Question 1

The transfer of ownership rights between shareholders has no effect on the corporations operating activities.

Accepted Answer

The transfer of ownership rights between shareholders typically does not affect the corporation's operating activities, as these transactions occur independently of the company's day-to-day operations and management decisions.

Question 2

The Board of Directors of a corporation legally owns the corporation.

Accepted Answer

The shareholders or stockholders of a corporation legally own the corporation, while the Board of Directors is elected by the shareholders to govern the corporation's affairs.

Question 3

Dividends in a corporation are the equivalent of drawings in a proprietorship.

Accepted Answer

Both dividends in a corporation and drawings in a proprietorship represent distributions of earnings to the owners. In a corporation, dividends are paid out to shareholders, while in a proprietorship, drawings are amounts taken by the owner for personal use.

Question 4

The shareholders of a corporation pay tax on corporate profit on an individual basis.

Accepted Answer

In a corporation, the company itself pays taxes on its profits, and shareholders are taxed separately on any dividends they receive, leading to double taxation.

Question 5

A corporation may be organized for the purpose of making a profit or may be not-for-profit.

Accepted Answer

Corporations can be organized either for profit, aiming to generate income for their owners or shareholders, or as not-for-profit (nonprofit), focusing on a specific social, educational, charitable, or other purpose without the goal of making profits for distribution to owners or shareholders.

Question 6

Organization costs are normally capitalized by public companies.

Accepted Answer

Organization costs are expensed as incurred according to U.S. GAAP, rather than being capitalized.

Question 7

One of the disadvantages of a corporation is that professional managers will run the company.

Accepted Answer

Having professional managers run a company is generally considered an advantage because they bring expertise and experience that can lead to more efficient and effective management.

Question 8

Most of the largest Canadian companies are publically held.

Accepted Answer

Most of the largest Canadian companies are publicly held, meaning their shares are traded on stock exchanges, allowing public investors to own a part of these companies. This includes well-known entities listed on the Toronto Stock Exchange (TSX), which is the primary venue for trading stocks of Canadian companies.

Question 9

A privately held corporation can also be a publicly accountable enterprise if it has bonds that are publically held.

Accepted Answer

A privately held corporation can be considered a publicly accountable enterprise if it has issued debt instruments (like bonds) that are traded in a public market, making it accountable to public investors.

Question 10

Companies incorporated in the province of Ontario will be incorporated under the Canada Business Corporations Act.

Accepted Answer

Companies incorporated in the province of Ontario are incorporated under the Ontario Business Corporations Act, while the Canada Business Corporations Act is for federal incorporations.

Question 11

A public corporation is a corporation that does not issue its shares for sale to the public.

Accepted Answer

A public corporation typically refers to a company that has issued shares of stock available for public purchase on a stock exchange, contrasting with a private corporation whose shares are not publicly traded.

Question 12

Corporations must pay taxes as a legal entity.

Accepted Answer

Corporations are considered separate legal entities from their owners and are required to pay taxes on their income.

Question 13

Acts of the shareholders who are not official agents of a corporation can legally bind a corporation.

Accepted Answer

Shareholders, unless they are also directors or officially appointed officers of the corporation, do not have the authority to act on behalf of or legally bind the corporation through their actions.

Question 14

Companies can only be incorporated under a federal basis.

Accepted Answer

Companies can be incorporated either at the federal level or at the provincial/territorial level, depending on the jurisdiction and the specific laws of the country in question.

Question 15

Profits may be either reinvested in a corporation or distributed to its shareholders as dividends.

Accepted Answer

Profits in a corporation can be used for reinvestment to fund growth or operations, or they can be distributed to shareholders in the form of dividends as a return on their investment.

Question 16

A transfer of shares by a shareholder does not require the approval of either the corporation or other shareholders.

Accepted Answer

A transfer of shares by a shareholder does not require the approval of either the corporation or other shareholders because the transfer of shares is a private transaction between the transferor and the transferee.

Question 17

Articles of incorporation form the corporation's "constitution".

Accepted Answer

Articles of incorporation serve as the primary legal document for establishing a corporation, outlining its structure, purpose, and governance, much like a constitution does for a country.

Question 18

A corporation acts under its own name rather than in the name of its shareholders.

Accepted Answer

A corporation is a legal entity separate from its shareholders, meaning it can conduct business, enter into contracts, and own property in its own name.

Question 19

Creditors have access to corporate assets only to have their claims repaid by them.

Accepted Answer

Creditors of a corporation have the right to access the corporation's assets for the purpose of having their claims repaid, but their access is limited to this purpose. They cannot claim assets for any other reason.

Question 20

A corporation is a legal entity that is combined with the owner's economic circumstances.

Accepted Answer

A corporation is a separate legal entity, distinct from its owners, meaning its financial and legal circumstances are separate from those of its shareholders.

Quiz 13: Introduction to Corporations