Patco Ltd. is a closely held private corporation. Pat is the sole shareholder, director and officer of Patco Ltd. The Articles of Incorporation provide that Patco Ltd. is authorized to issue an unlimited number of common share and an unlimited number of preferred shares. Pat is the holder of 100 common shares of Patco Ltd.

Pat required additional start-up capital to begin operation of his business and obtained a loan in the amount of $50,000.00 from Hogwarts Credit Union to purchase supplies and equipment and secure a lease for the operation of his business. Unfortunately, Erica and Katharine were successful in their action against Pat and Patco Ltd. lost the agreement for advertising services with MBB. Without the advertising agreement, Patco Ltd. had no source of revenue and defaulted on repayment of the loan.

Patco Ltd. did not have sufficient assets to satisfy the outstanding loan. Hogwarts sought to bring an action for repayment against Patco Ltd. and Pat in his personal capacity.

(i) Required: Will Hogwarts be successful in is action against Pat? Explain the concept of a corporation as a separate corporate personality and any potential limitations of the principle.

Pat finds a potential investor, Sam, who is willing to help get Patco Ltd. back on its feet. Sam, agrees to invest $50,000.00 in exchange for the issuance of shares in Patco Ltd. and does not wish to have an active management role in the corporation, but would like to receive a share of the profits of Patco Ltd.

(ii) Required: What type of shares should the investor insist be issued to him in exchange for his investment? What share rights would be attractive to Sam?

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