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RSM225H1 (13)
Dan Shear (7)
Chapter 4

Ch4A Corpns - Nature and Formation.doc

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Department
Rotman Commerce
Course
RSM225H1
Professor
Dan Shear
Semester
Fall

Description
CH. 4A: BUSINESS ORGANIZATIONS: CORPORATIONS – NATURE AND FORMATION Typical Operation of a Corporation: Shareholders (“shareholders”): o elect directors o shareholders have no right to manage - unless have “unanimous shareholders agreement” (USA) Directors: o legally responsible for overall management (unless USA) o appoint officers Officers: o senior management (president, secretary, etc.) o hire managers Managers: o hire employees Relationship of Corporation to Owner(s) – Compared to GPP: (1) Owner Liability: no personal liability for debts of corporation  rare exception: “piercing the corporate veil” - if owner(s) fraudulently led 3rd party to believe third party (“3rd party”) was dealing with owner(s) personally and not with a corporation  contrast GPP (partners 100% personally liable for GPP debts)  Daniel R. Shear 2000 – 2011 All rights reserved. 2 (2) Transferring Ownership: purchaser of shares has full rights as shareholder (“shareholder”)  contrast GPP (purchaser of GPP interest only gets seller’s share of profits – no right to manage GPP or see GPP books unless partners had agreed differently before purchase) (3) Owner’s Right to Manage: shareholder does not have right to manage (in his/her capacity as “shareholder”)  exception: “unanimous shareholders agreement” where shareholders assume some or all of directors’ management rights and powers  contrast GPP (each partner may manage, unless partners agree differently) (4) Owner’s Duty of Good Faith: shareholders have no duty to corp. or the other shareholders (unless “unanimous shareholders agreement”)  contrast GPP (each partner has “fiduciary duties” to the other partners) (5) Surviving Owner’s Death/Bankruptcy: corp. does not dissolve on shareholder’s death/bankruptcy  contrast GPP (GPP dissolves on death/bankruptcy of a partner – unless partners agreed differently) Formation of Corporation: (1) Registration: forming a corporation includes filing of prescribed documents with government (2) Provincial vs. Federal Corporations:  Daniel R. Shear 2000 – 2011 All rights reserved. 3 corporations can be created under the laws of a province or under the federal laws of Canada each jurisdiction has slightly different requirements federal corporations must have government clearance of corporate name (unless numbered company) clearance withheld if name too similar to existing corporate name or registered business name (whether federal or provincial) or existing registered trade-mark provincial corporations generally do not require this clearance, but will not allow corporate name that is the same as an existing corporate name or registered business name (3) Specific Incorporation Requirements: for federal corporations, file registration documents called “Articles of Incorporation” and “Form 2 Information Regarding the Registered Office and the Board of Directors” for Ontario corporations, file registration document called “Articles of Incorporation”  [for B.C. corporations, file registration document called “Incorporation Application” (which includes articles) and incorporators enter into “incorporation agreement”] “Public” vs. “Private” Corporations: (1) Overview:  corporations are considered to be “public” or “offering” corporations unless they meet the applicable “private corporation” exemption requirements  the exemption requireme
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