When incorporating a business, many business owners focus on setting up operations, attracting customers, and earning revenue. But one of the most important decisions during incorporation is often overlooked: the share structure of the corporation.
Your corporation’s share structure is a key factor that affects ownership, control, taxation, succession planning, and future business growth. A carefully planned share structure can provide flexibility and tax planning opportunities. On the other hand, a poorly designed structure can create complications and additional costs down the road.
At KD Professional Services, we help business owners understand how corporate share structures work and ensure their corporations are set up properly to support their long-term goals.
What Is a Share Structure?
The share structure of a corporation is the framework that determines who owns the corporation, who controls it and who benefits from its profits and assets. It is established in the corporation’s Articles of Incorporation which contains the classes of shares that can be issued, the rights attached to each class of shares, restrictions related to those shares and the maximum number of shares that can be issued.
Classes of Shares
A Canadian corporation can have one or multiple classes of shares. Common examples of shares include common shares, preferred shares, voting shares, non-voting shares, special shares and growth shares.
Some corporations choose to issue only one class of shares. And as the business grows, many corporations choose to issue multiple classes of shares and adopt a more complex share structure.
Why Businesses Create Multiple Share Classes
Corporations issue multiple share classes because of various reasons.
1. Ownership flexibility: The different classes of shares can help separate ownership from control.
2. Tax Planning opportunities: A carefully planned and properly designed share structure creates tax planning opportunities that can benefit the corporation in the long-term.
3. Succession planning: Multiple share classes can help facilitate ownership transitions between generations.
4. Attracting investors: Different share classes of shares can be used to bring in more investors while maintaining control.
Can a Share Structure Be Changed?
Yes, but it involves complex processes and steps. For example, if a director would like to create new share classes, remove existing share classes, change shareholder rights or change restrictions attached to shares then the corporation must generally amend its Articles of Incorporation. This amendment to the Articles of Incorporation usually requires a special resolution of shareholders, corporate documentation, legal filings and compliance with applicable corporate legislation.
How KD Professional Services Can Help
Your corporation’s share structure is not just a legal requirement – it is the foundation of the ownership and control of your corporation. And at KD Professional, we work with entrepreneurs, professionals and growing businesses in Calgary and across Canada to help them make the best business decisions regarding their corporate structure.
Remember, the right share structure today can help you avoid costly changes and disruptions tomorrow.
Contact KD Professional Services to discuss your corporate structure, tax planning opportunities and long-term goals. Our experts can help you build a strong foundation for your success.