Term
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Definition
- Single Owner Business
- Business and owner are same legal entity
- Unlimited liability
- Less concern with reporting to shareholders
- Profits are taxed as owner's income |
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Term
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Definition
- A general partnershop - 2+ owners
- Partnership agreement
- Profits are taxed as partner's income
- General partners have unlimited liability |
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Term
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Definition
- A partnership with two types of partners: General partners and limited partners
- Limited partners have limited involvement in the partnership
-- They invest in the partnership but do not make day-to-day decisions about its operations
-- They share in profits and losses but creditors cannot normally sue them if partnership runs into financial difficulty |
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Term
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Definition
- Organization is legally separate from the owners (shareholders)
- Limited liability
- Can raise capital by issuing shares
- Double taxation - corporate and dividends when shareholder receives
- Additional legal filing requirements and fees
- Transfer of ownership is easier especially if public
- Unlimited life |
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Term
| Taxation differences in different forms of organization |
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Definition
Sole proprietorships and partnerships: taxed at owner's personal tax return in the year it is earned regardless of whether it is paid out to the owner or not (not BUS lvl)
Corporate: CRA impose corp. taxes on the income they earn
Corporate tax is in addition to the personal income tax that shareholders pay on their personal income when they receive dividends or when they sell their shares and through tax deferral when profits are retained in the business
Tax to be paid on dividends or capital gain is only recognized after it is received or sold |
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Term
| Articles of incorporation |
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Definition
Prepared by founding investors
Articles of incorporation include
- What type of business the company will conduct
- How board of directors will be organized
- Who the management will be
- What kinds of shares will be issued
- Maximum number of shares that the company can issue |
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Term
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Definition
Maximum number of shares that the company can issue
[To increase the number of authorized shares require a change of articles of incorporation] |
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Term
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Definition
| Shares that have been sold by the company |
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Term
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Definition
- Specific dollar amount attach to each share that is the lowest selling price of the stock
- Under S/E - Common Shares, it's at par value, anything in excess is credited to Additional paid-in Capital or Contributed surplus in excess of par |
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Term
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Definition
Total par value
All must be maintained within the firm and cannot be distributed |
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Term
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Definition
Total amount received for the shares is credited to the shaes account
Results in larger amount of legal capital that mst be maintained in the company -> greater protection |
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Term
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Definition
Legal document that details and features of the shares are being issued when common/preferred shares are issued
> distributed to potential investors when shares/bonds are initially sold |
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Term
| Common Shares/ Ordinary Shares |
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Definition
| Class of shares that represent the company's basic voting ownership rights |
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Term
| Basic set of rights of common shareholders |
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Definition
1. Profits and Losses
2. The selection of corporate management
3. Net assets upon liquidation
4. Subsequent issues of shares |
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Term
| Profits and Losses [Common shareholders' rights] |
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Definition
Corp. retains control over the distribution of its profits
Common Shareholders: Rights to share in earnings after preferred shareholders have been satisfied
Preferred shareholders: Only dividends |
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Term
| Selection of Corporate Management [Common shareholders' rights] |
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Definition
- Right to vote on the selection of the corporation's board of directors
- One share = one vote |
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Term
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Definition
Make most decisions
Represent all shareholders
Hires/fires the company's top level management
Declares the dividends that are paid to shareholders
Ultimately responsible for financial info that is presented |
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Term
| Net assets upon Liquidation [Common shareholders' rights] |
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Definition
| Established order in which creditors and shareholders are paid in case of bankruptcy/liquidation |
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Term
| Subsequent issues of shares [Common shareholders' rights] |
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Definition
| Right to share proportionately in any new issuance of shares |
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Term
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Definition
Must be explicitly stated in the articles of incorporation
Allows current shareholders to retain their proporionate interest in the company when new shares are issued
(e.g. a shareholder owning 20% of company's shares has the pre-emptive right to purchase 20% of any new shares of that class that may be issued) |
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Term
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Definition
| More than 50% of the outstanding shares |
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Term
| Preferred Shares/ Preference Shares |
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Definition
Preference over Common shares in regards to dividends
Preference over net assets if the company is liquidated
Non-voting
Preferred dividend amount may be stated as a dollar amount per share |
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Term
| Cumulative preferred shares |
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Definition
| If dividends are no declared on the preferred shares in one year, it carries over into the next year |
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Term
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Definition
| Dividends from prior year that have not been declared |
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Term
| Convertible preferred shares |
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Definition
| Can be converted into common shares at the shareholders' option based on a ratio stated in the articles of incorporation |
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Term
| Redeemable preferred shares |
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Definition
| Can be bought back by the company at a price and time specified in the articles of incoporation and at the issuing company's option |
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Term
| Retractable preferred shares |
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Definition
Similar to redeemable shares in that they can be sold back to the company, at the shareholder's option
Price that must be paid for them and period of time when they can be sold are also specified in the articles of incorporation |
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Term
| Participating preferred shares |
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Definition
Preference with regard to dividends
If dividends are declared to common shareholders beyond the level declared to preferred shareholders, prefered shareholders also share in the excess difidends |
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Term
| Common Shares issued for cash -- journal entry |
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Definition
Dr Cash Account
Cr Share Capital Account/ Paid-in capital/Legal capital |
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Term
| Company issues 1000 no par value common shares for $15 a share |
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Definition
Dr Cash $15,000
Cr Share Capital $15,000 |
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Term
| Company issue 1000 common shares for $15 a share that had a par value of $10 per share |
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Definition
Dr Cash $15,000
Cr Share capital $10,000
Cr Contributed capital $5,000 |
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Term
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Definition
Shares currently held by investors
If company repurchase some of its own shares and holds them -- issued but not outstanding |
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Term
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Definition
Shares that have been repurchased by the issuing company
If the company buys them back at a higher or lower price than it issued them for -- form of gain or loss on repurchase -> record in retained earnings account or the contributed surplus account |
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Term
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Definition
| Payments to shareholders from the total net earnings retained by a company in the retained earnings account |
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Term
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Definition
Company records its obligation to pay the dividend on the date of declaration
Db Dividends declared
Cr Dividends payable |
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Term
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Definition
Share holder must own the shares in order to receive the dividend on date of record
No journal entry required |
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Term
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Definition
| The day on which shares are sold without the right to receive the dividend |
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Term
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Definition
Make an entry to record the reduction in cash and the payment of the liability
Dr Dividends payable
Cr Cash |
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