Some clients, incorporating their business for the first time, aren’t clear on control and ownership issues.
It’s one of the first conversations we have with our business clients.
Basically, shares define your ownership and rights in a company. The more shares you own, the more of the company you own. Different classes of shares bring different rights of shareholders.
Shares are often referred to as common shares, preferred shares, voting versus nonvoting shares, and the most commonly used terms, shares in classes A, B, C, etc.
Share classes can differ from one company to the next, so be sure you know exactly what rights are allocated to your shares.
While shareholders own the company, directors control it. Directors can also be shareholders and it’s possible that all the directors are the only shareholders. And the directors make their decisions by way of resolution.
Shareholders have no decision-making power, except at shareholders’ meetings.
Companies are legal entities, which are incorporated according to the British Columbia Business Corporations Act.
A director must abide by this act when making decisions affecting the company operations and its governance.
Simply put, directors must follow the company “rule book” that was written when the company was incorporated.
A copy of your “rule book” is contained in the British Columbia Business Corporations Act, the Articles of Incorporation, and any the Shareholders Agreement.
The Articles of Incorporation regulate the company actions. That is, how you’ll run meetings, make decisions, and set out your corporate governance.
The Shareholders Agreement, among other things, regulates the shareholder relationships.
The perpetual existence of the company ensures it will exist past your death. There will be no death taxes, business interruption, or “freeze” of finances.
Incorporating gives your business a measure of respectability, even more so if the company is incorporated federally.
The benefits of federal incorporation may outweigh the increased cost of incorporation. Generally speaking, federal companies conduct business across Canada and provincially incorporated companies focus their business and locate their head office in the province where they are registered.
All provincial companies must register in the provinces where they conduct business.
The federal and provincial registration process differs slightly. Federal statutes are closely aligned to many American jurisdictions, so it’s often easier to conduct business in the U.S. if it’s federally incorporated.
Do consult a professional to discuss incorporating your business, and remember why you are incorporating your business in the first place.
– The first and second parts of this series are available for viewing online at www.mrtimes.com.