Understanding the Basics of a Corporation

From the last 2 blogs we should now have an understanding of what a corporation is.  We will now go further into understanding the basics of a corporation.  A corporation is made up of 3 main people or groups of people:

1. Shareholder(s )– These are the owners of the Corporation.  Shareholders get to receive the benefits of owning the corporation, without taking liability.  There are various classes of shares that can be owned and we will go into these a little further in this blog, and deeper in a later blog in this series.
2. Director(s) – This is the person or group of people that have the ultimate control over what the corporation does and all the major decisions.  As also mentioned prior, the director(s) is/are the one that take the limited liability (see the last blog for examples of the limited liability)
3. Officer(s) – The officers of the corporation come with titles such as: President, Vice President, Secretary and Treasurer.  These are the people or the person that runs the day to day operations of the corporation. (in simplified terms)

As mentioned prior, to own a Corporation you must own shares.  There are different classes of shares in a corporation, such as voting, non voting and preferred shares.  Voting shares means that you have a voting right as a shareholder in things such as naming and firing directors.  Non voting shares means that you cannot vote.  Preferred shares means that you don’t have voting rights, but you may have preferential treatment when it comes to getting paid before common shareholders.  Typically preferred shares are for investors.  If something was to happen to the Corporation and it was going to go bankrupt, the preferred shareholders will typically get paid out before the common shareholders.  We will go further into depth on structuring the corporation in a later blog. 

The last point I’d like to cover in this blog is the fact that all corporations should have a minute book.  A minute book has the full record of the corporation’s existence and activity, proof of ownership and a lot more.  Many people try to save money by incorporating and not getting a minute book.  You are not doing yourself a favor as you will pay more in the long run to get the minute book done separately.  With no minute book, you have no record of your corporation’s decisions and no proof of ownership which will can come back to bite you later.  So make sure that if you incorporate you get a minute book.  We do incorporations at Kustom Design so don’t hesitate to ask us questions if you are thinking of incorporation or have an existing corporation.