Week 2 Flashcards
Two defining characteristics of a corporation.
- Separate legal personality
2. limited liability
Advantages of a corporation? 1/4
Provides almost complete flexibility in allocating:
profit (dividend, income or salary),
risk (only at risk for amount contributed) and
power (shareholders voting rights, directors certain powers to make decisions).
Advantages of a corporation? 2/4
Allows transfer of ownership easily through the transfer of shares (especially with a public corporation; small privately held corporations may have restrictions on transfers of shares).
Advantages of a corporation? 3/4
Financing – raising capital is easier and there are more alternatives ( eg . shares, bonds, debentures etc.)
Advantages of a corporation? 4/4
Lower corporate tax rates – a corporation is taxed separately from its owners and generally at a lower tax rate.
CORPORATIONS. Disadvantages
- incorporation must be sought from appropriate government authority
- Requires legal formalities to create
- if doing business in more than one province have to extraprovincially register in other provinces.
- Ongoing maintenance obligations
- expensive
Types of companies
- Extra-Provincial Companies
- Private or closely held companies
- Public companies
What are the properties of private companies?
- small companies with a small number of shareholders.
- shares have not been listed on a stock exchange.
- There are usually restrictions on the transfer of its shares contained in the articles
- must have restrictions on the transfer of shares in your articles
Properties of public companies?
- generally companies listed and traded on a stock exchange
- Usually a large number of shareholders who are mostly passive investors
- shares have been sold to the “public” pursuant to a prospectus. (Securities Act – reporting issuer)
What legislation that regulates the trading of securities (publicly traded shared)?
B.C. Securities Act
What jurisdictions can corporations incorporate under?
- federally under the CBCA;
2. in one of the provinces or territories
What federal law guides what directors and shareholders can and cannot do?
CBSA - Canada Business Corporations Act
What are the advantages of federal incorporation?
- Capacity and power tocarry on business throughout Canada
- Name protection
- Common set of widely known ruleswhen corporation operates or has directors or lawyers in two or more provinces.
What are the disadvantages of federal incorporation?
- Often difficult to clear afederal name
- Lack of familiaritywith CBCA in some law firms
- Perceived remoteness ofOttawa,time difference
- cost– is generally greater than for a BC incorporation. Fees are similar butextraprovincial registration required in BC – duplicate registration, additional filing fees and legal expenses.
What are the advantages of BC Incorporation?
- Contractarian model- flexibility
- Victoriacloser than Ottawa, no time change
- directors residencyrequirements eliminated in New Act
- Where for tax reasons it is necessary for asubsidiaryto hold share in parent, BC and NS most liberal provinces. (?)