Learning Corporate Law: Passing the DeathGameCyberTest

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Learning Corporate Law:

Passing the DeathGameCyberTest

Business Associations—Law 440

Winter 2012
First Draft

Professor Arthur Cockfield

With apologies to William Gibson
Chapter 1
The Silver Ball
The butterflies were still there.

After twenty years of teaching Professor Tate had hoped to reach a detente with the lectern, but no such luck. The last class of the semester was just as bad as the first: sweaty palms, raised heart rate, and yes, the ever-present butterflies in his stomach. He glanced nervously at the students as they filed in, assuring himself that he didn’t need to go to the bathroom again before starting.

The words ‘Last Day Lecture Notes’ shone up from the teleprompter. Beneath, in bolder script, it read ‘Business Associations.’ Drawing a breath, he scanned the audience for a hint of compassion, but found none. He was Daniel, lecturing to the lions. He cleared his throat and ran his hands through long grey strands of hair that swept down over his forehead then straightened his red polka dot tie. Just when hope was all but gone a familiar face came through the door to his right and Tate’s face brightened with recognition. Escaping the podium for the moment, he rushed to greet the student.

“Henry!” Professor Tate said. “You’re back from your trip.”

Henry was dressed in a buttonless tan bodysuit that stretched from his feet to his neck. A small green knapsack was slung over his shoulder.

“Yeah, just got back from Japan yesterday,” he said.

“Wonderful, wonderful,” Tate said eagerly. “Before you left we talked about your interest in holographic origami. You showed me your… swan? It was a swan, wasn’t it?”

“Yes,” Henry said, his voice low.

“Well, Henry, I hope you managed to finish it. ”

A snicker erupted from behind. It came from Molly Millions, sprawled out in her chair in the front row of the classroom, eyes focused on Professor Tate and Henry. Molly, a black-haired, hollow-eyed young woman in a blood-red chemise and black biker-boots with a serpentine smile that always seemed to say ‘Come closer… I can’t kill you from here’.

Henry winced.

“Ignore her,” Tate said. “You make beautiful swans. Well worth remembering. It was marvelous tech-art, and you should be proud. I think you said your uncle in Japan helped you get the design tools. Really unique work.”

Henry nodded. “Yeah, my Uncle Rosario. He works for MicroSony, so he gets his hands on all the newest stuff. If you’re actually interested I have something with me,” he said, pulling the knapsack off and opening it in one fluid motion. Before Tate could respond the student had produced an opaque ball about the size of a small apple. Light moved within it, giving a smoky, glowing air to the device.

“Ohhhh, go ahead… show him your ball,” Molly chided.

Henry looked over his shoulder. Molly was still staring at him. Henry knew she had been born in the Outer Colonies on a satellite repair pod orbiting the Earth. He also knew her parents were Radicals, opposed to any governorship by a ground-based polity, and that they had trained Molly in the Deadly Combat Arts since she was four years old, preparing for a revolution that never came. Henry swallowed hard before turning toward Tate and continuing in a quiet voice, “It’s… It’s called the Ultimate Gamer.”

Tate leaned forward to take a closer look. “What does it do?”

“Brain-Computer Interface. No ports, no wires. Electroencephalogram sensors tabled to hit a wide spectrum. You can get a cheap knock-off at any computer store. But this… This prototype is the next, next gen. It’s the next big thing in gaming.”

“I’m afraid I’m not much of a gamer,” Tate apologized.

“It’s more than just games. It’s the first real V-world tech. The technology fools your brain into thinking you are gaming in the real world. My uncle says MicroSony will launch the Ultimate Gamer next year at Expo 2043 in Vegas.”

“Real virtual? They’ve been working on that for decades. You’re saying this actually works?”

“It’s total sensory immersion. It might be on the shelves now if MicroSony wasn’t backlogged with archaic tech they have to get rid of. This thing makes the PS9 look like garbage. BCI is the definitely where everything is headed. And it’s wireless to boot so you don’t need to hook it up to a brain port—”

A loud laugh from the back of the classroom interrupted the conversation. Terry Bird, the behemoth that insisted on being called ‘T-Bird’, was horsing around with his partner in crime, James Ling. T-Bird had James in a headlock and was plucking the hairs from his purple-dyed Mohawk. Ling’s annoying hee-haw rang throughout the classroom. They were self-obsessed for the moment, but given time they were going to lose interest and look for other forms of entertainment.

Professor Tate grimaced. “Hmmm… We’ll have to talk more about this later, Henry. I better get things going.”

Henry replaced the ball in his knapsack and took a seat in the first row, two seats to the left of Molly. Back at the podium Tate wrestled the butterflies, won, and began the class.

“Well, welcome all,” he said tentatively. T-Bird was the last to register the change in the room, but eventually even he stopped to listen. He released James and the two settled noisily into their chairs in the back row. T-Bird, stuffed into a red muscle t-shirt pulled over a washboard stomach that, rumour had it, was manufactured in Southern Mexico, stretched his arms above his head and cracked his knuckles. The Professor looked out at the other students, there were twenty-two in all.

“Welcome to our last class for Business Associations. Uh, in this final class we will review the materials. As mentioned, you were supposed to review your class notes as well as the assigned materials to get the most out of this review. You’ve all downloaded the review outline by now so let’s, uh, start with that.”

Lights came alive on each student’s desk, allowing them to read the outline on the screen embedded within the desk. Tate started with a review of what the Professor referred to as ‘the baby model of corporate law’.

The model analogized a corporation with a human baby. A corporation, the Professor explained, was a legal person like a baby. It could sue or be sued. It could own assets and be subject to liabilities, just like a human baby could. The owners of the shares of a corporation are shareholders—these shareholders can thus also be analogized with parents who similarly ‘own’ the baby. And just like parents, they may be tempted to try to control the baby’s actions. But, as every parent finds out (or so Tate had heard as he had never had any children himself), the baby refuses to be controlled completely by his or her parents. Rather, it is the baby’s own brain that controls the actions. Similarly, corporate law does not permit shareholders to control or manage the corporation. Rather, the power of management is vested with directors who have been called the ‘directing mind’ of the corporation. So directors can be analogized with a baby’s brain. The course, more than anything else, focused on the governance rules surrounding these three actors: the corporation (baby), directors (baby’s brain) and shareholders (parents).

Under another related rule, shareholders indirectly control the corporation if they have the ability to elect a majority of the board of directors. If majority shareholders do not like the management actions of directors then they must fire them and elect directors who, it is hoped, will follow the shareholders’ wishes. Similarly, parents indirectly control the baby by shaping what the baby’s brain thinks about—they can punish the baby and try to put in a new idea in its brain so it will behave as expected. But at the end of the day, directors—like a baby’s brain—have independent authority to manage a corporation, even if it is against the views of the shareholders/parents.

Professor Tate went on to explain how a corporation is formed. The shareholder/parents can fill out a government form called ‘Articles of Incorporation’ to create a corporation. They need to fill in the form with details that include the business name of the corporation, the names of the first directors and information about shares and their relevant attributes (for example, common shares or preferred shares). Once the form is filed with an appropriate fee and accompanying materials, the government will certify that the corporation has been created; this is called a Certificate of Incorporation. In many ways, the Articles of Incorporation (as well as the Certificate of Incorporation) resemble a baby’s birth certificate. Tate reminded the class that they should have looked at the relevant website where online filings can be used to give birth to the corporation.

Review articles of incorporation at:

(a): http://www.forms.ssb.gov.on.ca/mbs/ssb/forms/ssbforms.nsf/GetFileAttach/007-07116~1/$File/07116E.pdf

(b) CBCA Form 1 articles of incorporation at pp. 177-178 and Corporations Canada Policy Statement 3.1.—Incorporation Kit at pp. 297-312
A few minutes in Professor Tate made his first diversion from the prepared text. “Oh yes, I had assigned, uh, problems throughout the semester. Take-home review problems. You were supposed to do them at home as a way to check to see if you understood the materials.”

“But there wasn’t any mention of those problems in the course description,” T-Bird groaned loudly. Professor Tate knew that T-Bird father was a wealthy businessman and that he had enhanced his son’s mind with the best techware on the market. T-Bird was often bragging about some new port that had been installed to amplify his cerebral cortex, and how the processing power made it easy for him to digest even the most complex legal problems.

James Ling, of the purple-Mohawk, chimed in, “Yeah, I thought this was bird course. Why do you think we’re here?”

Half the class laughed. Tate was at a momentary loss until he saw that Henry was urging him forward with his eyes. Steeling himself, Tate began to speak, “I…”

T-Bird slapped his hand loudly on the top of the desk, interrupting the Professor. “Let the record reflect that this isn’t fair. Nobody told me about any problems when I signed up. It wasn’t in the course description so we shouldn’t have had to do them.”

The room went silent. Professor Tate felt a wave of anger overcome him. In the end, this was his class, and he had put up with this kind of behavior all semester. His stammer was just about to become coherent anger when … the world changed.

Without warning, the classroom was gone. The old walls and ceiling were replaced with high-arches that glowed with the same opaque light of Henry’s BCI device. They all wore the same clothes, but these too were white. Tate blinked, trying to find forms in the white-on-white that surrounded them.

T-Bird’s anger disappeared. Like all the others, he could only gape slack-jawed at the sudden transformation of the world around them.

Welcome to Business Associations. A soft, female voice echoed from everywhere at once. You will complete all assignments in a correct and efficient manner. Failure to do so will result in your immediate death.

1. A partnership is not a legal person while a corporation is one. From a tax perspective, what is main advantage of using a partnership as a so-called flow-through entity to conduct business?
2. Partners generally stand to each other as reciprocal agents and reciprocal fiduciaries. What does this mean?
3. A shareholder in a corporation does not own the assets of a corporation (as they are owned by the corporation). What are shareholders entitled to?
4. Directors are normally entitled to exercise their independent judgment with respect to management decisions. Why should the CBCA try to prevent directors from, say, selling all or substantially all of a corporation’s assets?
5. What is the judicial test for inducing breach of contract that would permit a court to ‘pierce the veil’ of a corporation?
6. Should a shareholder, director or officer ever worry about personal liability for corporate transactions when the corporation has too little equity?

Chapter 2
The White World
Tate looked out at the faces of the stunned students, T-Bird was rising from his chair, Henry fumbled with his knapsack, his face creased with worry. Tate’s attention was drawn back to his podium. Despite its new alabaster sheen, it was still the same device that had been torturing him these many years. From within it the teleprompter was still urging him to continue the final review class. For no apparent reason he felt compelled to tap the newly white floor with his foot. It surrendered a satisfying ‘click’ sound that confirmed its solidity.

His students were following suit, tapping and testing the bounds of this new reality. Desks, walls, and carpets were all poked and prodded; each revealed themselves to be either solid or a very, very good facsimile.

Predictably, it was T-Bird that broke the silence.

“There’s no door!” he cried, kicking the seamless spot where one had been only moments earlier. Not content with the dull thud he’d extracted, he decided to try punching it. This too resulted in a dull thud, though it was quickly drowned out by the sharp squeal of pain that erupted as T-Bird’s knuckles hit solid brick. Molly giggled in delight at the sound of it.

“No door means no way out,” T-Bird said. Then, turning to Molly, he added, “For any of us.”

She looked from his eyes to the beads of blood that had appeared on his hand. “Who wants to leave? This is just getting interesting.”

“Screw you, you psycho li—“

“Finish that sentence and you’ll lose something,” she said in a sing-sing voice. Molly took a half-step forward and raised her hands, palms up; at the tip of each finder, a six centimeter long double–edged blade shot out, the implants were retracted as quickly as they appeared.

T-Bird froze, snarled for a moment then quietly withdrew.

Just over half the students were up and exploring. The eleven who remained seated were manipulating their desktop screens, hoping to discover a cause for the transformation on online news sites. But their screens did not change, and cyberspace remained indifferent to their new world.


T-Bird was already in his chair before he realized that it was Tate’s voice that had driven him there.

“We stay calm and we figure it out,” Tate explained. “No more outbursts from you Terrence.”

“Hey!” said James, looking over at T-Bird then back toward Tate. “You know T-Bird has a Class 2-A disability so you’re not allowed to upset him.”

“Yes, yes, I know,” Tate said. “I’m sorry Terrence.” T-Bird’s techware had fried the part of his brain that regulates impulse control; this led to a measurable chemical imbalance brain disability that was protected against discrimination by law as well as by the faculty’s internal governance rules.

“Freak show,” Molly shouted randomly. T-Bird and James glared at her but remained silent. Tate couldn’t figure out from her tone if she was happy or upset. As she offered no more insight, he decided to move on.

Henry…” he said coldly.

“This isn’t me, honest!” the boy replied. “The Gamer’s put away. See.” He unzipped his knapsack it and pulled out the Ultimate Gamer. To his surprise, sparks were moving within the white hues of the orb. The whisper of an electronic hum emanated from within.

“Oh,” Henry said.

“Turn it off, Mr. Case,” Tate said. “Impressive as it may be, we have a class to get back to.”

Tate and the students gathered around Henry to focus on him as he fumbled with the device.

“What the hell is that thing?” T-Bird demanded from behind.

“It’s his little ball,” Molly cooed. “Hey Henry… No one ever tell you, when you are in class, not to play with your you-know-whats?”

Henry winced, but kept fidgeting with the device.

Tate loosened his bow-tie. “Is there a problem?”

“I don’t know,” Henry said.

Tate came from behind the podium to get a better look. “What’s happening?”

“I don’t know,” Henry said without looking up. “It appears to be working, but I didn’t turn it on.”

“Well, turn it off.”

Henry looked at Tate and grabbed the ball and twirled it in his hand. “That’s the thing… I can’t. The embedded off switch is missing. Like somebody swapped my Virtual Gamer with this one. Which means …” His voice trailed off.

“Which means this is not your ball,” the Professor said.

“I ... I’m not sure. We’re definitely in a virtual reality, which means this is really just a V-world representation of the Ultimate Gamer, not the real device. But this one has no off switch.”

“I’m beginning to see a problem with your prototype,” Tate said flatly.

“Henry—a what?” Molly shot back, her left eyebrow curled beneath a swoop of black hair.

“A V-world. A, um, a virtual reality. Look.” Henry rose from his chair and grabbed the edge of his desk with both hands. He tried to tip the desk over, but it wouldn’t budge. In the row behind Henry, T-Bird gripped the edge of his own desk and gave a mighty heave. It remained motionless.

“See, this is not my desk,” Henry said. “Not my real desk. It’s a virtual replica of my desk. Everything we see and feel right now is a projected image.”

“So we aren’t really here?” Molly asked.

“Like you ever were,” T-Bird interjected.

Henry shook his head. “I don’t know. I think we’re all asleep or something back in the real classroom. Our sleeping minds are caught up in the virtual reality that this thing is pumping out.”

Professor McTate’s brow furrowed. “But how? I know the tech folks are working on virtual reality technology, including your gaming system. But none of us are jacked in.”

Several students subconsciously felt the back of their necks around their chrome implants as if trying to detect some unseen cables. The chrome implants remained unchanged—except they were all white now.

“I know,” Henry said. “The same goes for this new V-Gamer. My uncle Rosario said the VR chip wouldn’t function unless the gamer jacks in. Wireless won’t work with the system yet. You need too much amplification for a wireless signal. Weird thing is, not only is the on/off switch missing from this virtual copy of my gaming machine, but the port where you attach the cable is also missing.”

T-Bird remained standing then stepped forward to glare down at Henry. “If this freaky game did this to us, you’ll be sorry. Do you know who my dad is? He owns half this province. He’ll sue Henry and this law school into oblivion when he hears about this garbage.”

Another student, Samantha Ayes, interrupted T-Bird,

“Look… My screen is changing. It now says “Fifteen minutes remain to type in your answer. And a count-down has begun.”

They all rushed to their desks to confirm what the girl has said. A digital count-down clock had appeared below the text of the problems. It now read ‘14 minutes, 12 seconds remain’.

Below a glowing white ceiling that lit the entire room, most of the students stared at their screens with a mixture of curiosity and rising panic.

James, however, laughed aloud. “Lame!” he shouted to no one in particular, an ear-to-ear grin under his spiked mohawk. “Though I have to admit, the ‘halk is a nice touch. This is what I’m gonna look like if I get old.” He swept his hands through his hair; it too had turned a pearl-white.

“What?” T-Bird grunted.

“Think about it, man. Last day of classes. Everyone’s all confused and screwed up. Perfect punk day. We’re being punked.”

“I don’t see any cameras,” T-Bird countered.

James gave him a ‘What kind of idiot are you?’ look. “C’mon. They pull off ultra-tec crap like this and you figure they’re not going to be able to hide a camera? Hell, Henry Brainboy’s probably got one of those bitty ones tucked inside one of his zits.”

Then, turning back to address the hidden cameras in the ceiling, he shouted, “For the record, I’m not falling for it! And I’m not answering your damn questions, and I’m not going to have the whole school laughing at replays of me sitting here like a scared idiot.”

Molly shook her head. “Yeah, much better than looking like a scared idiot that has no clue what the answers are. But you go first. I want to see if it’s true that you die in reality when you get killed in a dream. Like in the Matrix.”

“Brainboy ain’t Neo, and you’re sure as hell no Trinity,” James said. “I mean I’ve seen the classics too.”

Molly smiled serenely. “Just get to the part where you die, already.”

Henry looked up from his terminal. “I’m not taking any chances. I don’t recommend anyone else does either.”

“I agree with Henry here,” Tate said to the class. “Until we know what’s happening, I suggest we all do as the system tells us and avoid any uncertain consequences.”

Most of the class was back at work immediately, typing the answers into the console. James alone crossed his arms and sat back in his chair, smirking.

When he was done, Henry got up and approached Tate at the podium. The Professor stared as if transfixed by the glowing notes for his final review:

‘We know that a corporation is a legal person. It can sue, be sued, own assets, and so on. Yet corporations continue to pose many conceptual challenges to the law. Of course it is not a real person; rather, it was more like an artificial person, perhaps more like a robot baby where the directors’ role should be analogized with operating system software, and not the baby’s brain.

Still, the law continues to personalize the corporation and perhaps this makes sense when one considers that, at the end of the day, human beings make corporate decisions based on human sensibilities—software, which operates on an automatic basis according to its code parameters, is a less helpful analogy. For instance, if a human director commits a criminal offence then courts, under identification theory, will ‘merge’ his mind with that of a corporation so that a mens rea requirement is met and a corporation can be held criminally liable. Here again we see courts focusing on who is really the ‘directing mind’ of the corporation, and they accept that, effectively, any director, senior officer or any employee can be this ‘mind’ if they have the authority to create or alter corporate policy.

Moreover, under the common law as well as corporation statutes, corporations are vested with all of the abilities of a natural person. Even if there is a restriction somewhere in the corporate constitution (articles, bylaws, unanimous shareholder agreement, and so on), corporations generally cannot deny they have the capacity to conduct certain corporate activities. That is, the corporate activities will not be found to be ultra vires and thus null and void.’

The last few sentences were raised above the others and written in a new hot-pink font; ‘Why do the normals hate me? I’m just different, that’s all.’

Henry cleared his throat to catch Tate’s attention. The Professor blinked, shook his head then leaned in to hear.

“I’ve been thinking,” Henry said in a hushed tone. “There’s no way we could be tuned into my Virtual Gamer. It just doesn’t work that way. There are a dozen protocols you have to get through before the BCI can even begin transmitting effectively with so many people at the same time. For it to happen like this, with none of us prepared for it, you’d have to do some pretty heavy-duty bulldozing.”

“Bulldozing?” Tate prodded.

“Bulldozing… plowing through. You’d have to just blast through all the firewalls, do a direct-access brain boot, and implement the whole thing without anyone of us seeing what was happening. Damn near impossible unless…”

“Unless what?” Tate asked.

“You’d have to be able to control the V-world wirelessly, and that means a telepath. And not one of the regular ones you used to see doing card tricks on late-night TV. You’d need one of those military-grade psi-ops guys they use for interrogations.”

Tate looked concerned, but distracted. He looked over to a group of students who were now standing besides their desks. “We’ll discuss this later. Only two minutes left on the countdown, and it appears that Mr. Ling has abided by his promise not to answer the question.”

As the final seconds ticked down, all eyes were on James. When it hit zero, he jumped from his chair.

“Yeah! Told you wimps this was just some dimwad’s idea of a—”


The screens on all but one desk blinked and a new message appeared in bright green letters: ‘CORRECT.’ James’ monitor alone shone, in blood red script, ‘INCORRECT.’

Henry stood and moved toward him. “You okay?” he asked as he approached.

James turned toward the voice. “I… I can’t see.”

Henry moved in closer, grabbing James’ shoulders and turning him. When they were facing, Henry could see that both of James’ eyes had a small, white fleck.

“It hurts,” James said, fear rising in his voice.

Henry watched as the fleck became a dot, then continued to spread. When it had filled James’ eyes it pulsed for a brief second. Instantly the nerves and cornea were turned to a thousand particles of small, white sand. It caught the ceiling light as it bled down his cheeks, creating a kaleidoscope of colors as it fell to the ground. Hollow sockets gaped where his eyes had been.

“What the—” James croaked. There was more, but his voice was muted by the white light that moved across his face. Henry yelped when the cheeks and jaw shimmered, turned to the same crystalline sand, and poured down. The skull and brain followed. Several mewling noises escaped the throat before it too surrendered. Headless, the body slumped and fell, the flesh turning quickly to iridescent sand. In a minute, nothing remained of James Ling.

Screams erupted from several students at once. Molly bowed her head. Mouth agape, Tate stared at James’ empty chair. Henry recoiled, truly horrified. As he ran for his own desk, the screens above their stations blinked on in unison, revealing new problems.

The soft, comforting tones of the woman’s voice returned:

You will complete all assignments in a correct and efficient manner. Failure to do so will result in your immediate death.’

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