Chapter 7.2® - Difference between Private & Public Corporations, Classes of Common Shares & Share Capital

• Part 7.1 - Assets, Liabilities & Shareholder's Equity Introduction - Advantages & Disadvantages of Shareholder's Equity - Taxation & Control Issues, Limited Liability, Capital Accumulation & Transfer of Shares/Ownership
• Part 7.2 - Difference between Private & Public Corporations, Classes of Common Shares & Share Capital
• Part 7.3 - Explanation of Common & Preferred Shares - Par Value & No Par Value Shares, Fundamentals of Share Equity Concepts
• Part 7.4 - Authorized Share Capital, Journal Entries for Issuance of Non Par Value Shares, Journal Entries for Shares Sold on Subscription Basis
• Part 7.5 - Non-Cash Sales of Share Capital, Proportional & Incremental Methods of Share Issuance & Accounting
• Part 7.6 - Costs of Share Issues & Accounting for Retirement of Shares & Corresponding Rules
• Part 7.7 - Conversion of Shares & Accounting for Treasury Stocks - Buying & Selling Treasury Stocks & Its Effects on Shareholder's Equity - Contributed Capital
• Part 7.8 - Explanation of Retained Earnings - Dividends & Dividend Dates & Cash Dividends - Recording Journal Entries for Declaration of Dividends
• Part 7.9 - Cumulative Dividends on Preferred Shares - Increases & Decreases of Contributed Capital & Types of Dividends - Stock, Liquidating, Scrip Dividends

Federal and provincial Governments control the operations of the corporation. A corporation can be formed either by federally or provincially. There is no difference forming a company under federally or provincially. The businesses can perform their activities within Canada or internationally by incorporating through federally or provincially. Federally incorporated companies can be prestigious if business activities are conducted outside the country.

Survey:

As per the survey by Financial Reporting in Canada 2000, it has been noted that about half of the 200 Canadian public companies are incorporated federally.

Private Companies:

The corporate entities may be private or public. Here are some important characteristics of private companies which are as follows:

The majority of the corporation in Canada are private. Private companies are highly prominent among even the largest corporations in Canada.

As per the survey, by Financial Post, half of the list of the 500 largest companies are private.

Although, the private companies cannot trade their securities in the open market. But they do have an access to additional share capital through ‘private placement’.

Private Placements:

The private placement is a process where the corporation offers shares to an individual or institutional investors. The securities Act in the various provinces stipulates that if an investor invests capital of at least a certain amount, the investor is considered to be a good investor and the issuance of the shares in a private placements are not included in the maximum count of 50 shareholders permitted to a private corporation.

Also, the private companies may adopt differential disclosure, with unanimous shareholder consent. Even the shares that are normally non-voting must agree to differential disclosure. The policy can be replaced if the cost is higher than the benefits derived. The policy may be replaced with a more simple alternative.

Public Companies:

The public companies can be defined whose securities either debt or equities are traded on stock exchange. These companies may be incorporated under federally or provincially. The public companies follow some statutory requirements by GAAP. They also have a requirements like audits and other interim financial reporting etc.

Share Capital:

The share capital is an amount to be invested or proportion invested in the company.

Example:

The share capital can be transferred to any one without the consent of the corporation in which the investment has been made.

Example:

Now, we have some different classes of shares issue to the public.

Classes of the Shares:

A corporation may be authorized to issue several classes of shares. Following are the important and common classes of shares: