The separation of ownership and management prevents

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The separation of ownership and management prevents owners from having an active role in managing company. Government Regulations Canadian companies may be incorporated federally under the terms of the Canada Business Corporation Act, which allows corporations to do business all over Canada. Or they can be incorporated provincially, under terms of the Provincial Business Corporations or Company Act which requires corporations to obtain a license to do business in other jurisdictions. Federal and provincial law specify requirements for shares. Securities laws govern the sale of shares and the disclosure of financial information to the general public. When corporate shares are traded, the corporation must also comply with the reporting requirements of the exchanges. Such protection is needed because shareholders do not participate in the day management of their company. Entity Income Tax Corporations pay federal and provincial income taxes as separate legal entities which ran range to 50% of taxable income. There are tax deductions available to some corporations. With eligible deductions or other corporate tax incentives, a corporation’s tax rate may be reduced lower than the tax rate for the same amount of income earned by an individual. In some situations, an advantage of incorporation is the deferral of personal income tax. Shareholders of a corporation do not pay tax on the corporate earnings until they are distributed. Shareholders pay tax on cash dividends, which are proportional to distribution of net income.
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Forming a Corporation A company can incorporate federally or provincially. The federal government and majority of provinces file articles of incorporation to incorporate a company. Albeit, other methods also exist.Initial step to form a corporation is to file an application as required by the Corporations or Company Act. In the application are a variety of share, personal and company related things. The costs of forming a corporation are called organization costs. Most companies expense organization costs in the year they occur. Ownership Rights of Shareholders When chartered, the corporation may begin selling ownership rights in the form of shares with shareholders receiving share certificates (Proving ownership of shares). Shares are divided into different classes such as Class A, B, etc. Different privileges come from each class. The different classes are usually identified as common shares or preferred shares. When a corporation only has one class of shares, it has the privileges of common shares. Each common share gives the shareholder privileges such as: 1. Vote in the election of the BOD 2. Share the corporate income by receiving dividends 3. Keep the % ownership when new shares are issued 4. Share in the assets upon liquidation, in proportion to their holdings.
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