Forms of Business Ownership ~ The Corporation ~ & ~ The Stock Market ~

Corporation Legal entity that exists independently of its owners who are the shareholders. Has the same rights and obligations under Canadian law as a natural person It can be found guilty of committing a crime

Corporation Brought into existence by drawing up and filing with the proper government agency a document called the articles of incorporation A lawyer and accountant are often needed to prepare this document

Corporation Articles of Incorporation include information such as: Name of corporation Headquarters of corporation Type of corporation Number of shares allowed to be issued to the public for purchase

Classification of Corporations 1. Non-Profit Corporation 2. Crown Corporation 3. Private Corporation 4. Public Corporation

Non-Profit Corporations Purpose is to undertake fundraising, to do research and to lobby for a particular cause in order to help people Example: United Way, Museums, Religious organizations, athletic and artistic organizations.

Crown Corporation Owned by the federal, provincial, or municipal governments Function is to provide a special service to the public Examples: Bank of Canada, Royal Canadian Mint, Canada Post, Canadian Broadcasting Corp. (CBC)

Private Corporation Can have up to 50 shareholders A single person who incorporates may have only one shareholder – him or herself. Usually small but not always Eatons now owned by Sears was a private corporation

Public Corporation Does not have a restriction on the number of shareholders. (unlimited number) Shares are bought and sold (traded) on the stock exchanges, such as the Toronto Stock Exchange, the Vancouver Stock Exchange. Examples include: Tim Hortons, Google,

(Chief Executive Officer) Owners/Shareholders (Elect Board of Directors) Board of Directors (hire officers) STRUCTURE OF A CORPORATION Officers i.e. CEO (Chief Executive Officer) (set corporate objectives and hire managers) Managers (Supervise Employees) Employees

Structure of a Corporation The shareholders elect a board of directors, who direct the overall affairs of the corporation The BOD hire the officers (i.e. the President of the corporation) who decide on the objectives for the company and hire the managers and essentially run the day to day operations of the business. The managers supervise the employees.

Corporation Advantages Owners are only liable for the amount they invest – Limited liability Has more financial resources to expand and grow (money collected from the selling of shares) Easier to get a loan from a bank because it has more assets to use as security (collateral”) The tax rate is lower than for a sole proprietorship. (40-50% versus 23%) Ownership is easily transferable Disadvantages More complicated to set up due to government regulations Must be registered in every province it operates Time consuming process and expensive Closing a corporation can be time consuming and expensive Business is managed by employees who may or may not be shareholders. Must publish an annual report outlining the companies financial position which can benefit competitors Changes in stock market could impact future financial resources raised through issuing new stock to sell to the public

Corporations and the Stock Market Once the company has been incorporated and the articles of incorporation have been approved, the company issues shares to the general public who may purchase them for ownership of the company. The first time a corporation issues shares to the public to purchase is called an IPO.

The Initial Public Offering (IPO) A Stock brokerage (business that sells and buys shares on behalf of other businesses and individuals for a fee) is usually hired to handle the sale of shares to the public. An initial price offering is made the day the market opens For example, when Google went public in 2004, its shares were initially offered at $85. Supply and demand for the shares will determine by how much the initial price of the share increases or decreases. The money collected from the initial shares being offered goes back to the corporation to be used by the business. Once a share is purchased, it is now out in the stock market where the shareholder can hold or sell his/her shares to another interested buyer for an agreed price.

The Stock Market

The Stock Market Market where people come to sell and buy shares/stocks of companies. Person A wants to sell his/her shares of Google. Person B wants to purchase shares of Google. The stock brokers hooks Person A and B together to make the deal. The stock brokers receives a fee for their services from the buyer and seller. The price of the shares will depend on supply and demand. If more people want to buy then sell, the price may higher than it was the previous day.

The Stock Market How do people make money in the stock market? 1. Purchase shares of a company and sell them at a higher price to another interested buyer later on. Example: In 2004, Google shares issued at $85 a share. In November of 2006, they were selling at $500+ a share If you purchased 100 shares at $85 per share and sold them for $500 per share, how much money have you made? Purchase price = $85 x 100 = $8 500 Selling price = $500 x 100 = $50 000 Personal Profit (Return on Your Investment ) = $50 000 - $ 8500 = $41 500 ROI = (50 000 – 8 500) / 8 500 X 100 = 488% increase

The Stock Market Shareholders receive dividends on the shares they own. Board of Directors declare a .50 cent dividend at year end) Each shareholder will receive .50 cents for every share s/he owns in the company. Dividends are like interest. A bank pays you a certain % of interest (i.e. 2% per year) on the money you have in your savings account. Dividends, however, are not guaranteed to be paid out every year, as it depends on how profitable the company has been and what its cash flow is. Example: You own 100 shares of Google. At the end of a business year, Google has made a significant profit and the BOD declares a .50 cent dividend. How much money did you make: $.50 x 100 = $50.00