Overview
Corporations can be categorized as either private or public, each defined by certain characteristics and regulations.
Private Corporations
- Private Corporation Characteristics:
- Restrict the right of shareholders to transfer shares
- Limit the number of shareholders to no more than 50
- Prohibit members from inviting the public to subscribe for their securities
Public Corporations
- Public Corporation Characteristics:
- Shares are listed on a stock exchange or traded over the counter
Corporate By-Laws
Both private and public corporations are governed by several regulations:
- Legislation: Federal or provincial act under which its charter is issued
- Charter: The corporation’s foundational documents
- By-laws: Govern conduct within the corporation and are prepared at the time of incorporation
Common By-Law Provisions:
- Shareholders’ and Directors’ Meetings: Schedule and conduct
- Directors: Qualification, election, and removal
- Officers: Appointment, duties, and remuneration
- Dividends: Declaration and payment
- Fiscal Year End: Date determination
- Signing Authority: For company documents
Voting Rights
The common shareholders of publicly traded companies have vital voting rights, influencing corporate governance effectively.
What Shareholders Vote On:
- Board of Directors: Election
- Corporate Matters: Sales, mergers, business liquidation
- Charter Amendments: Stock splits, executive compensation packages
Shareholders’ Meetings
For shareholders’ engagement and corporate decision-making.
- Eligibility: List prepared before regular or annual shareholders’ meeting
- Notification: Shareholders notified within a specified period
Agenda:
- Electing directors
- Appointing independent auditors
- Financial statement reviews
- Auditors’ report
- Other corporate affairs
Voting By Proxy
Many shareholders choose proxy voting to cast their votes without attending meetings.
- Proxy Statement: Document detailing voting issues
- Proxy: Typically a member of management empowered through power of attorney
- Completion: Signed by shareholder, specifying voting intentions
FAQ
Can shareholders vote by attending in person?
- Yes, shareholders are encouraged to attend annual meetings but can also vote via proxy.
What happens if a shareholder doesn’t vote?
- Their votes might automatically align with management’s viewpoint.
Voting Trusts
Voting trusts entrust voting control in restructuring situations.
- Purpose: Control transfer during corporate financial difficulties
- Mechanism: Shares are deposited with a trustee under a voting trust agreement
Key Takeaways
- Understanding Corporations: Key differences between private and public corporations.
- Corporate Governance: The role of by-laws and the importance of regulations.
- Voting Rights: Empowerment of shareholders via voting on crucial matters.
- Proxy Voting: Easier participation for shareholders remotely.
Glossary
- Private Corporation: Shares are held by a limited number of people, not traded publicly.
- Public Corporation: Shares are publicly traded on a stock exchange or over-the-counter markets.
- By-laws: A set of rules governing the conduct of the corporation’s affairs.
- Proxy Statement: A document detailing issues on which shareholders are to vote.
- Voting Trust: An arrangement where shares are transferred to a trustee to secure new capital and control management temporarily.
📚✨ Quiz Time! ✨📚
## What is a defining characteristic of a private corporation?
- [ ] Its shares are listed on a stock exchange
- [ ] It has an unlimited number of shareholders
- [ ] It can publicly invite people to subscribe for its securities
- [x] It restricts the right of shareholders to transfer shares
> **Explanation:** A private corporation restricts the right of shareholders to transfer shares, limits the number of shareholders to no more than 50, and prohibits inviting the public to subscribe to its securities.
## What governs the conduct of a corporation besides federal or provincial acts and the corporation's charter?
- [ ] Corporate bonds
- [x] Corporate by-laws
- [ ] Corporate shares
- [ ] Corporate dividends
> **Explanation:** Corporate by-laws, passed by the board of directors and approved by shareholders, govern the conduct of a corporation along with federal or provincial acts and the corporation's charter.
## Which of the following is NOT typically included in a corporation's by-laws?
- [ ] Election and removal of directors
- [x] Stock prices
- [ ] Shareholders’ meetings
- [ ] Payment of dividends
> **Explanation:** Corporate by-laws cover aspects like shareholders’ and directors’ meetings, election and removal of directors, appointment and remuneration of officers, and dividend payment, but not stock prices.
## Who has the right to vote at a company's annual general meeting?
- [ ] Only members of the board
- [ ] Only the CEO
- [ ] Only preferred shareholders
- [x] Registered common shareholders
> **Explanation:** Registered common shareholders have the right to vote at the company's annual general meeting on important matters such as the election of directors, mergers, and other significant corporate events.
## What is the purpose of a proxy statement sent to shareholders before an annual meeting?
- [ ] To provide financial advice
- [ ] To announce corporate dividends
- [x] To outline what is to be voted on at the meeting
- [ ] To declare bankruptcy
> **Explanation:** The proxy statement outlines the issues to be voted on at the shareholders' meeting, and allows shareholders to delegate their voting rights to designated proxies.
## What happens if a shareholder does not vote or leaves items unmarked on the proxy statement?
- [ ] Their vote is considered invalid
- [ ] Their shares are sold
- [x] The ballot is cast with management's viewpoint
- [ ] Their voting rights are revoked
> **Explanation:** If a shareholder does not vote or leaves items unmarked on the proxy statement, the ballot is automatically cast according to management's recommendations.
## Why might a corporation be placed under a voting trust?
- [ ] To sell off all shares
- [x] Due to financial difficulties and restructuring
- [ ] To merge with another company
- [ ] Due to internal fraud
> **Explanation:** A corporation may be placed under a voting trust in case of financial difficulties and restructuring, to put the control under a few individuals until the organization recovers.
## Who issues a voting trust certificate in a voting trust agreement?
- [ ] The board of directors
- [x] A trustee or trust company
- [ ] CEO of the corporation
- [ ] Federal government
> **Explanation:** A trustee, usually a trust company, issues a voting trust certificate under the terms of a voting trust agreement. This document provides the shareholder with the rights of the original shares but the voting privileges remain with the trustee.
## What must happen for a shareholder to vote at an annual meeting?
- [x] Shares must be registered in their name
- [ ] Shares must be sold first
- [ ] They must own at least 10% of shares
- [ ] They must become a member of the board
> **Explanation:** Shares must be registered in the shareholder's name, or they must possess a completed proxy form, to vote at an annual meeting.
## In what scenario might a contest for control of a corporation happen?
- [ ] If the company goes public
- [ ] If dividends are high
- [x] If a disagreement arises between management and challengers for shareholder support
- [ ] If the company celebrates its anniversary
> **Explanation:** A contest for control of a corporation might arise if there is a disagreement between the current management group and challengers who seek shareholder support to take control.