Question

Mrs. Brown is a lawyer, specialized in common-law and she wants to create a company in order to operate her business activity in all provinces and territories of Canada. A)Indicate to Mrs. Brown which is the legal regime that she can use to incorporate her company? (5 points) ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________B:Indicate theadvantages of a business corporation. (10 points) ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ C: Mrs. Brown is the sole shareholder and director of the company. She dies, and her succession is not yet devolved to her successors. In this situation, the company that she incorporated will be dissolved or not? Explain the reasons of your answer – minimum 2 sentences. (10 points) ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Answer 1

A)

Mrs. Brown could use Federal incorporation or Provincial incorporation to incorporate her company.

As she wants to create a company in order to operate her business activities in all provinces and territories of Canada, Federal incorporation would be appropriate.

Federal incorporation gives her the right to carry on business throughout Canada.

B)

Advantages of Business Corporations:

i) Corporation is a legal entity that is separate from its owners. It means owners

of the corporation cannot be held liable for the acts of the corporation. This limited liability clause is one of the major reason for owners to opt for incorporation over sole proprietor and partnership form of business.

ii) Corporation have better access to bank finance, because banks or lending institutions usually considers a corporation to be more stable, secure and reliable than sole proprietor or partnership firms.

iii) Perpetual succession- A corporation has perpetual existence which means it continues to function even when the original owner dies. It allows smooth transfer to next generation.

iv) Tax advantage-Tax rates are lower for corporation. For Canadian controlled private corporation claiming small business deduction, the net tax rate is 9% effective January1, 2019.

v) Capital gain exemption utilization- The personal capital gain could be utilised on transferring assets to the corporation on fulfilling three conditions-a) Small business corporation test; b) 24 months holding period test; c) basic asset test.

        C)

                  No, the company will not be dissolved. Steps to be taken are:

i) Register the shares in new ownership or,

ii) Immediately appoint a new director to manage the company.