When incorporating a federal corporation with Corporates Canada, you must complete articles of incorporation, that is, establish the structure of your corporation. In particular, articles of incorporation establishes the share structure of your corporation. Any person/entity that owns shares in your corporation is called a shareholder of the corporation.
The share structure
A corporation issues shares to its owners. The articles of incorporation should set out the classes of shares and any maximum of shares that the corporation is authorized to issue.
Your corporation can issue one or more classes of shares. There is no limit on the number of classes of shares that can be issued. You should set out the share structure in the articles.
If your corporation issues only one class of shares, then they must, as a minimum requirement, have:
- the right to vote
- the right to receive dividends (if declared by the board of directors)
- the right to receive the remaining property of the corporation after it is dissolved.
If there is more than one class of shares, then for each class of shares, you must indicate the rights, privileges, restrictions and conditions in the articles. Each of the three rights listed above must be assigned to at least one class of shares (one class does not need to have all three). Note, each right may be given to more than one class of shares.
A shareholder is a person (legal entity) who owns shares in your corporation. Shares represent an ownership in the corporation. Shares are property, just like a car or a house. A “person” could be an individual, or a legal entity such as trust, a mutual fund or another business corporation.
Shareholders generally have the rights to vote in the corporation, unless your articles of incorporation provide otherwise (for example, shares with no voting rights but having rights to receive dividends). Generally speaking each share with voting rights entitles the shareholder to one vote. The number of votes is proportional to the number of shares a shareholder holds.
Change classes of shares
If the board of directors of the corporation wish to change the classes of shares described in the articles, or any of the rights attached to a class of shares, it is requirement to make an amendment to the articles with Corporations Canada (see Amending your articles). A special resolution of the shareholders is needed. In certain circumstances involving changes to classes of shares and rights, the shareholders of each class or group may be entitle to vote separately as a class or group.