Corporate Law

Corporations are created and governed in the Province of Alberta by the Business Corporations Act of Alberta. A corporation is a seperate legal entity, distinct from its shareholders, and has the rights, powers and privileges of a natural person.

A corporation owns the assets of the business carried on by it and is entitled to the profits generated by the business. The corporation is responsible for any debts owed by the corporation, not the shareholders of the corporation. Shareholders obtain their shares from the corporation, which allows the shareholders the right to be involved in the way the corporation is run and to share in the profits. The shareholders elect the Directors to run the day-to-day operations of the corporation. The Directors appoint officers to assist them in these duties.

The corporation has perpetual succession and survives the death of its shareholders and directors until is dissolved. The corporation is capable of owning property. The assets of the corporation belong to the corporation and not its shareholders. The creditors of the corporation can sue and be sued in its own name. The corporation can borrow money, and any funds borrowed belong to the corporation and not to it shareholders.

The advantages of incorporation are:

Limited liability - except for limited circumstances, shareholders are not liable for any debts, obligations or liabilities incurred in the carrying on of business by the corporation;
Tax advantages - generally a corporation pays much lower taxes than an individual would pay on the same income;
Perpetual Existence;
Attraction of Investment Capital.

Purchasing a Business

There are basically two methods used to acquire or purchase a business. If the business being purchased is owned by a corporation it can be acquired by either a purchase of the corporate assets or by purchase of the company shares from the shareholders. Often a purchaser wishes to purchase assets instead of shares in order to take advantage of capital cost allowances available in business, whereas a seller wishes to sell shares so the purchase price can be paid directly to the shareholder, not the corporation. A seller may also wish to sell shares in a corporation to avoid being left with unwanted assets or liabilities, whereas a purchaser usually wishes to purchase assets only, to avoid the unknown liabilities of the corporation at the time of purchase.

The decision to purchase the assets or shares of a corporation is sufficiently complex that the prospective purchaser and seller should each independently consult with their own accountant, lawyer and possibly a business valuator, prior to making any decision as to how best to proceed.