Share classes and their restrictions are featured heavily in the Business Corporations Act (Ontario) (the “OBCA”). If a corporation has only one class of shares, the OBCA provides default rights: the right to vote, the right to receive dividends when declared, and the right to receive remaining property on dissolution. If there is more than one class, the articles must set out the rights, privileges, restrictions, and conditions attached to each class.
This is why share design is one of the most important incorporation decisions. Common shares, non-voting shares, preferred shares, redeemable shares, and special-voting shares can all serve legitimate purposes. But unclear share terms can cause disputes about dividends, control, exits, financing, and estate planning. In practice, founders need share structures they can rely on that provide flexibility for tax planning, income splitting, and allow for passive investors to take a stake. The share provisions define the economics and control of the company.
Our guide gives you 10 share classes so that you have the flexibility built in from the beginning.
The information in this post is intended to be legal information only and nothing in it should be interpreted as legal advice.