Guide to Share Structure and Restrictions

Introduction

This guide provides general information regarding share structure and restrictions under the Business Corporations Act (the “Act”). The information is general in nature and the examples set out below are for reference purposes only. This guide is not intended or offered as legal advice.  

If you are unsure about your proposed share structure or share restrictions, it is recommended that you seek legal advice before incorporating or re-registering under the Act.

Share Structure 

Section 4(1) of the Act requires articles to set out the classes and any maximum number of shares that the corporation is authorized to issue.  The articles must also indicate any par value of shares or include a statement that the shares are without par value. 

Classes of Shares 

One Class of Shares

A corporation must issue at least one class of shares. If there is only one class of shares, section 31(2) of the Act indicates that the rights of the shareholders are equal and include rights:

      (i)    to vote at any meeting of the shareholders of the corporation;
      (ii)    to receive any dividend declared by the corporation; and
      (iii)    to receive the remaining property of the corporation on dissolution.

More than One Class of Shares

If there is more than one class of shares, the articles must indicate the rights, privileges, restrictions and conditions that apply to each class, except in the case of authorized preferred shares where the rights, privileges, restrictions and conditions are to be determined by bylaw at the time of issuance. 
At least one class of shares must include the section 31(2) rights to vote, to receive any dividend declared by the corporation and to receive the remaining property of the corporation on dissolution. These rights can be attached to same class or to different classes.

Preferred Shares 

Pursuant to section 31(4) of the Act, the articles may authorize preferred shares and either:

• set out the rights, privileges, restrictions and conditions for those preferred shares; or 
• include a statement that the rights, privileges, restrictions and conditions for those preferred shares shall be determined by bylaw at the time of issuance.   

Restrictions on Share Transfer 

Section 4(1) of the Act requires any restrictions on share transfer to be stated in the articles. For a private corporation (e.g. not a public company) it may be necessary to include share transfer restrictions for various reasons including, securities law exemptions. 

Under securities law, a corporation that issues (e.g. sells) shares to the public is subject to numerous requirements. Private corporations may qualify to be exempt as a “private issuer”. One requirement to be a “private issuer” is having restrictions on share transfer (e.g. share transfers may require approval of a majority of directors or shareholders).   

Examples

The following clauses are examples of some basic share structures and restrictions. They are by no means mandatory or exhaustive. If you are unsure about your proposed share structure or restrictions on transfer, you may wish to seek legal advice.

One Class of Shares:

“The corporation is authorized to issue an unlimited number of common shares without nominal or par value.”

More than One Class of Shares:

“The corporation is authorized to issue:

      An unlimited number of Class A voting common shares without par value;
      An unlimited number of Class B non-voting common shares without par value; and
      An unlimited number of Class A, B, C and D preferred shares without par value.

The rights, privileges, restrictions and conditions attaching to the Class A and B common shares are:

1. Class A voting common shares, without par value, the holders of which are entitled:
    (a)  to vote at all meetings of shareholders except meetings at which only holders of a specified class of shares are entitled to vote; 
    (b) to receive any dividend declared on Class A common shares by the corporation; and
    (c) to receive the remaining property of the corporation upon dissolution on a pro rata basis with the Class B common shareholders.

2. Class B non-voting common shares, without par value, the holders of which are entitled:
    (a) to receive any dividend declared on Class B common shares by the corporation; and
    (b) to receive the remaining property of the corporation upon dissolution, on a pro rata basis with the Class A common shareholders.

The holders of Class B common shares shall not be entitled to vote at meetings of shareholders except as otherwise provided by the terms of the Business Corporations Act.

The rights, privileges, restrictions and conditions for the Class A, B, C and D preferred shares shall be determined by bylaw at the time of issuance.”

OR

“The corporation is authorized to issue an unlimited number of Class A and B common shares without par value, and an unlimited number of Class A and B preferred shares without par value. The Class A common shareholders shall be entitled to vote at all shareholder meetings, except meeting meetings at which only holders of a specified class of share are entitled to vote, and to receive such dividend as the board of directors in their discretion shall declare. Subject to the provisions of the Business Corporations Act, the Class B common shares shall be non-voting. Upon liquidation or dissolution, the holders of the Class A and Class B common shares shall share equally the remaining property of the corporation. The rights, privileges, restrictions and conditions for the Class A and B preferred shares shall be determined by bylaw at the time of issuance.”

Restrictions on Share Transfers:

“The right to transfer shares of the corporation shall be restricted in that no shareholder shall be entitled to transfer any share or shares of the corporation without the approval of: 

(a) the directors of the corporation expressed by resolution passed by the votes cast by a majority of the directors of the corporation at a meeting of the board of directors or signed by all of the directors of the corporation; or 
(b) the shareholders of the corporation expressed by resolution passed by the votes cast by a majority of the shareholders who voted in respect of the resolution or signed by all shareholders entitled to vote on that resolution.”

Additional Provisions 

The articles may set out additional provisions permitted by the Act. You may wish to seek legal advice regarding any other potential clauses to include in your articles. 

Changing Share Structure or Restrictions

If a corporation wishes to change share terms or restrictions, an amendment to the articles will be required, except in the case of authorized preferred shares where the rights, privileges, restrictions and conditions are to be determined by bylaw at the time of issuance.

Who can I contact for more information?

Corporate and Business Names Registry
Department of Justice and Public Safety
Consumer, Corporate and Financial Services Division
1st Floor Shaw Building
Telephone: (902) 368-4550
Fax: (902) 368-5283
Email:  askcorporateregistry@gov.pe.ca