Structuring Your Corporation’s Shares
Corporate share structure refers to the establishment of shares of one or more types and the issuance of some or all of those shares to shareholders. The types of shares created and issued is the corporate share structure for that company. While share structure can change, there are advantages to starting off the corporation with the right corporate share structure.
Capital Share Structure
This aspect of corporate share structure involves the type of shares that a company creates and issues. It is possible for a corporation to have a corporate share structure that creates a variety of shares without issuing those shares. These different types of shares issued have the label of “classes of shares”. Shareholders can hold the same classes of shares as other shareholders. A single shareholder can own more than one class of shares within the corporate share structure. There are no limits to the number of different share classes a company issues.
What Are the Different Classes of Shares of Alberta?
Within corporate share structure there are two classes of shares. The first class of shares is a common share. The corporation may issue common shares as voting shares or non-voting shares. The second class of share is a preferred share. Picking the correct type of share for your situation is critical. The Articles of Incorporation of the company state the rights that each share holds. To further complicate things, a corporation may have several types of the above noted shares. These are usually referred to as various letters. For example, there can be a Class A, B and C voting share. We suggest adding more varieties of shares than you anticipate.
What Are Preferred Shares?
Simply put, a corporate share structure that includes preferred shares allows for some share classes to have more rights than the other shares. These include the right to:
• Have the shares redeemed;
• Receive dividends; and
• Convert the preferred shares into common shares in certain circumstances.
What Rights Exist for Different Corporate Share Structures?
The Articles of Incorporation will dictate the specific rights of each class of share. Without restricting the classes of shares, the most basic rights will include the right to vote at shareholder meetings, the right to get a dividend if the corporation decides to declare one and the right to a share of any assets of the company if the corporation ceases to exist as a legal entity. The Articles can have different rights assigned to different share classes. Restricting the rights of certain classes of shareholders is extremely important in some situations.
How Many Shares Should a Corporation Issue?
The number of shares issued to form the corporate share structure will depend on the nature of the corporation and its shareholders. A corporation that has and will only ever have one shareholder may only issue one share. A corporation with many shareholders, or that will have many shareholders, will want a corporate share structure that has many more shares. This allows for easier distribution of shares to shareholders.