3. Forms of Business Ownership (Part II)

Question 1

What is a corporation?

Answer 1

An organization that is a legal person separate from its owners

Question 2

What are the 2 types of ‘persons’?

Answer 2

Legal person and Natural person

Legal persons are fictitious. They can do many things that natural persons can do: enter into contracts, sue someone/be sued, and so on.

Question 3

Corp.: Start-up
What are the differences of registering at the Federal and the Provincial level?

Answer 3

Federal:
- can operate in any province
- must comply with provincial laws
- higher start-up costs

Provincial:
- must register in each province
- must get a license in each province (some exceptions)
- lower start-up costs

Corp.: Start-up - Identify principal place of business

Do you want to do business in just one province or in two or more provinces?
Just one: provincial
More than one: easier to register at the federal level

Question 4

Corp.: Start-up - Determine by-laws
What are by-laws?

Answer 4

Internal rules stating how:
- It may borrow money
- Issue bonds
- Elect directors and officers
- Hold meetings of shareholders

Question 5

Corp.: Start-up - Select name
What are the criteria for selecting a name?

Answer 5

The name
- Can be a numbered company, such as 1265436 Quebec Inc.
- Must not be deceptive or misleading
- Must not be the same or similar to existing names
- Must include legal element; either Corporation, Corp., Incorporated, Inc., Limited or Ltd./Ltée.
- Can use “trade name” but not with legal element at the same time
- If Federal Inc. can be in French or English
- If Quebec Inc. it must be in French

Corp.: Start-up - Certificate of Incorporation (In QC, Certificate of Constitution)

Question 6

Discuss a corporation’s liability.

Answer 6

Shareholders:
- liability is limited to investment
- corporation acts don’t bind them (art. 309 CCQ)

Except:
- For promises to Inc. (art 315 CCQ)
- Fraud against Inc. (art 316 CCQ)
- Corporate Veil (art. 317 CCQ) –> The juridical personality of a legal person may not be invoked against a person in good faith so as to dissemble fraud, abuse of right or contravention of a rule of public order.

Question 7

Discuss the ownership of a corporation.

Answer 7

Common shares:
- voting right
- last in line for dividends

Preferred shares:
- no voting rights (with exceptions)
- guaranteed dividend % + priority

Note: Common and Preferred terms are not legal terms. Law recognizes Class of Shares, such as Class “A”, Class “B”, etc.

Corp.: Profits (no notes)

Question 8

Discuss a corporation’s management.

Answer 8

Board of Directors
- Any amount of directors
- If publicly traded, then minimum three
- Oversee and set policy for the company
- No personal liability, even for bad business decisions, except:
- Failure to disclose any conflict of interest
- For up to six months of unpaid wages to employees
- For payment of dividends which would render the corporation insolvent

*Company under CDCA must have board of directors composed of at least 25% resident Canadians

Question 9

Discuss ownership transfer when it comes to a corporation.

Answer 9

Officers:
- appointed by the Board to run day-to-day operations

Shareholders:
- possible to take over management role through a Unanimous Shareholder Agreement

Corp.: Termination (no notes)

Question 10

Enumerate the advantages and disadvantages of the corporation.

Answer 10

Advantages:
- Limited liability
- Continuity
- Easier to raise money

Disadvantages:
- More complex form
- More expensive
- Ease of transfer
- Double taxation