About Shareholders

What are Shareholders?

Shareholders are the owners of the corporation. Unless they are also directors, officers, or employees, they are not involved in day-to-day operations. Shareholders are typically entitled to receive dividends paid out of the profits of the business.

Residency Requirements

Except in a few protected industries, there are no restrictions on foreign-based individuals or corporations holding shares in a private Canadian corporation. However, if a corporation has foreign shareholders, it may lose its status as a Canadian Controlled Private Corporation (CCPC), which could affect access to the small business deduction.

Multiple Classes of Shares

When a corporation is registered, its Articles of Incorporation detail the shares authorized to be issued. It’s often useful to authorize several different classes of shares to provide flexibility. Common types include:

• Common voting shares
• Common non-voting shares
• Preferred voting shares
• Preferred non-voting shares

Common vs. Preferred Shares

Common Shares do not have a fixed value. Their value increases and decreases with the overall value of the corporation. They are usually the only type issued at incorporation.

Preferred Shares are typically worth a fixed value and are used for tax or transition planning purposes. “Preferred” means these shares are paid out first in the event of liquidation or dissolution.

Securities Laws

Most small private corporations are set up as “private issuers” and are not required to comply with extensive disclosure requirements. To maintain this status, the corporation must be careful not to issue shares unless limited exemptions under securities rules apply. Failure to comply can lead to significant fines and penalties. Seek advice from a lawyer before causing a corporation to issue shares.