As a separate legal entity, a corporation has rights, powers
and obligations similar to those of individuals. It
Corporations
GENERAL A corporation, which is the most common form of business organization in Canada, has a legal personality distinct from its shareholders and management. A corporation’s existence is potentially perpetual, since it is not affected by the departure or death of any or all of its shareholders or managers. As a separate legal entity, a corporation has rights, powers and obligations similar to those of individuals. It can hold property, carry on a business and incur legal and contractual obligations. Shareholders are the owners of a corporation, but they usually do not manage its business or enter into transactions on its behalf. By statute, they are protected from liability for obligations of the corporation. Generally, the authority to manage the corporation rests with the directors, who are elected by the shareholders. However, if the shareholders prefer to retain direct control of the corporation, they can enter into a unanimous shareholder agreement. Such an agreement can effectively transfer responsibility (and liability) for the management of the corporation from the directors to the shareholders. A corporation may be either public or private. Shares of public corporations are traded on stock exchanges and other public markets. Public corporations are subject to extensive regulation in order to protect investors (see the Corporate Governance and Financing a Business Operation chapters of this guide). By contrast, the transfer of shares in a private corporation is restricted and usually requires the consent of a majority of the directors or shareholders. Private corporations are not subject to most aspects of securities regulation. The main advantages of the corporation as a business entity are the limited liability of the shareholders, the possibility of perpetual existence and the flexibility of the corporate form for financing and estate planning purposes. The disadvantages include the costs associated with the incorporation, operation, annual maintenance and dissolution of the corporation. Since a corporation is a separate taxpayer, shareholders cannot access directly any tax losses it may generate, and it may be more difficult to use as a tax-efficient vehicle than an unincorporated entity like a partnership.
can hold property, carry on a business
and incur legal and contractual obligations.
6
Doing Business in Canada
Powered by FlippingBook