The Business Corporations Act (Ontario) (the “OBCA”) gives directors the power to issue shares, but it also regulates how shares are paid for and recorded. Shares may be issued for money, property, or past services, and directors must determine that non-cash consideration has fair value. Issued shares are generally non-assessable, meaning shareholders are not later required to contribute more merely because they hold shares. The OBCA also deals with stated capital and provides that pre-emptive rights exist only if the articles or a unanimous shareholder agreement provide for them.
For private companies, this means dilution protection should be drafted, not assumed. A founder who expects the right to participate in future issuances needs that right in the unanimous shareholder agreement. Share issuance records should also be kept carefully, because sloppy capitalization records can derail financings, tax planning, and sale transactions.
Our template articles provide the provisions and organizing resolutions to ensure the shares are properly issued on incorporation and that your records accurately reflect the ownership of the Company.
The information in this post is intended to be legal information only and nothing in it should be interpreted as legal advice.