Area of Law: Business Law
Answer # 221
What are corporate shares?Region: Ontario Answer # 221
The owners of a corporation are called shareholders. Every corporation must decide what type of shares they will have and what the rights and restrictions of the different shares will be. Different rights can be given to different types or classes of shares. For example, people who hold one type of share may be allowed to vote while people holding another type of share may not. If different people have the same type of shares, their rights must be the same. Consequently, if you plan to have only one type of share, all shareholders will have the same rights.
Share specifications must be in Articles of Incorporation
The different classes of shares and the rights attached to each must be specified in the Articles of Incorporation. You must also specify any restrictions you want to put on the shares of the corporation. Even if you only want to have one class of shares, you must still specify any restrictions. For example, you may want to restrict who is allowed to own shares. Additionally, private corporations are restricted in the number of shareholders permitted and are not allowed to offer their shares to the public.
Fundamental rights included in every share
The rights which are attached to a share are determined by a corporation’s Articles. While corporations have wide freedom under the relevant federal or provincial regulations to determine the characteristics of the shares they issue, there are certain fundamental rights which must be included in at least one class of shares. These fundamental rights are the rights to:
- Vote at shareholder meetings,
- Receive dividends declared by the corporation,
- Receive a portion of a corporation’s property upon its dissolution (subject to any claims against the corporation by non-shareholders, such as creditors).
These fundamental rights are presumed to exist in every share unless a corporation has issued more than one class of share. The legal issues involved in structuring a corporation can be quite complex, especially where there is more than one shareholder, and more than one type of shares.
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