Study Guide to accompany Canadian Business and the Law, 5th edition

Chapter 15

CHAPTER 15
THE CORPORATE FORM:
ORGANIZATIONAL MATTERS
Objectives
After studying this chapter, you should have an understanding of
• a corporation as a legal person
• the distinction between federal and provincial incorporation
• the share structure of a corporation
• the selection of a corporation’s name
• how a corporation is created
• how the corporation is financed
• how securities are regulated

Learning Outcomes
•
•
•
•
•
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Understand the concept that a corporation is a separate legal person (page 343)
Understand the distinction between federal and provincial incorporation (page 345)
Recognize the information that must be included in incorporation documents (page 352)
Understand how the company can raise money by issuing shares and bonds (page 354)
Understand the advantages and disadvantages of shares and bonds to both the corporation and the holders of the securities (page 355)
Understand the importance of compliance with securities legislation (page 356)

Chapter Summary
The corporate form is prevalent and widespread. The characteristic that distinguishes it from the other basic forms for carrying on business is its separate legal status. This means that the owners are not liable for the debts and obligations of the corporation. It also means that those who are dealing with a corporation need to understand that the owner’s risk is limited. Thus, if security is important, they should demand a personal guarantee. A corporation may be incorporated federally or provincially. There are few distinct advantages of incorporating in one jurisdiction versus another. Before commencing the incorporation process, incorporators must decide on a share structure, that is, the classes and number of shares authorized for issuance. The share structure may be simple or complex, depending on the needs of the investors. The actual process of establishing a corporation is relatively simple, and essentially the same format is followed in all jurisdictions. It is a matter of completing and filing the correct forms with the appropriate government body. That said, the incorporation process is not without risks, such as the risk of choosing a name this is similar to that of another business. This risk can be substantially reduced by obtaining legal advice. A corporation can be financed by equity or debt. Equity represents what the shareholders have invested in the
© 2014 Nelson Education Limited

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Study Guide to accompany Canadian Business and the Law, 5th edition

Chapter 15

corporation in return for shares. Debt consists of loans that have been made to the corporation. The issuance of shares and debt instruments, such as bonds, to the public is strictly regulated by securities laws.

© 2014 Nelson Education Limited

260

Study Guide to accompany Canadian Business and the Law, 5th edition

Chapter 15

Study Outline
Use this outline to prepare a complete set of notes for this chapter.
The Corporation Defined—page 343
______________________________________________________________________
______________________________________________________________________
Separate Legal Entity ____________________________________________________
Stakeholders in the Corporation—page 344
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Shareholders ___________________________________________________________
Board of Directors_______________________________________________________
Corporate Officers ______________________________________________________
Pre-Incorporation Issues—page 345
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Provincial and Federal Incorporation ________________________________________
Shares and Shareholders—page 346