Chapter 11

Question 1

What are the 3 forms of business structure?

Answer 1

1. sole proprietorship
2. Partnership - involves 2 or more people contributing to a business. 2 types general partnership and limited partnership.
3. Corporation - a business with a legal entity separate from the people who own shares. Shareholders have no liability of company debt and company can issue debt and equities

Question 2

What is incorporation?

Answer 2

the process of a individual or partnership applying for their company to become a corporation with the federal or provincial governments.

Question 3

What are advantages of incorporation?

Answer 3

1. Shareholders only risk how much they have invested and are not required to pay more in company goes bankrupt.
2. Continuity of existence - for a sole proprietor or a partnership the company is disbanded if a partner dies. a company is uneffected.
3. Transfer of ownership is easy as shares are liquid
4. ability to finance, can raise capital with equity and debt instruments
5. more prepared for growth
6. legal entity, company can be sued instead of individual
7. professional management

Question 4

What are some disadvantages of incorporation?

Answer 4

1. loss of flexibility, corporations have more regulation
2. more tax
3. withdrawal of capital, easier for investors to remove investment

Question 5

what are the two types of corporations?

Answer 5

Public

Private - can have no more than 50 private shareholders

Question 6

what are the 3 ways corporations are regulated?

Answer 6

1. The federal or provincial act
2. Its own charter
3. its by-laws

Question 7

how are by-laws made and what are they about?

Answer 7

at the time of incorporation they are made by the director and approved by shareholders. 
Examples: 
shareholder meets
qualification
election and removal of director 
date of fiscal year end
signing authority for documents

Question 8

how does voting and control work within a corporation?

Answer 8

Shareholders vote on things like electing directors, non-recurring events like sale, liquidation or mergers. Usually each shareholder gets 1 vote per share.
if a shareholder owns more than half of shares they can win every vote.

Question 9

What is a proxy fight?

Answer 9

when a company or group of shareholders try and take control of a company by buying control or gaining support of a large enough portion of shareholders.

Question 10

What is the role of the director?

Answer 10

cannot be a discharged bankrupt
sets company policies by passing resolutions
responsible for appointment of officers
signs of on budgets

Question 11

how to governments raise money for projects?

Answer 11

by financing or underwriting. They use fiscal agents to raise debt and equity capital.

Question 12

how to companies raise capital?

Answer 12

with IPOs, private offering and secondary offerings

Question 13

What is the finance dealers role?

Answer 13

They act as a intermediary between issuer and investor. normally have to departments one for government finance and corporate finance.

Question 14

What advice do intermediaries give to governments for issuing debt and equity?

Answer 14

Size, coupon and currency
timing of issue
whether issue should be domestic or foreign
effects issue may have on market
whether to make new issue or reopen old one

Question 15

What advice do intermediaries give to corporations for issuing debt and equitys?

Answer 15

what types of securities are issued
whether the issue should be private or public
issue price
coupon rate
underwriting fee charged to the company
timing of issue
what proportion of shares will be sold to financial intermediaries

Question 16

what system does the government of canada use to issue bonds and treasury bills?

Answer 16

the competitive tender system