues. Ethan insists that bankruptcy has no bearing on his role, claiming he still retains full control of his faculties and is actively contributing. The other directors are unsure whether he must step down or may continue to serve.

Which of the following best reflects Ethan’s eligibility?

A) He may continue if a unanimous shareholder agreement allows it.

B) He may only be removed by a special resolution of the shareholders of the corporation.

C) He ceases to be qualified as a director because bankruptcy is a disqualifying condition.

D) He may be suspended but not removed until the next annual meeting.

23. Samantha transfers appreciated real estate to her private corporation in exchange for newly issued common shares. The FMV of the land is $500,000, and her ACB is $100,000. She elects under s. 85 of the ITA to set a transfer price of $300,000. However, the corporation mistakenly records $500,000 in its stated capital account for the new shares. The CRA later deems $200,000 of this amount to be a taxable dividend.

Why did the CRA assess a deemed dividend in this case?

A) The stated capital exceeded the elected transfer amount, resulting in a deemed dividend.

B) The corporation failed to charge and remit HST on the transfer of real estate, which triggered tax liability classified as a deemed dividend under the Excise Tax Act.

C) Because the shares issued were classified as preferred shares, the entire excess value was automatically treated as a dividend under corporate distribution rules.

D) The s. 85 rollover election is invalid unless a formal third-party valuation report is submitted with the election form.

24. A national retailer headquartered in Toronto collects personal information from customers for marketing purposes. The company sends this data to an offshore data processor in Ireland for analysis and storage. A customer complains to the Office of the Privacy Commissioner that their personal information is being handled outside Canada without proper safeguards. The company argues that since its servers are overseas, Canadian privacy law should not apply. The customer insists that PIPEDA governs the collection and transfer of their personal information, even when processed internationally. The Commissioner begins an investigation to determine jurisdiction and compliance.

How should the application of PIPEDA be determined in this case?

A) PIPEDA applies to personal information collected in Canada, even if it is transferred or stored outside the country.

B) PIPEDA does not apply to data stored offshore, regardless of where it was collected.

C) The retailer is exempt from PIPEDA because Ireland has its own privacy laws.

D) The Privacy Commissioner has no jurisdiction over cross-border data transfers.

25. Emily, a creditor, obtains a judgment against Jacob, a registered Indian living on-reserve, for an unpaid commercial debt. She hires a sheriff to seize Jacob’s truck, which is parked at his residence on the reserve. The sheriff refuses, citing section 89 of the Indian Act. Emily insists that she has a valid court order and should be allowed to enforce it. Jacob asserts that his property is protected from seizure because of his status and the location of the property.

Can Emily enforce her judgment by seizing Jacob’s truck located on the reserve?

A) Section 89 prohibits the seizure of personal property situated on a reserve, unless the creditor is another Indian or band.

B) The sheriff may proceed with the seizure if the debt arises from unpaid taxes or government fines specifically enforceable under provincial legislation.

C) The creditor may seize on-reserve property after giving written notice to the band council and securing approval from Indigenous Services Canada.

D) Jacob’s truck is not protected from seizure if the debt was incurred through a personal loan from a commercial lender for off-reserve use.

26. Teresa, a partner in a three-person law firm operating as a general partnership, receives payment from a client and deposits it into her personal account instead of the firm’s trust account. Her conduct is later discovered during an internal audit. The client sues the firm for the return of the funds, arguing that all partners are responsible for Teresa’s misappropriation. One of the other partners claims he had no knowledge of the incident and should not be liable. The firm is unsure whether it is liable for Teresa’s actions.

What is the firm’s liability in this situation?

A) Only Teresa is liable because she committed the wrongful act.

B) The firm and all partners are jointly and severally liable for the loss caused by Teresa’s conduct.

C) Liability depends on whether the firm had internal controls in place.

D) The firm is only liable if it had previously received complaints about Teresa’s handling of funds.

27. Toby is the chief legal officer of a company that intends to enter into an asset-based lending arrangement. The company’s receivables and inventory are offered as security, and the loan amount will fluctuate based on borrowing base calculations. The lender requires regular reporting of receivables and may adjust the available credit based on changes in the collateral. Toby is unfamiliar with this form of financing and asks how it differs from a conventional term loan. His CFO explains that the borrowing limit may rise and fall as collateral values change and that this gives the lender greater control over disbursements.

Which of the following best explains the nature of asset-based lending?

A) It provides flexible borrowing capacity that varies with the value of specified collateral.

B) It imposes fixed repayment schedules and limits based solely on the borrower’s income.

C) It applies only to agricultural and resource-based industries.

D) It eliminates the need for a general security agreement.

28. Laura is junior counsel for a lender advancing funds in a secured transaction. She is responsible for conducting PPSA searches against the borrower, an OBCA corporation that changed its name after an amalgamation two years ago. Laura runs the search using only the borrower’s current legal name and finds no registrations. She proceeds to draft a legal opinion stating that the borrower has no existing encumbrances. Her supervising partner later learns that the borrower had significant registrations under its former corporate name and predecessor corporation. The lender now questions the reliability of the opinion.

Which of the following best describes Laura’s error?

A) PPSA searches are sufficient when conducted against the current name of the borrower.

B) The opinion was valid because the borrower certified its corporate status.

C) PPSA searches must be conducted against prior names and predecessor corporations to be reliable.

D) A PPSA search is not required when the borrower is incorporated under the OBCA.

29. Sabrina is a Canadian seller of industrial machinery who enters into a long-term supply contract with a buyer in Japan. The contract uses “CIF Tokyo Port” as the Incoterm for delivery and includes no separate clause addressing when title and risk pass. The buyer refuses to pay for a shipment damaged at sea, arguing that the risk remained with Sabrina until delivery was completed. Sabrina maintains that under CIF (Cost, Insurance and Freight), the risk shifted earlier.

When does risk pass to the buyer under a CIF term where no other agreement is made?

A) The seller remains responsible for the goods until they reach the buyer’s premises and are physically delivered to the final destination.

B) Under CIF terms, risk passes to the buyer when the goods are handed to the first carrier.

C) The risk of loss stays with the seller under CIF until the buyer confirms receipt and acceptance of the goods at the destination port.

D) Risk passes only when title is transferred to the buyer, and title does not pass under the Sale of Goods Act (SGA) until the delivery terms are fully satisfied.

30. Adrian is the shareholder of a CCPC that holds a diversified investment portfolio and earns substantial interest and dividend income annually. In 2023, the corporation paid him a large non-eligible dividend, which resulted in a partial refund of corporate taxes previously paid. Adrian’s accountant explains that a portion of the corporate tax paid on investment income is refundable when dividends are paid. The accountant also notes that the corporation has a balance in its non-eligible refundable dividend tax on hand (NERDTOH) account. Adrian is curious about how this refund mechanism actually operates and whether it’s tied to the timing or type of dividend declared.

What is the most accurate description of the dividend refund mechanism?

A) It refunds taxes paid on eligible dividends received from or paid by public corporations.

B) It returns a portion of tax paid on investment income when the corporation pays taxable dividends.

C) It only applies if the corporation pays dividends to other private corporations.

D) It is only available if dividends are declared before year-end.

31. Samantha, a status Indian living on a reserve in Ontario, operates a small craft business selling handmade jewelry online. Her customers are primarily located outside the reserve, and she regularly ships items to urban centres across Canada. She also stores her inventory off-reserve for convenience and enters into most of her sales contracts through an e-commerce platform headquartered in Toronto. After being assessed for income tax, Samantha claims she is exempt under section 87 of the Indian Act. The CRA disputes her claim and applies the connecting factors test to determine whether the business income is situated on a reserve.

How should Samantha’s claim for a section 87 tax exemption be evaluated?

A) All income earned by a status Indian is automatically exempt from taxation.

B) The exemption depends on whether the income-generating activities are sufficiently connected to the reserve.

C) Business income is exempt if at least one customer resides on a reserve.

D) The exemption is only available where the business is formally incorporated and operates entirely under the governance of a band council.

32. Amir is purchasing the assets of a boutique furniture business and is particularly interested in the company’s inventory and customer list. The vendor wants the purchaser to assume responsibility for all uncollected accounts receivable, but Amir is wary of paying full face value without guarantees. His lawyer recommends using a section 22 election to improve the tax treatment for both parties, assuming the vendor sells substantially all assets necessary to carry on the business.

What is the main tax advantage of using a section 22 election in this asset sale?

A) It allows the purchaser to reclassify the receivables as capital property and defer tax recognition until collection occurs.

B) It allows both the vendor and purchaser to treat the transfer of receivables on income account, providing tax symmetry and bad debt deductions.

C) It enables the vendor to treat uncollected receivables as capital losses that can offset gains from other asset dispositions.

D) It permits the purchaser to claim capital cost allowance (CCA) on the transferred receivables as if they were depreciable property.

33. Tarek is the CEO and sole director of a private corporation that failed to remit source deductions for employee payroll in 2021. The corporation has since been dissolved, and the CRA has assessed Tarek personally for the unpaid remittances. He argues that he was unaware of the failure and had relied on the corporation’s bookkeeper. Tarek ceased to act as a director in December 2022, and the CRA issued the assessment in March 2025. He is now disputing whether he can still be held personally liable for the corporation’s remittance failures.

Which of the following is most accurate regarding Tarek’s potential liability?

A) Tarek is personally liable unless the CRA can prove he was involved in fraud or gross negligence.

B) Tarek cannot be liable because he was not involved in the corporation's day-to-day operations, such as bookkeeping.

C) Tarek’s liability is capped by the corporation’s available assets at dissolution.

D) Tarek may avoid liability if more than two years have passed since he ceased to be a director.

34. Maya is a director of a CBCA corporation and is also the company’s chief financial officer. She is asked to approve a resolution authorizing a major real estate transaction in a region where she personally owns investment property. Although she discloses her personal holdings, she still participates in the board meeting and votes in favour of the resolution. A minority shareholder later challenges the transaction, claiming it was tainted by Maya’s conflict of interest. Maya argues she complied with her duties as a director and officer.

Which of the following best reflects her legal obligations in this situation?

A) Maya’s disclosure eliminates any conflict, so her vote does not breach her duties.

B) Maya should have disclosed and refrained from voting to meet her fiduciary duty.

C) As CFO, Maya did not vote as a director and cannot be held personally responsible.

D) Maya’s officer role governs and overrides any conflict arising as a director here.

35. Eliza supplies commercial goods to a business that enters receivership just two weeks after she delivered $20,000 worth of unpaid inventory. She learns about section 81.1 of the Bankruptcy and Insolvency Act (BIA), which allows for repossession under certain circumstances. Eliza prepares a written demand and serves it within 14 days after the receivership began. However, some of the goods were already resold, and others were slightly altered during repackaging. She asks whether she can still recover any of the inventory and whether her rights are superior to secured creditors.

Which of the following best explains Eliza’s rights?

A) Eliza may repossess only those goods that are in their original condition, identifiable.

B) All unpaid goods delivered within 30 days may be repossessed regardless of their condition.

C) Once a receiver is appointed, all supplier rights under section 81.1 of the BIA are extinguished.

D) Eliza may repossess any goods provided she also claims the proceeds of resale.

36. Naomi is preparing a legal opinion for a financing transaction where the borrower has granted a security interest in inventory and equipment. She reviews the signed general security agreement and confirms that the PPSA financing statement was properly registered. The lender asks Naomi to opine on the enforceability of the security interest and whether it is properly perfected. Naomi drafts an opinion stating that the security interest is valid and perfected but declines to provide an opinion on its priority.

Why is it appropriate for Naomi to exclude an opinion on priority from her legal opinion?

A) Because the PPSA registry does not establish or confirm priority between secured creditors.

B) Because her legal opinion is being provided to a secondary lender and not to the party with the earliest registration.

C) Because questions of priority are governed exclusively by private agreements between creditors and are not a matter of statutory interpretation.

D) Because only a court can issue binding rulings on the ranking of interests, making it inappropriate to address priority in legal opinions.

37. Katrina is the CEO of a mid-sized manufacturing company that has fallen behind on payments to several creditors, including a major equipment supplier and its primary secured lender. The company has a viable long-term business plan but needs time to renegotiate obligations and stabilize cash flow. After consulting with legal and financial advisors, Katrina authorizes the filing of a Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act. Within days of the filing, the supplier attempts to seize leased equipment from one of the company’s facilities, claiming that the BIA does not protect against enforcement of lease rights. Katrina’s legal counsel objects and advises that the stay of proceedings is already in place.

Which of the following statements best describes the effect of filing a Notice of Intention to Make a Proposal (NOI) under the BIA?

A) Filing an NOI triggers a statutory stay of proceedings that applies to all creditors, subject to certain limited exceptions.

B) Filing an NOI only protects the debtor from unsecured claims unless the court orders otherwise.

C) A stay does not apply to lessors unless they agree in writing to the restructuring.

D) The debtor must obtain approval from the Official Receiver before a stay of proceedings can take effect.

38. Sasha is retained to incorporate a corporation under the OBCA and is preparing to submit articles of incorporation. She plans to use a distinctive corporate name that includes the words “College of Environmental Medicine.” She runs a NUANS search and finds no conflicts, but is still unsure whether the name is acceptable. Sasha recalls that certain terms are prohibited or restricted under the OBCA and related regulations. She contacts the Director for clarification and is told that some words require ministerial approval or are outright prohibited. The client is insistent on using the proposed name if at all possible.

What legal restriction applies to the proposed corporate name in this scenario?

A) Names that include restricted terms like “college” require prior consent from the relevant governing body.

B) If the NUANS search reveals no identical or confusingly similar names, then the proposed name must be accepted for registration.

C) Terms such as “college” are permitted unless the corporation is publicly funded or offers regulated professional services.

D) The Director has discretion to approve otherwise restricted terms in corporate names if the applicant demonstrates good faith or charitable purpose.

39. Liam is the sole shareholder of a newly incorporated OBCA corporation and wants to convert its number name into a custom name reflecting its branding. His lawyer tells him that normally a name change requires shareholder approval through a special resolution. Liam wants to know whether, as sole shareholder, he can act alone to complete the change and what formal steps are required to effect it.

How can Liam legally change the corporate name of his OBCA corporation?

A) He must wait until the next scheduled annual meeting of shareholders to introduce and vote on the proposed name change.

B) A name change may only be completed as part of a formal reorganization, merger, or restructuring plan under the OBCA.

C) A special resolution authorizing the name change must be approved by all shareholders and submitted for court approval before filing.

D) A special resolution and articles of amendment must be filed with the Director to change the corporate name.

40. Raymond is a judgment creditor who recently obtained a court judgment against a debtor for unpaid services. He immediately files a writ of seizure and sale with the sheriff in the jurisdiction where the debtor is believed to own both real and personal property. Weeks later, the debtor makes an assignment in bankruptcy. Raymond wants to enforce his writ but is told that the bankruptcy proceeding has changed his standing. He insists that his execution should take priority over the trustee’s actions. Raymond is unsure how bankruptcy affects execution rights and whether he will share in any recovery.

Which of the following best reflects the legal reality?

A) Executions that are filed prior to the assignment in bankruptcy are deemed to have priority and may be enforced unless the trustee objects in writing.

B) Any writ of seizure and sale becomes void upon bankruptcy, even if it was registered and enforcement steps were already underway at the time of the assignment.

C) Creditors who filed writs before bankruptcy cannot enforce them once bankruptcy begins, even if partial funds were recovered, unless full payment had already been made.

D) A trustee in bankruptcy has priority over executions unless they were fully executed and paid out before the bankruptcy.

41. Sophie is advising a trustee who was just appointed to oversee a BIA proposal proceeding. The debtor filed a NOI two weeks ago and has requested the court to approve a lease disclaimer under s. 65.2 of the BIA. The company leases five retail locations, three of which are operating at a substantial loss. The landlord of one location objects, claiming that the debtor has no authority to unilaterally terminate the lease without demonstrating that doing so is essential to the proposal. The trustee must now respond to the objection and prepare for the court hearing on the lease disclaimer motion.

What legal standard governs the court’s decision to approve a lease disclaimer under s. 65.2 of the BIA?

A) The court will only approve the disclaimer if the debtor shows that rejecting the lease is necessary for the viability of the proposal and that the landlord’s prejudice does not outweigh the benefit to the debtor.

B) The debtor may unilaterally disclaim any lease by giving 30 days’ written notice to the landlord and trustee, and no court approval is required unless the trustee objects.

C) Once the debtor delivers a notice of intention to disclaim a lease, the disclaimer automatically takes effect unless the landlord applies to court within 15 days.

D) The filing of a NOI under the BIA renders all executory leases unenforceable unless expressly reaffirmed by the debtor or extended with the consent of the landlord.

42. A bank holds security under s. 427 of the Bank Act over a farming company’s inventory and equipment. A second lender holds a perfected PPSA security interest registered prior to the bank’s security being granted. The company defaults and both creditors seek to enforce their claims. The bank argues that title transferred to it under s. 427 should give it priority.

How is priority determined between the PPSA security holder and the s. 427 Bank Act secured creditor in this case?

A) The bank takes priority because s. 427 transfers title to the collateral, which overrides prior interests created under provincial law.

B) All disputes involving collateral in Canada are governed exclusively by the PPSA, regardless of whether federal security legislation is invoked.

C) PPSA security granted before Bank Act security takes priority under common law principles.

D) The creditor who physically seizes the collateral first will be granted priority, regardless of when their security interest was created or registered.

43. Lily is negotiating the sale of her company, SweetLeaf Organics Inc., to a larger competitor. The parties agree on a sale structure but disagree on whether the transaction should be structured as an asset sale or a share sale. Lily’s corporation owns significant goodwill and depreciable capital property, while her adjusted cost base (ACB) in the shares is quite low. Her accountant advises that she may qualify for the capital gains exemption on the sale of her qualified small business corporation (QSBC) shares. Meanwhile, the purchaser prefers an asset deal to benefit from increased tax cost of assets and enhanced CCA deductions. The parties are exploring whether a price adjustment might satisfy both tax positions.

What tax considerations typically influence the parties’ preference for an asset sale versus a share sale?

A) A purchaser often prefers a share sale primarily to reduce transaction costs such as land transfer tax and avoid retitling assets individually.

B) A vendor may favour an asset sale if goodwill can be reclassified in a way that generates deductible business income rather than capital gain.

C) A vendor typically prefers a share sale to potentially claim the capital gains exemption, while a purchaser typically prefers an asset sale to benefit from tax deduction.

D) Both parties commonly prefer an asset sale when there are significant unrealized capital losses that can be triggered for tax planning purposes.

44. A non-resident investor plans to purchase all the shares of Maple Data Solutions Inc., a private Canadian software company. The shares are not listed on a public exchange and do not derive their value from Canadian real estate or resource property. The purchaser asks whether any Canadian tax clearance or withholding rules apply. The vendor’s lawyer mentions the section 116 certificate under the Income Tax Act but isn’t sure whether it applies in this context. The purchaser’s counsel evaluates whether the shares constitute taxable Canadian property (TCP).

Does the non-resident purchaser require a section 116 certificate or face withholding obligations in this transaction?

A) The section 116 certificate requirement does not apply if the shares are not TCP.

B) All share transfers involving non-resident parties are subject to section 116 requirements, including mandatory withholding.

C) A 25% withholding obligation automatically applies on the gross purchase price of all private company shares acquired by non-residents.

D) The rules regarding taxable Canadian property and section 116 apply only to shares of public corporations traded on Canadian stock exchanges.

45. Caleb is a high-net-worth individual seeking to invest in a tech start-up. The issuer wants to avoid filing a prospectus and suggests using the accredited investor exemption. Caleb has a net income of $250,000 for each of the last two years and expects the same this year. The issuer provides Caleb with a risk acknowledgment form and asks him to confirm that he is purchasing as principal. Caleb is unsure whether he qualifies and what conditions apply.

Does Caleb meet the criteria to rely on the accredited investor exemption?

A) The exemption is limited to institutional and corporate investors and cannot be used by individuals, regardless of their income or net worth.

B) It permits sales to individuals with $200,000 annual income for two years and a reasonable expectation of continuation.

C) The exemption automatically applies to any investor contributing more than $150,000, regardless of their income or relationship to the issuer.

D) Use of the exemption eliminates all ongoing reporting requirements for the issuer, including Form 45-106F1 filings with securities regulators.

46. Marissa, a self-employed graphic designer in Ontario, recently began operating under the business name “Marissa Creative Co.” She designed her own website, ordered branded stationery, and signed a commercial lease using the business name. However, she failed to register this name with the Ontario Business Registry under the Business Names Act. A client who defaulted on payment is now being sued by Marissa in Small Claims Court, where she commenced the action using the unregistered business name. The defendant has moved to dismiss the claim, citing non-compliance with statutory requirements. Marissa argues that the name is merely a trade name and should not prevent her from enforcing her rights. She now seeks guidance on whether she may continue the action under the unregistered name.

Which of the following best describes the legal effect of Marissa’s failure to register her business name?

A) Marissa may proceed only if she obtains leave of the court, as failure to register does not void contracts but limits procedural rights.

B) Marissa’s action is automatically void because unregistered business names render all contracts unenforceable.

C) Marissa cannot sue under the unregistered name and must seek leave of the court under s. 7(1) of the Business Names Act.

D) Marissa’s claim will proceed normally because the Business Names Act does not apply to sole proprietors providing professional services.

47. Jared wishes to issue a new class of shares in his OBCA corporation that would be entitled to fixed dividends and redemption rights, but not voting rights. He wants to ensure he can create multiple series within this class and assign different dividend rates to each. His lawyer informs him that this is possible, but only under certain statutory conditions. Jared wants to ensure flexibility for future financing rounds.

What must be done to enable Jared's plan?

A) The new class must be approved by a unanimous shareholder resolution.

B) The class must be created by special resolution at an annual general meeting.

C) The articles must authorize the issuance of shares in series and their terms.

D) Each series must be registered with the Ontario Securities Commission.

48. Tariq is a minority shareholder in a closely held OBCA corporation and believes that the majority shareholder, who is also the sole director, is misusing corporate funds to benefit a family business. Tariq wants to take legal action but is unsure whether to bring an oppression claim or a derivative action. He is particularly interested in protecting the corporation’s financial position rather than seeking a personal remedy. His lawyer advises that the appropriate remedy depends on the nature of the harm.

What legal step must Tariq take to address harm done to the corporation rather than to himself personally?

A) He must file an oppression claim, as derivative actions are not generally available to shareholders of closely held corporations under the OBCA.

B) He must seek leave of the court to bring a derivative action because the harm is to the corporation.

C) He may initiate either an oppression claim or a derivative action without leave of court, provided he is a registered shareholder with a genuine interest.

D) He cannot commence any legal action on behalf of the corporation unless the other shareholders agree to support his application.

49. Jonas joined a general partnership that operates a marketing agency. Two months after he became a partner, he discovered that the partnership was being sued over a breach of contract that allegedly took place six months before he joined. The plaintiff claims that Jonas is jointly liable as a current partner of the firm. Jonas never had any involvement in the original transaction and was unaware of the agreement prior to joining. The other partners were all part of the firm at the time of the breach. Jonas wants to know whether he can be held personally responsible for obligations that predate his admission to the partnership.

What is Jonas' liability for the pre-existing breach?

A) He is jointly liable for the breach, as all current partners are responsible for the firm’s debts.

B) He is not liable for any debts or obligations that arose before he became a partner.

C) He will only be liable if he expressly agreed to assume the debt in writing when he joined.

D) His liability is limited to any profits he received from the firm’s work on the breached contract.

50. Daniel and Priya are equal shareholders in an OBCA corporation and want to enter into a contract that sets out how they will vote their shares and manage the business. They consult their lawyer, who suggests they consider using a unanimous shareholder agreement (USA). Daniel is surprised to learn that a USA can restrict the powers of the directors, while Priya wants to know what makes a USA different from a regular shareholder agreement. Their lawyer explains that not all shareholder agreements are USAs, and that each has specific legal implications under the OBCA.

Which of the following best distinguishes a USA from other shareholder agreements?

A) A USA must be filed with the Ministry and used only by private OBCA corporations.

B) A USA must be signed by all shareholders and may restrict the board’s management powers.

C) A USA is required only when an offering corporation exceeds fifty shareholders.

D) A USA may override the corporate by-laws and need not comply with the articles.

51. An OBCA corporation owned by Jasmine is preparing to borrow $750,000 from a bank to fund expansion. As part of the loan security package, the bank requires Jasmine to execute a personal guarantee. Jasmine, who is also a director of the corporation, asks whether she can limit her liability under the guarantee. The bank proposes a continuing guarantee with no cap on liability and includes language about joint and several liability with the corporation. Jasmine is concerned that her personal assets may be at risk indefinitely. She asks her lawyer whether such guarantees are negotiable and how courts treat them if challenged.

How should Jasmine’s personal guarantee be assessed from a legal perspective?

A) Guarantees are enforceable as written unless contrary to public policy, but personal guarantors may negotiate caps or temporal limits.

B) For a personal guarantee to be valid under Ontario law, it must be notarized in the presence of a legal professional acting independently of the lender.

C) A guarantee will be unenforceable unless the guarantor signs in the presence of an independent third-party witness who provides a statutory declaration of understanding.

D) A corporate director who signs a loan agreement solely in their representative capacity cannot be held liable for the corporation’s obligations.

52. Sofia incorporates a corporation under the OBCA and names herself as the sole director. She later issues shares to two investors, Adam and Rachel, without including any shareholder voting rights in their respective share classes. The investors express concern that they are unable to influence the election of directors or vote on corporate matters. Sofia argues that, as the incorporator, she has the right to maintain control indefinitely. Adam and Rachel want to know whether this arrangement is valid under corporate law.

How should Adam and Rachel’s concerns about voting rights be assessed under the OBCA?

A) Shareholders have no inherent voting rights unless granted by the articles.

B) All shares must carry equal voting rights by default.

C) OBCA corporations must allow all shareholders to vote on directors.

D) Voting rights must be granted by the by-laws, not the articles.

53. Emily holds 40% of the common shares in a closely held OBCA corporation. The other shareholder, David, owns the remaining 60% and has received a bona fide third-party offer to purchase his entire stake. Under the terms of their shareholder agreement, there is a piggyback clause requiring David to offer Emily the right to sell her proportional interest on identical terms. Instead of complying with the clause, David offers Emily a lower price per share and pressures her to accept the alternative terms. Emily refuses and asserts her contractual right to participate in the sale under the same conditions offered to David by the third-party buyer.

What are Emily’s rights under the piggyback clause?

A) Emily may sell her shares on the same terms and at the same price as David under the third-party offer.

B) Emily must either accept the revised price or risk being excluded from the transaction entirely.

C) Emily is entitled to compel David to buy her shares before completing his own sale.

D) Piggyback rights are only triggered where the shareholder holds a controlling interest.

54. Aaron, a registered Indian, receives investment income from a term deposit account held at a caisse populaire physically located on-reserve. The CRA audits Aaron and claims that the investment income is taxable because it arises from participation in the broader financial system. Aaron relies on the Supreme Court of Canada's decision in Bastien Estate v. Canada to support his exemption claim. The CRA maintains that all passive investment income is taxable. Aaron disputes this, pointing to the location and nature of the financial agreement.

Is Aaron’s investment income potentially exempt from tax under the Indian Act?

A) Investment income earned from a financial institution located on-reserve may be exempt from taxation if the connecting factors support exemption.

B) Investment income is presumed taxable under the Income Tax Act unless it is reinvested in a business with a physical presence on-reserve.

C) Only income arising from active employment or business activities may qualify for exemption under section 87 of the Indian Act.

D) Interest income can be exempt only if the financial institution is exclusively owned and operated by a First Nation or band council.

55. Derek and Yasmin operate a catering business together in Ontario. They refer to themselves as business partners, share profits equally, and make joint decisions regarding expenses and hiring. They have no written partnership agreement, but their conduct reflects a high degree of collaboration. When the business is sued by a customer for food poisoning, Yasmin argues that she is not a true partner and that Derek should bear full responsibility, as he purchased and handled the food. The plaintiff names both individuals in the action. Yasmin is unsure if she can be held liable simply by association with the business.

Which of the following best describes the legal nature of their relationship?

A) There is no partnership since there is no written agreement.

B) Yasmin is a shareholder and therefore insulated from personal liability.

C) A partnership exists because they carry on business in common with a view to profit.

D) Yasmin cannot be liable since she did not personally commit the negligent act.

56. Christine operates as a sole proprietor and filed her 2019 income tax return without reporting foreign income earned from an overseas account. She also failed to file Form T1135, which discloses specified foreign property. In June 2023, the Canada Revenue Agency issued a reassessment including the omitted income. Christine objects, believing the reassessment is statute-barred because it was issued more than three years after her original assessment. However, the CRA explains that the reassessment falls within an extended period under the Income Tax Act due to her failure to file the T1135 form. Christine now wants to dispute the validity of the reassessment and understand whether the CRA acted within its authority.

How should the validity of the CRA’s reassessment be determined?

A) The CRA may reassess beyond the normal limitation period where a taxpayer fails to file a T1135 form disclosing foreign property.

B) The CRA is prohibited from reassessing a return more than three years after the initial assessment, even if income was omitted.

C) The reassessment is only valid if Christine signed a waiver extending the normal reassessment period.

D) The CRA must obtain a court order to reopen any year that is otherwise statute-barred.

57. A health clinic operating in Ontario collects personal health information from patients. A new administrator, unfamiliar with privacy laws, raises concerns about whether the clinic must comply with both PIPEDA and Ontario’s Personal Health Information Protection Act (PHIPA). The clinic primarily bills OHIP and is not federally regulated. The clinic’s lawyer confirms it is a health information custodian under PHIPA and not subject to PIPEDA for the collection of health data. However, the clinic does engage in some private cosmetic treatments.

How do privacy laws apply to the clinic’s collection and use of personal health information?

A) PIPEDA applies to all clinics operating in Canada regardless of their funding model or regulatory status, including those subject to provincial health privacy laws.

B) PHIPA applies to health information custodians in Ontario, exempting them from PIPEDA for those purposes.

C) Because the clinic is not federally regulated, and most of its services are covered by OHIP, it is not subject to any privacy legislation.

D) Clinics must comply with both PIPEDA and PHIPA at all times and follow whichever legislation contains stricter or more detailed requirements.

58. Claire, a sole proprietor and licensed dentist in Ontario, has operated her practice for several years. In previous years, she relied on s. 34 of the Income Tax Act to defer tax by excluding the value of unbilled work-in-progress (WIP) from her income. However, following the repeal of s. 34 effective January 1, 2024, Claire is no longer able to use billed-basis accounting. She is unsure how to calculate and report her income now that she must include WIP, and she worries that her taxable income will increase significantly. Her accountant advises that transitional rules may be available to ease the adjustment, but Claire finds the rules confusing. She is also concerned that other designated professionals might still benefit from the old regime. Claire wants to know her current obligations under the amended tax legislation.

What is the effect of the repeal of s. 34 on Claire's professional income reporting?

A) She must include the WIP in her income as of 2024, with transitional relief available for five years.

B) She may continue to exclude WIP from income until her sole proprietorship is incorporated.

C) She must report WIP only if she provides services under contingency fee arrangements.

D) She is exempt from WIP reporting obligations because dentists are excluded from the repeal.

59. Amir and Janelle form a partnership for a landscaping company. They operate under the name “GreenScape Pros” but fail to register this business name with the Ontario Business Registry. After completing a large project, they attempt to sue a client who has not paid. The client’s lawyer moves to dismiss the action, arguing that the partnership cannot sue under an unregistered name. Amir and Janelle want to know whether they can proceed or if they must refile the claim in their individual names.

How does the failure to register the business name affect their ability to proceed with the lawsuit?

A) They may proceed with the action, but only if they bring the claim in their personal names rather than under the business name.

B) The failure to register the name renders the legal action invalid, and they cannot proceed with any claim until the registration is complete.

C) The partnership must obtain leave of the court before continuing the action under the unregistered business name.

D) Business name registration is not required unless the partnership involves more than two individuals or engages in interprovincial operations.

60. Ali is a secured creditor who registered a PPSA financing statement covering all present and after-acquired personal property of a debtor. Six months later, the debtor grants another security interest in its equipment to a second lender, who registers its financing statement before the debtor signs the actual security agreement. A priority dispute arises when the debtor becomes insolvent and both creditors claim rights in the equipment. Ali believes he has priority because his agreement was executed first, while the second lender relies on its earlier registration.

Which of the following is most accurate under the PPSA?

A) The second lender has priority under the “first to register” rule, regardless of when its security agreement was signed.

B) A security interest that is documented and signed first will take precedence over any later interest, even if that later interest was registered earlier.

C) When a debtor becomes insolvent, the trustee automatically gains first-ranking rights over all prior secured creditors, including those who registered under the PPSA.

D) Since Ali’s security interest attached before the second lender’s agreement was signed, his interest should take priority even though it was registered later.

61. David is preparing to launch a technology start-up and is close to finalizing a major contract. To secure the agreement, he needs a corporate entity set up immediately. Since branding is not yet finalized, David’s lawyer suggests incorporating under a number name to avoid delays associated with NUANS name searches and approvals. David agrees and proceeds with incorporation using a number name under the OBCA. A few months later, after his company has developed a strong brand identity, he inquires whether he can change the name to something more marketable without affecting the corporate structure. He is concerned about whether doing so would require a new corporation or interfere with his existing contracts.

How should David’s ability to change the number name be understood?

A) A number name cannot be altered after incorporation unless the company is dissolved and re-incorporated.

B) Incorporation under a number name permits quick formation, and the name may later be changed via articles of amendment.

C) Number names are reserved exclusively for federal corporations and are not available under the OBCA.

D) A number name restricts the corporation from opening commercial bank accounts or entering contracts under a brand name.

62. Olivia operates a retail store that fails to pay rent for several months, and her landlord seeks to recover rent arrears through a distress action. However, the store is petitioned into bankruptcy shortly afterward, before any assets are seized. Olivia’s landlord wants to proceed with distress but is told the process is no longer available. The landlord now seeks clarification on what rights remain under bankruptcy law to recover arrears.

What legal remedy is available to the landlord once the tenant has been declared bankrupt?

A) The landlord may proceed with the distress action and seize goods after the bankruptcy as long as no distribution has occurred.

B) Once bankruptcy occurs, a landlord’s right of distress is replaced with a preferred claim.

C) The landlord becomes a secured creditor for rent arrears and is entitled to claim against the proceeds ahead of unsecured creditors.

D) The landlord must bring a civil action for breach of lease and wait for a judgment before participating in any distribution.

63. Rajat and Olivia, long-time friends, decide to invest in a commercial property together in downtown Toronto. They jointly purchase the building, each contributing 50% of the capital, and enter into a written agreement outlining their rights to profits, tax deductions, and operational expenses. Olivia, who has higher income this year, wants to claim capital cost allowance (CCA) to reduce her tax burden, while Rajat prefers to defer his claim to a later year. Their accountant raises concerns about whether their arrangement constitutes a co-ownership or a partnership, as the tax treatment differs significantly. Both parties insist they did not intend to form a partnership and only wanted to own the property jointly. Olivia is concerned about losing flexibility in claiming CCA if they are deemed to be in a partnership. They now seek clarification on how their relationship is characterized in law.

Which of the following best describes their legal and tax relationship?

A) They are partners and must claim CCA jointly, regardless of individual income levels.

B) They are co-owners, and each may claim CCA independently based on their own tax situation.

C) They are deemed a joint venture, and CCA must be prorated and claimed equally.

D) They are a partnership only if they both actively manage the property.

64. Nadine is corporate counsel for an OBCA corporation whose directors wish to streamline the procedures for calling shareholder meetings. She drafts a by-law amendment reflecting the new process and presents it to the board of directors. The board unanimously approves the amendment, and it is implemented immediately in anticipation of the next annual meeting. However, when the amendment is submitted to shareholders for confirmation at that meeting, it is rejected by majority vote. Nadine now questions whether the by-law remains valid or if it became ineffective once the shareholders rejected it. She is also concerned about whether actions taken under the amended by-law remain enforceable.

What is the legal effect of the shareholder rejection of the by-law amendment?

A) The by-law amendment was effective upon board approval but ceased to have effect after it was rejected by shareholders.

B) The by-law amendment was invalid from the outset unless it had been approved by the shareholders in advance.

C) The amendment remains effective regardless of shareholder rejection, as it was properly passed by the board.

D) Shareholder by-law approvals must be unanimous in order for any by-law to be valid under the OBCA.

65. Andre, a director of a private OBCA corporation, recommends reducing the stated capital of the corporation's common shares to improve financial ratios. The board agrees, and a special resolution is proposed to reduce the capital. A class of preferred shareholders argues that the reduction affects them differently, as it alters their redemption rights. The board is unsure whether a separate class vote is required. The corporation seeks clarification on the voting procedure.

What voting procedure applies if a proposed capital reduction affects one class of shareholders differently than others?

A) A separate class vote is not required unless the affected class of shareholders also holds shares with voting rights attached under the articles.

B) Class voting is only triggered when a reduction of capital directly results in the issuance of a dividend that alters share value.

C) If a class is affected differently, a separate class vote is required for the stated capital reduction.

D) All reductions of stated capital must first be approved by court order before proceeding to shareholder approval.

66. Ava subscribes for 1,000 preferred shares in a private OBCA corporation at $10 per share. The corporation's articles state that these shares are entitled to a fixed 6% cumulative dividend and a liquidation preference. However, the company never declares any dividends, and Ava eventually seeks to compel payment. The directors claim that the company has no legal obligation to pay dividends unless declared. Ava insists her cumulative dividend entitlement should accrue automatically each year.

Which of the following best explains Ava’s legal entitlement?

A) Cumulative dividends accrue year to year but are unpayable unless declared by the board.

B) Cumulative dividends must be paid annually, regardless of board action.

C) Cumulative dividends convert to interest-bearing debt after 24 months.

D) Preferred shareholders can compel dividend payments under the OBCA.

67. Bryan owns 30% of the voting common shares in a privately held OBCA corporation. The company is now being wound up, and its directors are overseeing the distribution of remaining assets to shareholders. Bryan learns that one of the other shareholders, who holds a class of preferred shares, is receiving a significantly higher payout than he is, despite having invested less capital overall. The corporation’s articles of incorporation grant the preferred shares a liquidation preference but do not provide any right to participate beyond recovery of their original investment. Bryan believes the distribution is unfair and questions whether the higher payout to the preferred shareholder is permitted under Ontario corporate law.

What is the best explanation for the preferred shareholder’s entitlement?

A) Preferred shareholders receive their liquidation before any distribution is made to common shareholders.

B) All shareholders must be treated equally in a winding-up, based strictly on the proportion of shares they hold.

C) Higher payouts to preferred shareholders require a court-supervised distribution to be valid.

D) Liquidation preferences are enforceable only if they are also outlined in the corporate by-laws.

68. A Canadian company contracts with a U.S. supplier to buy replacement parts for its manufacturing equipment. The invoice references the supplier’s standard terms, which disclaim all implied warranties and limit damages to repair or replacement. One part fails immediately, causing significant production losses. The buyer sues, asserting the implied conditions of fitness for purpose and merchantability under the Sale of Goods Act (SGA). The supplier argues the exclusions are enforceable.

How should the enforceability of the supplier’s warranty disclaimers be assessed under Ontario law?

A) U.S. style disclaimers always override Canadian warranty law.

B) The SGA has no application to cross-border commercial sales.

C) Unless adapted to Canadian law, disclaimers of “warranties” may not exclude SGA implied “conditions.”

D) Once goods are delivered, all warranty claims are extinguished.

69. Miles works for a federally regulated airline and discovers that his employer has disclosed his employment file to an external consulting firm without his consent. He files a complaint under PIPEDA, claiming his personal information was improperly shared. The employer responds that employee records are not covered by PIPEDA. Miles argues that because he works for a federal undertaking, the employment relationship falls under the Act. The Commissioner agrees to investigate whether the airline breached its obligations under PIPEDA.

Which of the following best explains the scope of the legislation?

A) PIPEDA applies to employee records when the employer is a federal entity.

B) PIPEDA applies to all employee records in Canada.

C) PIPEDA only applies to commercial transactions pertaining to the federal public sector, not employment records.

D) The federal Privacy Act, not PIPEDA, governs this scenario.

70. Gabriel was hired by a software company under what he believed was an employment contract. He worked full-time hours, used company equipment, reported to a supervisor, and had no ability to hire assistants or manage business risk. His written agreement stated he was an "independent contractor," but he was never allowed to set his own hours or work for other clients. After being terminated without notice, Gabriel claimed employment-related entitlements. The company argued he was not an employee and therefore not entitled to such benefits.

How should Gabriel’s employment status be determined?

A) Because Gabriel signed a contract stating he was an independent contractor, he is bound by that label.

B) Only the employer’s subjective belief about Gabriel’s role determines employment status.

C) The true nature of Gabriel’s relationship is determined by examining the totality of the relationship.

D) As long as Gabriel was paid by invoice, he cannot be considered an employee.

71. Amar, a business owner, receives goods from a supplier under an agreement that fails to specify when title and risk pass. The goods are destroyed in a warehouse fire after delivery but before Amar pays. He argues that title had not passed and refuses to pay. The supplier claims risk transferred upon delivery and demands full payment. Neither party had discussed Incoterms or contractual risk provisions.

What is the correct legal outcome under the SGA?

A) Risk passes with title unless otherwise agreed.

B) Title never passes until the invoice is paid.

C) Risk remains with the seller until final acceptance.

D) Risk transfers when the parties agree in writing only.

72. A large Canadian corporation is assessed by the CRA for $5 million in additional tax related to a disallowed tax shelter donation. The company intends to file a notice of objection within 90 days. However, CRA demands immediate payment of half the assessed amount. The company’s CFO is surprised by this and believes no payment should be required until the objection is resolved. Legal counsel advises that there are specific collection rules for large corporations under the ITA.

Which of the following best explains CRA’s authority to collect during the objection process?

A) CRA may immediately collect 50% of the disputed amount from a large corporation.

B) CRA must wait until all objections and appeals are resolved before collection.

C) CRA may only collect after 180 days if no objection is filed.

D) CRA can collect only if the taxpayer has waived their objection rights.

73. Owen is advising a purchaser in an asset acquisition. As part of due diligence, he conducts a PPSA search that reveals a non-possessory lien under the Repair and Storage Liens Act (RSLA) registered against one of the vendor’s vehicles. The vendor claims the lien was resolved and need not be addressed. Owen recommends obtaining a discharge before closing. The vendor’s counsel argues that RSLA liens are not significant and that possession extinguishes them.

What is the legal significance of the non-possessory RSLA lien disclosed in the PPSA search?

A) RSLA liens are automatically discharged when legal ownership of the goods is transferred from one party to another, even if still registered.

B) Possessory RSLA liens are perfected by possession, but non-possessory liens require PPSA registration to be effective.

C) Any lien registered under the RSLA becomes unenforceable if more than one year has passed since the service giving rise to the lien occurred.

D) RSLA liens are limited to storage arrangements and cannot arise in connection with repair services or consumer vehicles.

74. Leo is the majority shareholder of a family-owned corporation that has recently obtained a term loan from a credit union. The loan agreement includes a standard negative pledge clause preventing the corporation from granting additional security interests without the lender’s consent. Six months later, the corporation grants a general security agreement to another lender in connection with new equipment financing. When the credit union learns of this, it alleges that Leo’s corporation has breached its loan agreement. Leo insists that because the security was granted for a new loan, the negative pledge clause should not apply. The credit union is now considering enforcement action.

Which of the following best describes the legal effect of the negative pledge clause?

A) It invalidates all subsequently granted security interests.

B) It does not prevent the creation of new security interests but gives rise to a breach of contract if violated.

C) It permits new security interests as long as they are registered under the PPSA.

D) It automatically subordinates all new security interests to the existing loan.

75. Rachel is a secured lender who financed her debtor’s purchase of a large piece of manufacturing equipment. The transaction was structured as a purchase-money security interest (PMSI). After the debtor received possession of the equipment, Rachel promptly registered a financing statement under the Personal Property Security Act (PPSA) within ten days. However, an earlier creditor had already registered a general security agreement (GSA) that covered all of the debtor’s present and after-acquired personal property. When the debtor defaults on both obligations, a dispute arises over who has priority to the equipment. Rachel asserts that her PMSI entitles her to priority despite the earlier GSA.

Which of the following best reflects the legal priority rules under the PPSA?

A) Rachel’s interest is subordinate because her registration occurred after the earlier creditor’s GSA.

B) Rachel’s PMSI takes priority because it was registered within 15 days of the debtor receiving possession.

C) PMSIs are always subordinate to previously registered security interests in the same collateral.

D) Rachel is required to provide advance notice to the prior secured creditor to perfect her PMSI in equipment.

76. An Ontario-based importer enters into a contract to purchase specialty goods from a supplier based in Germany. The contract states only that Ontario law applies but makes no mention of the United Nations Convention on Contracts for the International Sale of Goods (CISG). A dispute arises regarding the buyer’s rejection of late-shipped goods. The buyer invokes Ontario's Sale of Goods Act (SGA), claiming time was of the essence. The seller argues that the CISG applies and allows more flexibility regarding delivery dates and rejection rights. The parties now dispute which legal framework governs.

Which legal regime governs the contract in this scenario?

A) The CISG applies by default unless it is expressly excluded in the contract.

B) The SGA applies because Ontario law was chosen and no federal law governs.

C) Both laws apply concurrently, and the party may choose the more favourable.

D) The CISG applies only to consumer contracts.

Case 1

Redwood Equipment Inc. (“Redwood”) is an Ontario manufacturing company seeking a term loan from Maple Trust Bank to finance the purchase of new automated milling equipment. Redwood’s counsel prepares a general security agreement (GSA) granting security over all present and after-acquired personal property, including inventory, equipment, and accounts receivable. The security agreement is signed, and value is advanced. A PPSA financing statement is filed five days later. Unbeknownst to the bank, another lender, Forest Credit Union, had already registered a PPSA financing statement a week earlier based on a prior loan secured by the same equipment.

Redwood also obtains the equipment from Boreal Machines Ltd. on conditional sale terms, under which Boreal retains title until full payment is made. Boreal does not register a PPSA financing statement. The equipment is delivered to Redwood’s facility six days after Maple Trust’s registration.

Shortly after installation, Redwood experiences cash flow issues and defaults on the Maple Trust loan. Maple Trust demands payment and seeks to enforce its security. Boreal and Forest Credit now dispute priority over the equipment. Maple Trust also requests a legal opinion from Redwood’s counsel to confirm the enforceability and registration of the GSA before proceeding with enforcement.

Questions 77 to 80 refer to Case 1

77.  Which creditor holds the highest priority over the milling equipment under Ontario PPSA principles?

A) Maple Trust Bank, because it perfected its security by registration before the equipment was delivered.

B) Boreal Machines Ltd., because it retained legal title as a conditional seller and has not been paid.

C) Forest Credit Union, because it filed a PPSA registration before Maple Trust and before possession passed to Redwood.

D) Maple Trust Bank, because it obtained a signed security agreement and value was given prior to Boreal’s delivery.

78. What would be the most accurate legal opinion regarding the perfection of Maple Trust’s security interest?

A) The opinion should confirm that registration occurred and was timely under s. 33 to preserve PMSI status.

B) The opinion must include an express representation of title to the equipment in favour of Redwood.

C) The opinion must assert that Maple Trust has priority due to delivery and value being advanced before Boreal’s interest attached.

D) The opinion should confirm that Maple Trust’s interest is valid and perfected, but without addressing priority.

79. Which of the following best explains why Boreal Machines Ltd. risks losing its interest in the equipment?

A) Because it is not a secured party, its claim cannot be enforced under the PPSA.

B) Because it failed to register a PPSA financing statement to perfect its interest.

C) Because it delivered the equipment after the debtor’s insolvency commenced.

D) Because its contract did not include a standard form estoppel clause.

80. Before enforcing its security, what must Maple Trust Bank do to preserve its remedies?

A) Immediately seize the equipment without further notice, as the GSA authorizes enforcement upon default.

B) Register its security under the Bank Act in addition to the PPSA.

C) Obtain court approval to appoint a receiver, even though the GSA includes a private receivership clause.

D) Provide a 10-day s. 244 notice if the collateral includes substantially all of Redwood’s business assets.