Volume 1- Chapter 11 Flashcards
Define the three types of business structures.
- Sole Proprietorship 2. Partnership 3. Corporation
Each structure has distinct legal, tax, and operational implications.
What is a corporation?
A distinct legal entity separate from its shareholders that can sue or be sued
Property acquired by the corporation belongs to the corporation, not the shareholders.
What is the liability of shareholders in a corporation?
Limited to the amount they invested in the corporation’s common shares
Shareholders are not personally liable for the corporation’s debts.
What happens to a corporation if a shareholder dies?
The corporation’s existence is not affected
Unlike sole proprietorships and partnerships, a corporation continues regardless of shareholder changes.
What are the advantages of incorporation?
- Limited shareholder liability * Continuity of existence * Transfer of ownership * Ability to finance * Growth * Professional management
These advantages make corporations suitable for larger business ventures.
What are the disadvantages of incorporation?
- Inflexibility * Double taxation * Expense * Capital withdrawal procedures
Disadvantages can complicate corporate operations and profitability.
Define private corporations.
Corporations with restricted share transfer rights and a maximum of 50 shareholders
Private corporations cannot invite the public to subscribe for their securities.
Define public corporations.
Companies whose shares are listed on a stock exchange or traded over the counter
Public corporations have more regulatory requirements than private ones.
What are corporate by-laws?
Rules that govern the conduct of the corporation, prepared at incorporation
By-laws address issues such as meetings, director qualifications, and dividend payments.
What voting rights do common shareholders have?
Vote on company matters, including board elections and major corporate changes
Shareholders can influence decisions such as mergers and executive compensation.
What is a proxy in the context of shareholder meetings?
A member of management authorized to vote on behalf of a shareholder
Shareholders often use proxies to vote if they cannot attend meetings.
What is a voting trust?
An agreement where shareholders deposit their shares with a trustee for voting control
Used during corporate restructuring to protect financial investments.
Describe the responsibilities of corporate directors.
- Set company policies * Appoint and supervise officers * Declare dividends and issue shares * Act in the best interests of the corporation
Directors can be personally liable for illegal acts done with their knowledge.
What are the key components of financial statements?
- Statement of Financial Position 2. Income Statement 3. Statement of Cash Flows
These components provide a comprehensive overview of a corporation’s financial health.
What does the statement of financial position show?
A company’s financial position on a specific date
Also known as the balance sheet, it lists assets, liabilities, and equity.
What accounting standards has Canada adopted for public companies?
International Financial Reporting Standards (IFRS)
IFRS promotes transparency and comparability across international financial statements.
Fill in the blank: The possibility of ______ arises when after-tax profits are distributed as dividends.
double taxation
True or False: In a sole proprietorship, the owner is personally liable for all business debts.
True
In a limited partnership, who is liable for business debts?
General partners are personally liable; limited partners are only liable to the extent of their investment
Limited partners cannot participate in daily business operations.
What is the role of the chairman of the board?
Presides over board meetings and influences management
The chairman may also have duties of the president or other officers.
What does the statement of financial position represent?
It shows a company’s financial position on a specific date.
What are the three main components of the statement of financial position?
- Assets
- Equity
- Liabilities
What does equity represent in a company’s financial statements?
It represents the shareholders’ interest in the company.
What is the equation that expresses the relationship between total assets, equity, and liabilities?
Total Assets = Total Equity + Total Liabilities