AFM231 Chapter Notes - Chapter 15: Corporate Law, Authorised Capital, Debenture
18 May 2018
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Chapter 15- The corporate form: organizational matters
Business law in practice
• Luke and Raina has been working with Sandra to develop a business strategy.
• The strategy is approved and they are looking for expansion.
• One major problem is that the business is underfunded, they need $350,000
• Luke is not too concerned, he says he will do crowdfunding
• I’ll ake a shot ideo o ou tea aageet sste, upload it o the iteet, ad
hae people puhase shaes i the usiess. Ad if that does’t work, I will simply sell some
shaes to fieds ad fail
The Corporation Defined
• It’s a sepaate legal sste
• It’s esposile fo its o det ad othe liailities
• The shareholders are not responsible for default – will only lose the purchase price of their
shares
• Therefore, the creditor needs to know who he is doing business with. Which entity? The corporation
or the individuals
Stakeholders in the Corporation
• Corporation has legal existence = treated as a person
• Stakeholders are ones who have interest in a corporation
• Internal stakeholders are those who have either a direct or indirect role in governing the
corporation and determining its mission and how it will be achieved.
• Shareholders are those that have invested in the corporation and buying shares to hope for return
of corporate profits- no direct authority to management
• Do have the power to elect BOD
• Corporate officers such as the president, secretary, and treasurer are hired by the BOD
• Corporation law seeks to regulate the relationships among the internal stakeholders should there be
any conflict
• External stakeholders are people who have dealings with or are affected by the corporation but do
not have an explicit role in governing the corporation
• E.g. government, general public, employees, customers, creditors
Pre-incorporation issues
• Luke and Raina must decide prior to preparing and filing incorporation documents:
• Whether to incorporate federally or provincially
• What type of share will be available and to whom
• What to name the corporation
Provincial and Federal Incorporation
• Jurisdiction over the incorporation of companies is divided between the federal and provincial
government
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• Both levels of government have passed legislation that provide for the incorporation of companies
• Which ones to pick?
• Federal incorporated corporations have a right to carry on business in each province
• Provincially incorporated corporations have the right to carry on business only in the province in
which they are incorporated
• This difference is insignificant because each province has licensing procedures that allow the
corporation to do business in other province
• For corporation that want to do more than two provinces- federal has lower administrative cost
• For corporation that want to do one or two provinces- provincial has lower administrative cost
• Luke and Raina intend to operate nationally or even internationally, they should consider
incorporating under federal legislation
Shares and shareholders
• Share structure – the shares that a corporation is permitted to issue by its constitution
Classes of shares
• Share = ownership interest in the issuing corporation
• No rights to the asset of the firm though
• A corporation can simply have one type of shares with all the basic shareholder rights attached to it
• Right to vote for BOD
• Right to receive dividends declared by the directors
• Right to share in the proceeds on dissolution of the corporation, after the creditors have
been paid
• To ensure the corporation has the fleiilit to eet futue eeds, it’s pudet to estalish diffeet
classes
• There are many possibilities for creating shares with diverse rights as figure 15.1 as long as
the basic rights mentioned above are distributed to one or more classes
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