There are many steps a company must complete when registering as a corporation. These steps can be as straightforward as filing the official corporate name, office, and records. However, the steps can also be more complicated, such as authorizing share structures that will distribute shares and ownership of the corporation.
Under Canadian law, the Articles of Incorporation dictate that companies must define the share classes and the maximum number of shares that the corporation is authorized to issue. This is a necessary step in the incorporation process as these share classes outline the rights that will be held by each shareholder.
How are shares divided amongst shareholders?
As dictated under the Articles of Corporation, shareholders are classified into different classes. In some cases, a corporation may issue only one class of shares, in which each shareholder is entitled to the same rights as all of the others. These rights include, but are not limited to:
The right to cast votes at meetings of all shareholders
Entitlements to any dividends declared by the corporation
Ownership of any remaining property previously owned by the corporation should the company enter a state of dissolution
The rights that each shareholder is entitled to depend on the class of shares they receive as mandated by the Articles of Incorporation. Here is a quick breakdown of the classes of shares that can be issued to various shareholders.
Common shares are also known by the name “equity shares,” and they are the most likely class issued by a corporation delegating only one type of share to shareholders. All holders of common shares are entitled to the standard rights outlined by the Articles of Incorporation.
Special shares are in a different category from common shares. As a result, recipients of special shares have rights, privileges, restrictions, and conditions exclusive to them and separate from the standard rights issued to common shareholders. Special shares are typically issued by corporations for tax purposes, and they can be redeemed or retracted at the discretion of the corporation.
Preferred shareholders, as the name implies, have preferential rights that have higher priority over the other classes of shareholders. This means that preferred shareholders are the first recipients of dividend payments, or they receive the first right of refusal for ownership of remaining land or other assets if the corporation dissolves.
What other shareholder rights are issued with shares?
The Articles of Incorporation don’t just dignify the standard rights for shareholders. They also outline the rights or intentions of shareholders and their financial considerations.
Some of the most common provisions attached to shares that the corporation can enforce include the following:
Rights to redeem the shares by shareholders in what’s legally known as a retraction. A retraction entitles shareholders to force corporations, under specific circumstances, to redeem some or all of the shares held by those shareholders.
Restrictions on the issuance of new shares to outside parties. These restrictions entitle existing shareholders to claim first right to refusal of new shares, distributed proportionally among the board of directors before offering them to new investors.
Conversion or exchange rights, which entitle shareholders to require corporations convert their shares into another class of shares. For example, the right to convert common shares into preferred shares.
Liquidation rights to shareholders, thereby entitling shareholders to returns on remaining capital upon the dissolution of the corporation.
How to use technology to track and report upon all shareholder activity
Obviously, there’s a lot of data involved with share transactions between the corporation and the various shareholders. Maintaining accurate, up-to-date records of these transactions requires a lot of clerical work for your legal professionals, which can take an abundance of time and resources away from client-facing revenue-driven services.
But it doesn’t have to go that way. You can automate shareholder transaction reports using entity management software to simplify the process. Entity management platforms provide built-in shareholder ledger templates that can be populated with all shareholder transaction records. It’s a simple matter of selecting pre-built data management fields and inputting the information about existing shareholders, share classes, and any minute book meeting minutes documenting authorized exchanges of shares among all relevant parties.
There are two reasons why this is the ideal approach to managing all shareholder information. First, since it’s all digital, there’s no risk that paper documents will be lost or misplaced. Everything is safely and securely stored within one convenient platform, which all shareholders can access and review at their own convenience.
Second of all, there’s no coding or development experience required by legal professionals to use the platforms. The templates are pre-built into the platform, and you can add or remove data fields using straightforward drag and drop features. This simplifies the entire recordkeeping process and enables you to maintain an accurate report on share activity with no hassle at all.
Are you ready to automate shareholder transaction reports? Join the MinuteBox revolution and maintain all shareholder transaction records with speed and efficiency.