Shares

One of the fundamental aspects of running a corporation is understanding shares and how they work. Shares represent ownership in a corporation and are owned by shareholders. In this article, we will delve into the world of shares, share classes, certificated and uncertificated shares, share transfers, and reporting issuers, offering essential insights for those taking their first steps in the entrepreneurial world.

Share Classes

A corporation must have at least one class of Shares but can have many. Each share class is described in the articles of incorporation of a company.

More classes of shares can be added as a company increases in complexity, these simply require the articles of incorporation to be amended.

The Canada Business Corporations Act outlines share rights and how those rights can be distributed between multiple classes of shares:

Rights attached to shares

(3) Where a corporation has only one class of shares, the rights of the holders thereof are equal in all respects and include the rights

     (a) to vote at any meeting of shareholders of the corporation;

     (b) to receive any dividend declared by the corporation; and

     (c) to receive the remaining property of the corporation on dissolution.

Rights to classes of shares

(4) The articles may provide for more than one class of shares and, if they so provide,

     (a) the rights, privileges, restrictions and conditions attaching to the shares of each class shall be set out therein; and

     (b) the rights set out in subsection (3) shall be attached to at least one class of shares but all such rights are not required to be attached to one class.

Canada Business Corporations Act

Uncertificated vs Certificated shares

Certificated shares and uncertificated shares are two different forms of ownership representation in a corporation. Certificated shares refer to traditional paper stock certificates that provide physical proof of ownership. Each certificate represents a specific number of shares and typically includes details about the shareholder's name, the number of shares owned, and any special restrictions or privileges associated with those shares. Uncertificated shares exist purely in electronic or digital form without any physical certificates. The ownership of uncertificated shares is recorded and tracked electronically in the corporation's books, and shareholders receive statements or electronic notifications confirming their ownership. In recent years, uncertificated shares have become more prevalent due to their efficiency and cost-effectiveness in modernizing the process of stock ownership and transfers.

Share transfer

Shares can be bought and sold between persons. Typically there are restrictions on the transfer of shares so that a Board of Directors or majority of the shareholders Resolution is required before shares can move between persons.

Reporting Issuer

Typically "reporting issuers" are public companies that have significantly higher disclosure requirements. Corporations Canada lays out how to put restrictions in a corporation's articles of incorporation to ensure it is not considered a "reporting issuer".

For your corporation to avoid being designated as a reporting issuer under provincial securities legislation and consequently as a distributing corporation under the [Canada Business Corporations Act], you must include in your Articles of Incorporation a statement that restricts the transfer of the corporation’s securities without the consent of the majority of the directors or shareholders.

Distributing corporations must comply with the registration and prospectus filing requirements and other related procedures set out in the [Canada Business Corporations Act] and in provincial/territorial securities law.

To restrict the transfer of shares, you should include the following statements in your Articles of Incorporation:

• at the item entitled “Restrictions on shares transfers” — a statement restricting the transfer of the corporation’s shares; and
• at the item entitled “Other provisions” — a statement restricting the transfer of the corporation’s securities. If you later decide to offer shares publicly, you will have to remove these restrictions by submitting Articles of Amendment and paying the $200 filing fee. All previous share issuances would remain valid, however, because your corporation would not have been subject to the registration and prospectus requirements under securities law.

Guide to Federal Incorporation

Conclusion

Understanding shares and their intricacies is vital for first-time entrepreneurs entering the corporate world. Shares represent ownership in a corporation, and the choice of share classes, certificated or uncertificated shares, and share transfer restrictions can significantly impact the operation and growth of your business. Additionally, careful consideration of reporting issuer status and the inclusion of appropriate restrictions in your Articles of Incorporation are crucial to ensure your business's smooth journey in the corporate landscape.

Ribbon Makes Business Easy

To keep a corporation compliant is challenging. Ribbon gives entrepreneurs the tools to help them stay compliant. From setting up minute books, maintaining registers to annual filings, Ribbon let's Entrepreneurs focus on their business. Learn more about Ribbon or email support@getribbon.ai.