Corporate Finance
Chapter 1
Note: the summaries at the end of each chapter are good study tools.
Corporations
A corporation is a permanent entity, legally distinct from its owners, who are called shareholders or stockholders. A corporation confers limited liability to its owners: shareholders cannot be held personally responsible for the corporations’ debts; they only stand to lose their investment. To incorporate, you work with a lawyer to prepare articles of incorporation, which set out the purpose of the business and how it is to be financed, managed, and governed. You may incorporate your firm federally under the Canadian Business Corporation Act, or provincially, under the relevant provincial laws. The corporation is considered a resident of its jurisdiction.
Public company: corporation whose shares are listed for trading on a stock exchange.
Private company: corporation whose shares are privately owned.
More than 2,000 public companies exist in Canada. Public companies can offer shares for sales to raise financing, and in return they provide detailed financial information in their annual reports and make timely disclosure of significant corporate events. Private companies are not required to do this.
All corporations have a board of directors, selected by shareholders and given responsibility of overseeing the activities of the corporation. The legal separation of ownership and management is one distinctive feature of corporation. Separation gives corporations permanence; however the extent of this separation differs. In a private corporation, the shareholders are on the board of directors and often are also top managers. In public corporations, this is neither feasible for desirable; large, public corporations have thousands of shareholders.
One reason not all companies incorporate is cost, in both time and money, of managing the corporation’s legal machinery. A disadvantage for corporations is double taxation. Corporations pay tax on their
Note: the summaries at the end of each chapter are good study tools.
Corporations
A corporation is a permanent entity, legally distinct from its owners, who are called shareholders or stockholders. A corporation confers limited liability to its owners: shareholders cannot be held personally responsible for the corporations’ debts; they only stand to lose their investment. To incorporate, you work with a lawyer to prepare articles of incorporation, which set out the purpose of the business and how it is to be financed, managed, and governed. You may incorporate your firm federally under the Canadian Business Corporation Act, or provincially, under the relevant provincial laws. The corporation is considered a resident of its jurisdiction.
Public company: corporation whose shares are listed for trading on a stock exchange.
Private company: corporation whose shares are privately owned.
More than 2,000 public companies exist in Canada. Public companies can offer shares for sales to raise financing, and in return they provide detailed financial information in their annual reports and make timely disclosure of significant corporate events. Private companies are not required to do this.
All corporations have a board of directors, selected by shareholders and given responsibility of overseeing the activities of the corporation. The legal separation of ownership and management is one distinctive feature of corporation. Separation gives corporations permanence; however the extent of this separation differs. In a private corporation, the shareholders are on the board of directors and often are also top managers. In public corporations, this is neither feasible for desirable; large, public corporations have thousands of shareholders.
One reason not all companies incorporate is cost, in both time and money, of managing the corporation’s legal machinery. A disadvantage for corporations is double taxation. Corporations pay tax on their