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Christiansen Lorentsen posted an update 2 years ago
In general, a financial corporation is one in which there is no share ownership, dividend payment or use of assets in its operating finance s. Dividends are common in all corporations, as they are the source of revenue. They are received by the shareholders of the company as their income. The corporation uses these funds for the growth and maintenance of its operations and infrastructure.
Definition. Non-financial companies mainly engage in the manufacturing of non-marketable goods and non-marketable services and their financial dealings are totally different from those of the owners. Non-financial corporations may be public and private corporations, limited liability companies, nonprofit organizations or foundations. The term ‘financial corporation’ is also commonly used to define various financial activities performed by a corporation.
Nature of Financial Corporation. A financial corporation does not engage in trading or commerce of its products or services, does not make loans or issue securities, and does not deal directly with customers. Instead, it sells its products and services to other companies and receives payments in kind. The only direct interaction with customers occurs when the products or services are purchased. A financial corporation may buy or sell bonds, shares, securities, insured loans or other secured debts. It may also hold accounts receivable or make advances on its insured assets.
Holding Company. A financial corporation may have many subsidiary companies and therefore, all of them will be considered one unit. Under such circumstance, the shares of each holding company will be considered as shares of the parent company. For example, Cede & Bancshlow (an Australian holding company) consists of Cede, which are an Australian insurance business, and Bancshlow, which are an American insurance business. All shareholders in each company are legally considered as partners.
Organizational Structure. A financial institution can have several types of structure: a partnership, limited liability company, corporation, mutual funds, and a number of others. In general, a partnership will be an entity formed by signing agreements between 2 or more individuals, while limited liability company will be an entity organized in such a way that only a single partner is involved. Funds will be considered as funds of the holding company. Each partner will have his own right to vote and to manage the company.
Dividends and Capital Payments. Dividends are payments received by the shareholder from the corporation’s revenue. Likewise, capital payments are the payments received by the corporation out of its assets. Usually, financial services companies do not receive capital payments from their customers directly but through brokers. The tax treatment of dividends and capital payments will vary according to the jurisdictions in which they are made.
Merger and Acquisition Agreements. Most mergers are the result of acquisitions and it may include one or more acquisitions. In general, acquisition means that the acquiring entity gives up some of its ownership in order to acquire the assets of the acquiring firm. However, a merger could also mean joining together with one or more companies or even groups. The tax treatment of acquisitions will be different depending on the jurisdictions in which they take place.
Stock Options and Stock Promotions. Stock options are rights provided to the shareholders of a corporation to sell a particular percentage of the company’s outstanding capital stock. At the same time, stock promotions are the right of the corporation to buy back or dispose of part or all of the shares of the subsidiary. Both options must be exercised under the direction of the board of directors of the company. Also, although this is a common practice, the tax treatment of these transactions will be very specific in each jurisdiction.