Corporations Flashcards
What is a corporation?
A company that is a separate legal entity from its owners, with ownership divided into transferrable shares
Who owns a corporation and how are they classified?
A corporation is owned by shareholders
Corporations are classified by purpose and ownership.
Purpose: profit or non-profit
Ownership: public or private
How do you form a corporation?
- Can incorporate federally or provincially
- File Articles of Incorporation
Ownership in a corporation is in the form of…
Shares which can be divided into different classes
What rights do shareholders have?
1) To vote on certain matters
2) To the distribution of profit - dividends
3) To the remaining assets upon liquidation
How do shareholders manage the corporation?
Indirectly through a BoaRD OF directors (elected by the shareholders)
What do the Board of Directors decide on?
- Corporation’s operating policies
- Governance and select officers to run the corporation and execute policies
What are common shares?
Gives the shareholder’s ownership in that they entitle the shareholder to a vote - one vote per share held
Why are preferred shares?
A hybrid of debt and shares. Has a fixed dividend payment (interest) but they also may share in the profits.
They have no vote but they have preference of common shares - they get paid first
What is authorized share capital?
The number of each type of share that a company is allowed to sell. It could be unlimited
What are issues of shares?
Shares that have been sold to investors directly or through an investor dealer
What is the first public sale share called?
Initial Public Offering (IPO)
What are market value of shares?
Shares can be traded on a secondary market (stock exchange or private transaction). The profit or loss on these trades are external to the corporation. It is between the buyer and seller
What is legal capital?
Once shares have been issued, they are considered legal capital and cannot be distributed to shareholders
- Retained Earnings are earned capital and can be distributed to shareholders as dividends
- Share capital and retained earnings are maintained separate for this reason
What is the difference for corporations on income statements?
Income tax
