The Business Corporations Act (Ontario) (the “OBCA”) allows restrictions on the issue, transfer, or ownership of shares if those restrictions are properly authorized. It also permits a corporation to have a lien on shares in certain circumstances, unless the shares are exchange-traded. For corporations with restricted shares, the OBCA contains detailed rules for dealing with share ownership and sale issues tied to statutory restrictions.
For private companies, transfer restrictions are often essential. They prevent a founder, investor, or family member from transferring shares to an outsider without approval. They also support buy-sell arrangements, succession planning, and tax reorganizations. But restrictions need to be visible and enforceable. They also allow the corporation to comply with securities laws and the “private issuer exemption” so that the corporation does not need to file a report when it distributes the initial shares to the founder and/or their family members. Restrictions that are poorly drafted may create issues down the line, so it is important to get these right from the beginning.
Our incorporation guide contains the restrictions required in our template articles, and the share subscription form in the organizational resolutions, contains the language required to ensure compliance with the “private issuer exemption”.
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The information in this post is intended to be legal information only and nothing in it should be interpreted as legal advice.