Question

* Corporation is a legal person

* Distinction between federal and provincial incorporation

* Share structure of a corporation

* How a corporation is created, financed and regulated

Answer 1

1) Corporation is a legal person-A corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that individuals possess: they can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes. Some refer to it as a "legal person."

KEY TAKEAWAYS-

• A corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that individuals possess.
• An important element of a corporation is limited liability, which means that shareholders may take part in the profits through dividends and stock appreciation but are not personally liable for the company's debts.
• Corporations are not always for profit.

2) Distinction between federal and provincial incorporation- Businesses that wish to incorporate can choose between going through the federal or the provincial process. The primary difference between the two methods are in the:

• Protection of company name rights
• Ability to conduct business in all provinces
• The overall cost to initiate and renew incorporation

The incorporation process—both federal and provincial—allows for the separation of company and private individual finances. Incorporation involves completing and submitting various documents, creating internal business structures and shares of company stock, and submitting the necessary fees.

3) Share structure of a corporation- A share structure is the type, series, and classes of shares that the company has been authorized. For any company, there is at least one class of shares. A share class can have one or more series of shares if the restrictions and special rights connected to the class give this inclusion. All types of shares mentioned above can have classes within them with some rights and restrictions for each class.

For instance, a corporation can have the shares with the name Class A preference shares. And let us say that there are about 10,000 shares in this class with the par value of $1 and no special rights and restrictions attached. This makes one class of share. Along with this, let us say the same company has 500 Class B preference shares, with the par value of $2 and the restriction to vote. Like these, there can be classes or series of shares in a company forming the share structure.

There are two main types of share structures:

Dual Class Share Structure- Dual Class share structures divide the profit-sharing rights from voting rights, providing the management and founders with more voting power as compared to ordinary shareholders. And due to this, the founders can enjoy the following benefits:

• A dual-class share structure guards the founders of the company against takeovers; particularly as soon as the company goes public.
• The owners who have a long-term view of the business would be protected by the impulses of the shareholders and investors who focus more on short-term gains.
• The founders would be able to focus on the growth and innovation in the business without the trouble of the shareholders interfering with their vision and goal.

Multi-Class Share Structure-Other than the single share structure or a dual-class share structure, there can be a multi-class share structure as well. Let us say a company creates a new class of shares called Class C. And in this class, there would be no voting rights, which minimizes the erosion of the control of the owners over the company. In short, a company can have many classes of shares to make their company evolve better as per the needs of the business.

Overall, a company can easily create the share structure best for the firm. This share structure would help the company differentiate between the directors and shareholder’s roles in a much better way.

4) How a corporation is created, financed and regulated- If you've sorted through the many types of business structures and decided to create a corporation, you're facing a list of important but manageable tasks. Here's what you must do:

1. Choose an available business name that complies with your state's corporation rules.
2. Appoint the initial directors of your corporation.
3. File formal paperwork, usually called "articles of incorporation," and pay a filing fee that ranges from $100 to $800, depending on the state where you incorporate.
4. Create corporate bylaws, which lay out the operating rules for your corporation.
5. Hold the first meeting of the board of directors.
6. Issue stock certificates to the initial owners (shareholders) of the corporation.
7. Obtain any licenses and permits that are required for your business

Corporate finance is an area of finance that deals with sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources.

Source of Capital

Debt capital-Corporations may rely on borrowed funds as sources of investment to sustain ongoing business operations or to fund future growth. Debt comes in several forms, such as bank loans, notes payable, or bonds issued to the public.

Equity capital-Corporations can alternatively sell shares of the company to investors to raise capital. Investors, or shareholders, expect that there will be an upward trend in the value of the company over time to make their investment a profitable purchase. Shareholder value is increased when corporations invest equity capital and other funds into projects that earn a positive rate of return for the owners. Investors prefer to buy shares of stock in companies that will consistently earn a positive rate of return on capital in the future, thus increasing the market value of the stock of that corporation. Shareholder value may also be increased when corporations pay out excess cash surplus in the form of dividends.

Preferred stock-Preferred stock is an equity security that may have any combination of features not possessed by common stock including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument. Preferreds are senior to common stock, but subordinate to bonds in terms of claim.

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