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Corporations: Share Capital
and the Balance Sheet
1. Corporation characteristics:
a separate legal entity, formed under federal or provincial law
continuous life and transferability of ownership
no mutual agency
limited liability of shareholders
separation of ownership and management
corporate earnings subject to a degree of double taxation
corporations may incur costs unique to corporations.
The corporation itself pays income tax, and the shareholder pays personal tax on
after-tax dividends received from the corporation. However, a portion of the
corporate tax is allowed as a dividend tax credit to the shareholder to eliminate
some of the double taxation.
3. The incorporators pay the fees and file the required documents with the
incorporating jurisdiction, and approval of articles of incorporation is granted
by the federal or a provincial government. The articles of incorporation
include authorization for the corporation to issue a certain number of shares.
The incorporators agree to a set of bylaws for governing the corporation. The
corporation then issues its shares and receives assets. The shareholders elect
the board of directors, which appoints the officers. At this point, the
corporation begins operations.
– a business entity
– does not require
formed under federal
federal or provincial
or provincial law
approval to do business
– corporation a distinct
– partnership not
entity; assets and
distinct from partners
liabilities belong to
who hold all assets
Continuous Life – sale or transfer of
shares does not affect
the continuity of the