What is a share in a Canadian corporation?

A share represents a unit of ownership in a company. The number of shares you own determines your ownership percentage — if a company has 100 shares outstanding and you own 50, you control 50%. Shares also entitle you to a portion of the company's assets on dissolution and a portion of its dividends.

What is the difference between voting and non-voting shares?

Voting shares give the holder the right to vote at shareholder meetings — electing directors, approving fundamental changes, consenting to amalgamations. Non-voting shares do not. Non-voting shares are often used to give an investor or family member economic participation (dividends, asset value on dissolution) without diluting voting control.

What is the difference between common shares and preferred shares?

Common shares typically carry voting rights and the residual claim on dividends and assets — common shareholders share what is left after preferred and creditor claims. Preferred shares usually do not vote but rank ahead of common on dividends and on dissolution. Preferred shares often pay a fixed dividend and are common in family-trust structures and in raising outside investment.

What does share dilution mean?

Dilution happens when a company issues additional shares — existing shareholders' ownership percentage drops. If you own 100 of a company's 1,000 shares (10%) and the company issues another 1,000 shares, your ownership falls to 100 of 2,000 (5%). The number of shares you own is unchanged; your share of the company is not.

Should I use multiple share classes when incorporating in BC?

Multiple share classes give you flexibility to pay different dividends to different shareholders (a spouse, a family trust, an adult child) without giving them voting control. The trade-off is complexity — multiple classes mean more articles, more annual maintenance, and more attention to TOSI and other tax rules. For a single-owner BC company with no family involvement, one class is usually enough; for family-business planning, multiple classes almost always earn their keep.

What is TOSI and why does it matter to share structure?

TOSI (Tax on Split Income) is a federal rule that taxes dividends paid to family members at the top marginal rate unless the family member meets specific exceptions — most often, an "excluded business" contribution test or an "excluded shares" test. Share structures that were tax-efficient before 2018 may now trigger TOSI if a spouse or adult child holds shares without contributing labour or capital. Drafting around TOSI is a corporate-and-tax exercise — we do the corporate side; your accountant does the tax side.

Can I change my BC company's share structure after incorporation?

Yes. Share reorganisations are filed with the BC Corporate Registry under the Business Corporations Act — typical mechanisms include amending the articles to create new classes, share exchanges, or a section 86 estate freeze where existing common shares are exchanged for fixed-value preferred shares so future growth accrues to a new class held by the next generation. Reorganisations can have tax consequences (deemed dispositions, attribution rules) so we coordinate with the company's accountant.

Understanding Corporate Share Structure in Canada

When incorporating a business in Canada, one of the most important decisions you make is how to structure your shares. Corporate share structure determines ownership, control, and how money comes out of the company. This guide covers the basics, the common pitfalls, and how to set up a structure that fits your business.

A share represents a unit of ownership in a company. The number of shares you own determines your ownership percentage. For example, if a company has 100 shares and you own 50, you control 50% of the company. Shares also entitle you to a portion of the company’s assets and profits.

Shares vary in their characteristics, and those characteristics shape your rights as an owner. Here are the main types.

Types of Shares

Voting vs. Non-voting Shares

Voting shares provide the owner with the right to vote on company decisions, such as electing the board of directors.
Non-voting shares do not grant voting rights and are often held by investors who are more focused on financial returns than on controlling the company.

Common vs. Preferred Shares

Common shares allow shareholders to vote and receive dividends, but are often last in line to receive payment if the company dissolves.
Preferred shares typically don’t offer voting rights but have a higher claim on assets and earnings. Preferred shareholders often receive fixed dividends before common shareholders.

Companies may issue different classes of shares, such as Class A, B, C, etc., each with unique voting rights and dividend rules. This allows for flexible ownership and control structures.

Authorised vs. Issued Shares

Authorised shares are the maximum number of shares a company can issue, as outlined in its articles of incorporation.
Issued shares are the shares that have actually been distributed to shareholders.

It’s essential to understand the concept of dilution. When more shares are issued, the ownership percentage of existing shareholders decreases. For example, if you own 100 shares in a company with 1,000 total shares, and the company issues another 1,000 shares, your ownership percentage drops from 10% to 5%.

Understanding your share structure is important for several reasons:

Legal Ownership

Your share structure defines legal ownership of the company. It’s vital to ensure that ownership and control are clear and undisputed. Always consult a lawyer to ensure your share structure complies with the law.

Dividends and Tax Implications

Dividends are paid out based on share class ownership. For example, if you and your spouse each own 50 Class A shares, dividends will be split equally. This setup might limit your flexibility in distributing dividends and could have tax consequences if your spouse is not active in the company.

To avoid potential issues, consider setting up separate share classes for different types of owners. This allows for greater flexibility in dividend distribution and can help optimise your tax situation. If your current share structure isn’t meeting your needs, seek legal assistance to reorganise your shares.

Single Owner

If you’re the sole owner, a simple structure where you own 100% of the company with Class A shares may be sufficient. However, recent changes in tax laws, such as the tax on split income (TOSI), should be considered if you plan to include a spouse in ownership.

Multiple Owners

For companies with multiple owners, setting up separate share classes can be beneficial. For instance, you might have Class A shares for voting and separate classes (e.g., Class B and C) for dividend distribution. This setup allows you to manage dividends based on each owner’s tax situation and financial needs.

Key Recommendations

Plan Ahead

A well-thought-out share structure can save you headaches down the line. Consider your future needs and potential changes in ownership to set up a structure that supports your business goals.

Get Legal Assistance

Whether you are incorporating or restructuring your shares, working with a lawyer is essential. Our corporate and commercial team can set up your share structure correctly from the start, or reorganise an existing one.

Consult an Accountant

Proper share structure planning can potentially lead to significant tax savings. An accountant can help you set up different classes of shares and plan dividend distributions to maximise your tax benefits. It’s also a good idea to reach out to an accountant to fully understand the tax consequences of your chosen share structure, ensuring that you make informed decisions that align with your financial goals.

What is a Share?