Canadian Securities Course (CSC) Level 1 Practice Exam

What are the differences between private and public corporations?

1. Private corporations have unlimited shareholders.

2. Public corporations can have restricted shares.

3. Private companies restrict the right of shareholders to transfer shares, and limits the amount of shareholders to 50.

4. Public companies do not allow trading of shares.

The correct answer is: Private companies restrict the right of shareholders to transfer shares, and limits the amount of shareholders to 50.

Private companies restrict the right of shareholders to transfer shares and limit the number of shareholders, typically to a maximum of 50. This characteristic is fundamental to the nature of private corporations, as they often aim to maintain tighter control and a specified structure, which can include intimate relationships among shareholders. This limitation on share transfers means that the sale or transfer of shares usually requires prior approval from existing shareholders, ensuring that the ownership structure remains intact and aligned with the original shareholder intent. Public corporations, on the other hand, can issue shares that are freely tradable on stock exchanges, allowing for an unlimited number of shareholders and facilitating capital raising through public offerings. The flexibility in the transfer of shares and a more extensive shareholder base are distinguishing features that highlight the operational dynamics between private and public entities. Understanding these differences is crucial for anyone involved in investment or corporate governance, as it informs decisions around share ownership, investment strategy, and the regulatory environment that each type of corporation must navigate.