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Shares of a corporation in Canada
Many young and beginning entrepreneurs might find everything related to the shares of a corporation too complicated or requiring expert knowledge in order to use shares properly as a tool supporting business development of their businesses. This is not the case.
Shares represent a portion or a “share” of the ownership of an individual in a corporation. Each share can bear one or more of the privileges (rights) attached to it – control, dividends and equity and while the total combination of all shares of each corporation in Canada must contain all three privileges, they might be distributed among different classes of shares.
“Control” represents the power of a shareholder to elect directors and to control operations of a corporation through such directors. Additionally, shareholders might decide to dissolve (kill) a corporation. There are no other effective means of control owned by the shareholders.
“Dividends” represent the right to participate in the profits of a corporation. This is one of the major tools to assist business owners in soliciting investors and compensating individuals assisting in such areas as business development, sales and marketing.
“Equity” represents the percentage of ownership of the actual value of the corporation (equity – how much your company worth). But it will be used and benefited from only in one of two situations – sales of shares to a third party or sale of the corporation and distribution of the proceeds.
When starting any business, entrepreneurs should remember that a corporation is authorized to issue only those classes and types of shares that had been defined within the Articles of Incorporation. The only workaround possible, is to apply for amended articles where such classes will be redefined – the costs of application would be similar to a new incorporation. That is why it is important to define more than one class of shares when approaching your initial incorporation.
And the most important part – you must consult a legal and corporate tax professional when approaching the task of defining and issuing shares of your corporation. There might be multiple (and sometimes unexpected) taxable outcomes when we issue new shares in a corporation.
We at CBES provide business owners and entrepreneurs with advice and professional services covering all legal, administrative and accounting needs of a corporation, and will gladly assist you in creation and issuance of various classes and types of shares to support your business development and growth.