Textbook Notes (367,974)
Canada (161,538)
RSM225H1 (13)
Dan Shear (7)
Chapter 4

Ch4A Corpns - Nature and Formation.doc

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Rotman Commerce
Dan Shear

CH. 4A: BUSINESS ORGANIZATIONS: CORPORATIONS – NATURE AND FORMATION Overview: Categories of corporations:  For-profit (share capital) corporation • “Public” corporation • “Private” corporation • Federal (Canada) corporation • Provincial (Ontario) corporation • Professional corporation  Not-for-profit (non-share capital) corporation For-profit (Share Capital) Corporations: (1) Description Corporations that are allowed to make profits and distribute the profits to their owners (2) Formation Formed by filing “articles of incorporation”:  See handout of Ontario articles of incorporation  Articles of incorporation is a public document Key provisions of articles of incorporation:  Name and address • corporate name  Daniel R. Shear 2000 – 2012 All rights reserved. 2 • head office address  Directors • names and addresses of first directors  Shares • all of the classes of shares the corporation may issue • the rights attached to each such class • note that the articles do not show any information about the shareholders of the corporation Special rules for professional corporations:  Only certain types of professions can use professional corporations  In Ontario this includes: • chartered accountants • certified general accountants • lawyers • doctors • dentists • social workers • veterinarians  4 requirements to have a professional corporation in Ontario: 1. articles of incorporation: (a)must first be approved by the profession’s governing body • e.g. Canadian Institute of Chartered Accountants, Law Society of Upper Canada, College of  Daniel R. Shear 2000 – 2012 All rights reserved. 3 Physicians and Surgeons of Ontario, Royal College of Dental Surgeons of Ontario (b)must provide that business is restricted to practicing that profession (and related activities) 2. corporation’s name: (a)must include “Professional Corporation” or “Société professionnelle” (b)must not have a number name 3. all shares must be owned by members of that profession licensed to practice in Ontario 4. all directors and officers must be shareholders of that corporation (3) Registration Formation:  Formed by filing articles of incorporation) • detailed requirements set out in (2) above Business name:  Registration of the business name of the corporation is required if other than its corporate name • if don’t register business name when required to do so, still have a corporation  Daniel R. Shear 2000 – 2012 All rights reserved. 4 • But Business Names Act says that if don’t register when required to do so, corporation cannot bring lawsuit or defend lawsuit until register • Can also be fined up to $25,000 HST:  Registration required if total annual revenues exceed $30,000 (4) Personal Liability of Owners Corporations other than professional corporations:  Generally speaking, shareholders/members have no personal liability (as a result of being shareholders or members) for the debts of the corporation • But can choose to give personal guarantee Professional corporations:  Shareholder is personally liable for: • his/her own professional negligence or misconduct • negligence or misconduct of employees under that shareholder’s direct supervision or control  Shareholder is not personally liable for other debts of the corporation (e.g. repayment of loans) as a result of being shareholder • But can choose to give personal guarantee (5) “Public” vs. “Private” Corporations Overview:  Daniel R. Shear 2000 – 2012 All rights reserved. 5  The “public” vs. “private” distinction arises when the corporation wants to issue/offer shares, or its shares are being purchased or sold • There are some important (and costly) legal rules and requirements for “public” corporations that do not apply to “private” corporations (some are listed in (6) below) • “Public” corporations may qualify for exemptions from some of these rules and requirements for particular situations •E.g. for issuing shares to employees, senior officers, directors or consultants  Corporations are automatically considered to be “public” (or “offering”) corporations unless they meet the applicable “private corporation” requirements “Private” corporation requirements:  Requirements are specific to each province • Applicable requirements depend on where shares of the corporation are being issued/offered or purchased/sold •
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