RSM424H1 Chapter Notes - Chapter 11: Double Taxation, Dividend Tax
22 Feb 2017
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When a company is incorporated, an artificial person that is separate from its owner or owners is created. This artificial person is recognized by law as an entity that has the power to act in its own right and to enter into enforceable legal agreements with individuals or other corporations. Shareholder provides equity capital to the corporation by contributing cash or other property to the corporation in exchange for shares. Participating shares or common shares increase in value as corporate earnings are accumulated. Non-participating shares and do not increase in value. These are shares do not participate fully in corporate earnings but, rather, pay a fixed dividend; any corporate profits in excess of such a dividend accrue to the benefit of the common shareholders. Dividends and capital gains or losses from corporate shares are interconnected: increased dividends reduce the potential for capital gains; reduced dividends (for earnings retention) increase the potential for capital gains.
