L3 - Corporation Flashcards
What is the corporation definition?
An organization that is a legal person separate from its owners
legal fiction, no physical presence
What can a corporation do and not do?
It can hire people, sue people, be sued by people
It cannot do everything a NATURAL person can (cannot be married or adopt someone)
What is the CBCA, and what does it mean for corporations
Canada Business Corporation Act
They can operate in any province, but must comply with their laws?
What is the QBCA, and what does it mean for corporations
Québec Business Corporation Act
Businesses under this act may operate in other provinces, but they’ll require registration and licenses to do so (except for Ontario as there is an agreement with Qc)
On what is based the decision to register with the CBCA or QBCA?
On the geographic scope of the business
Operating in many provinces makes it better to register with the CBCA
What are by-laws?
Internal rules stating how
- Corporations may borrow money
- Elect directors & officers
- Hold shareholders meetings
Do corporations have to identify their principal place of business (Head Office)
It is required by the CBCA, or the QBCA if registered in Québec
What are the requirement regarding the naming of the corporation? (6)
- It can be numbered
- It must included a legal element (Corp. Inc. Ltd./Ltée.)
- You can use the trade name, but not at the same time as the legal element
- For federal, it can be in english or french, in Québec it must be french
- Cannot be deceptive or misleading
- Cannot be the same or similar as existing names
What does the certificate of incorporation do?
It mentions the date of incorporation
(like a birth certificate for the corporation)
How are liabilities related to the corporations?
Shareholders have limited liability, as the Corporations Act doesn’t bind them (art. 309 CCQ)
Debts don’t belong to shareholders
What is the corporate veil?
The separation between the corporation itself and the shareholders
What are the exceptions to the limited liability of shareholders? (3)
arts. 315,316,317
Promises to Inc.
Fraud against Inc.
Corporate Veil
Regarding ownership, what are the particularities of common shares
They have a voting right
They receive the last dividends
Regarding ownership, what are the particularities of preferred shares
They have NO voting right
They have guaranteed dividends and priority
What are the legal terms for common and preferred shares?
Class A
Class B
etc
Who selects the Board of Directors?
Usually it’s the vote of the shareholders
What is the BoD’s function?
To oversee and set the company’s policies
Of what is comprised the BoD?
Any amount of directors, with at least 25%+ must be Canadian
IF publicly traded, than there must be at least 3 directors
What is the particularity about the liability of the BoD? What are the exceptions (3)
They don’t have any personal liability, even for bad decisions. Except for:
- Failure to disclose conflict of interest
- Up to 6 months of unpaid employee wages
- Dividend pmts that would render the firm insolvent
Who is responsible for applying the policy to the day-to-day operations?
The officers that are appointed by the BoD (Implementation role)
Can shareholders take over the management role?
Yes, through a unanimous shareholder agreement
How is a corporation terminated?
By shareholders deciding to terminate it. Otherwise, if they all die, then the corporation continues in perpetuity, since it is separate from them
What are the advantages of a corporation (3)
Limited liability
Continuity
Easier to raise money
What are the disadvantages of a corporation? (4)
More complex form
More expensive
Double taxation
Ease of transfer (you don’t really know who the owners are)
