Class 3 - Forms of Business Ownership 2

Question 1

What is a corporation?

Answer 1

Legal person separate from its owner

Question 2

What is legal fiction?

Answer 2

A concept that we find in law meant to achieve a particular purpose but is not tangible.

E.g. legal person can do most of the things a natural person can do, such as offer contracts, sue etc. However they cannot adopt humans, get married, etc.

Question 3

What is the start-up process for a corporation at both the Federal and provincial levels?

Answer 3

Federal: can operate in any province, must comply with provincial laws, higher startup costs.

Provincial: must register in each province, must get a license in each province, lower start-up costs

Determine by-laws

Identify principal place of business (incorporated in quebec demands a head office in the province)

select a name

Question 4

What are by-laws for a corporation?

Answer 4

internal rules stating how: It may borrow money, issue bonds, elect directors and officers, hold meetings of shareholders

Question 5

What are the requirements of name selection for a corporation?

Answer 5

• Must include legal element (corp, incorporated, inc, etc)
• Can use a trade name but not with legal elements at the same time
• If quebec inc. it must be in french

Question 6

What is a certificate of incorporation called in quebec

Answer 6

Certificate of constitution

Either way it is proof that you are incorporated and the date of incorporation is listed

Question 7

What is the liability in a corporation?

Answer 7

Shareholders’ liability is limited to invesment and corporations acts do not bind them.

Exept:

• for promises to inc
• Fraud against inc.
• Corporate veil

Question 8

What is the difference betwene common shares and preferred shares?

Answer 8

Common: Voting rights, last in line for dividends

Preferred: No voting rights (with exceptions, e.g. board hasnt delcared dividends for 3 year, then they get votings rights)

• Guaranteed dividend % + priority

Question 9

What is the board of directors for a corporation (management system of a corporation)

Answer 9

• Can have any amount of directors
• if publicly traded, then minimum 3 directors
• overseen policy
• No personal liaiblity, except: 1) failure to disclose conflict of interest; 2) up to six months of unpaid wages to employees; 3) Payment of dividends which would render the corporation insolvent.

A company under CBCA must have BOD with a minimum of 25% canadian residents (selected through shareholder vote)

Question 10

How does ownership transfer work for a corporation?

Answer 10

Officers are appointed by the BOD to run day-to-day operations and shareholders can take over maangement role through a unanimous shareholder agreement

Question 11

How does termination of a corporation work?

Answer 11

Bankruptcy or merger/acquisition

Question 12

What are disadvantages of a corporation?

Answer 12

• More people involved in the decision process → more shares = more diluted vote
• Higher start-up costs → more structured form of business so may need more help with the complex structure (lawyers, business people, application fees, etc.)
• Need to keep very accurate records → a lot of requirements
• Double taxation → corporation is taxed and people are taxed so double taxed
• Ease of transfer

Question 13

What are the advantages of a corporation?

Answer 13

• Limited liability for shareholders are not liable for debt of the corporation (Corporation itself still has unlimited liability)
• May be easier to raise capital since more people can invest
• Raise capital through the buying and selling of shares
• Bigger ideas, bigger projects, more resources
  If the owner dies, it lives on → continuity