Home News What Is an “In Fact” Business entity?

What Is an “In Fact” Business entity?

by Jackson B

A company, also abbreviated as co. is a legal entity comprising an association of individuals, whether formal, corporate or mixed, having a single objective: to make profits. Company members generally share a common objective and work together to achieve defined, legally determined objectives. In addition to profit, a company may also be involved in the development and manufacture of products or provide goods for sale to customers. However, all company activities are motivated by one or more of the company’s three core purposes: capitalizing on its share of the market, creating value for the shareholder or customers, and maximizing the firm’s competitive advantage.

A businessperson usually owns the whole company but holds or owns shares of the company’s equity. Each shareholder is also known as a shareholder. The number of shares a person possesses varies according to his investment options. If the person invests in the entire company, he will hold majority (the largest) number of shares. Likewise, if the person opts for an asset management service and invests part of his assets in the company’s shares, he will have the same number of shares but will also have the right to dividends. A shareholder can sell his shares to the new owners once he no longer wishes to own them.

A company is normally registered under its original laws either at its incorporation in a country or state, or at the country or state where it is incorporated. After incorporation, the company can continue this registration in order to carry on its business affairs. However, for the most part, an international company must file an application for registration at the appropriate authorities in its country of incorporation. To do this, the company must submit copies of its original documents, its articles of organization, its payment records, its capital structure, and its original shareholders’ agreement. To facilitate the process of transferability, each country’s securities regulators or the International Securities regulatory Commission appoints an authority who will act as a go-between for the transferability of the company’s shares.

Transferability refers to the legal rights that an owner has to sell his shares to others. The transferability of company shares takes place when one individual or entity actually transfers the ownership of the company’s shares to another individual or entity. In addition, there are instances where a shareholder is allowed to transfer his shares without involving any other entities. These transfers of shares are commonly referred to as ‘asset transfer’ or ‘virtual transfer’.

Most countries have a central authority that licenses and regulates the transferability of capital stocks, debentures and company shares. This regulatory body also determines the validity of transferable shares and other corporate instruments. However, the transferability of company shares is subject to restrictions based on different countries. For example, a U.S. citizen is legally allowed to purchase shares in a Canadian company without complying with U.S. federal and provincial tax laws. Also, the use of double entry accounting systems is prohibited in some countries such as Germany and India. In Canada, double entry bookkeeping systems, including the use of the code word ‘USD’ for financial transactions involving foreign currencies, are forbidden.

A company seal must be used to legally bind the shares of a company in most cases. However, there is an exception to this rule in the case of specially registered seals known as “theumi”, which are exclusively used for company accounts. Under these circumstances, the company must apply for and obtain a “suitable” international standard for a seal. For instance, in the case of the “suitable” seal, it should be made in a font size that is easy to read; the color should contrast with the background; it should be easily noticeable and easily deciphered; and it should not be difficult to reproduce.

There are two situations that may result in a court deciding that a company formed by an act of the legislature is actually a separate entity from the original entity. Firstly, if both entities carry the same liability, then it may be concluded that the entities are legally separate entities. Secondly, if one entity carries the liability of another, it may be argued that the entities are one and the same, as long as the statute of descent and distribution does not apply. This means that if a company was formed in Canada before it incorporated in the UK, and the business was conducted there, the business will be deemed to have been conducted under the law of the UK and that therefore the company is incorporated there. The same principle applies if there are two or more ways to incorporate: if there is a way of incorporating that involves the filing of a certificate of incorporation in one country and the registration of an instrument of incorporation in another country, then the procedures involved will be the same. For instance, if a company is incorporated in Canada and later incorporates in the UK, the procedures governing the formation and registration of the company in Canada and the UK will be different.

The creation of an “in fact” company, even if it does not result in the creation of a distinct business or an entity, is not avoided by section 611(b) by reason of a future liability. The statutory language, repeated throughout the Corporations Act, provides that a company will be treated as an “entitled person” for the purposes of sections 611(b), (c), (d) and (e). However, if it can be shown that the proposed corporation would form a perpetual or indivisible entity without creating any liens or being subjected to the operation of paragraphs 611(f) and (g), then the statutory language will not prevent the incorporation.


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