Things to know about Setting up A Corporation

Every businessman understands that Corporation is a completely normal step in the development of his business. Other forms of partnership like joint ventures not so many potential advantages as the corporation so at certain moments of business development starting a corporation is a great solution. After creation of your corporation you need to solve a number of serious questions, set up and organize your corporation properly to create an effective and profitable corporation. An experienced corporate lawyer is usually the person who will help you the most. Naturally the most important things in any corporation are shares. When you establish a corporation you need to specify the class of shares. There are three classes of shares: voting common shares, non-voting common shares and preferred shares. Most of the corporations in Canada are created with a single class of Common Voting Shares.

 

Voting Common Shares

The holders of common shares usually can elect a Board of Directors, which will run the corporations, by a simple majority. They also have the right to alter the Memorandum, Articles or Bylaws of a Corporation and are entitled to participate in distribution of profits of the Canadian Corporation.

 

Non-Voting Common Shares

Holders of non-voting common shares are like the holders of voting common shares to participate in distributions of profits of the Corporation, but they have no right to vote.

 

Preferred Shares

This class can be voting or non-voting. The main feature of preferred shares is a wide array of potential preferences over common shareholders. This type of shares is often used to attract additional capital to Canadian Corporations. Very often the holders of these shares have a priority on the return of paid up capital in the event of the winding up or dissolution of the Corporation. Also the holders have the right to receive a dividend at fixed, or floating amounts, and a right of redemption, under this right the Corporation is required to buy back the shares from the holders.

 

 

After you chose the type of shares choosing who will participate in your corporation is the second important question. There is always a possibility to offer participation to unknown investors, but very often it is overpowered by the temptation to include family members and loved ones as Shareholders, Directors or Officers in a Corporation. In some cases building your corporation on family bonds is a good decision, but sometimes if you family has a part of shares they can influence the board of directors and block their decisions if they disagree with you. Also choosing partners is a very important decision. As a sad example Steve Jobs, the founder of Apple was fired from the corporation by the Board of Directors in the early 90th. The third important moment in creating a corporation is capitalization. Funds can be obtained from various sources like investment or loans from Shareholders or Corporation Borrowing for example. In each of these types the young corporation borrows money and then repays it from profits.

 

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