Definition of a Corporation

 

The definition of a corporation: a larger business that include the words Limited (Ltd.), Incorporated (Inc.), or Corporation (Corp.) in their name. The business will either be a Private Corporation, or a Public Corporation.

A private corporation is not listed, nor does it sells its shares on a stock exchange. Such as family corporations like Mary Kay, or ones that raise funds through private investment such as Site Resources Group. A public corporation is listed and sells its shares on a stock exchange. Examples of public corporations are well known businesses such as Apple Inc., or Starbucks Corp.

A corporation is a separate legal entity from its owners and is assumed to have a continuous life. A continuous life is when the business can continue to operate even if an owner passes away. Plus the ownership of said corporation can be transferred from one owner, or owners, to another without having to close the books. The owners’ equity of a corporation is divided by the shares of stock.  When a corporation begins the articles of incorporation state the number of shares the corporation can issue for sale. The shareholders can buy and sell, or even bequeath their shares to another person without the transfer affecting the continuity of the corporation. Meanwhile, a partnership and a proprietorship ends when the ownership changes.

Corporations have no mutual agency. Meaning that shareholders (that are not an officer of the corporation) cannot act as agents of the business.  Therefore they cannot sign contracts for work.

A corporation has limited liability of shareholders for the debts of the business. A shareholder will have no personal obligation for corporation liabilities. The most a shareholder can lose is their investment in the company.  A small corporation that needs a bank loan may be required to have a third party (usually a corporate officer) agree to a personal responsibility to guarantee the loan.

With corporations there is separation of ownership and management. The shareholders invest in the corporation and elect a board of directors to manage the corporation.

Corporations pay a variety of taxes that proprietorship’s, and partnerships do not pay. Corporations in Canada, pay federal and provincial corporate income taxes. Corporate earnings are actually subject to something called double taxation. This refers to the fact that a corporation pays income tax on its earnings, and if they have declared and paid dividends to their shareholders from their retained earnings, the shareholders then have to pay income tax on the dividends received as well. Same dollar, taxed twice.

Corporations in Canada are subject to Government Regulation. The Federal and Provincial Governments monitor corporations and insure that they disclose adequate business information for their investors and any creditors. These reports end up audited by the applicable provincial securities commission.  You can look up public corporations and their financial statements on different websites such as www.sedar.com. It can be very informative, and interesting to look at if you know how to read financial statements of large corporations such as Apple Inc., or any corporation that piques your interest. Check it out!

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Please let me know of any questions or concerns you may have

 

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