One of the steps in the articles of incorporation for a new company is the transfer and issuance of new shares to shareholders. The issuance of shares to shareholders documents the various owners and investors in the company, alongside the percentage of the business they can claim ownership towards. This can also be done using cap tables, which track the capitalization of the company and who owns what percentage of shares.
Documenting the transfer of shares establishes a new regime for the transfer of public securities among the listed shareholders. It’s intended to eliminate much of the expense and delay prevalent in the securities industry by establishing a central depository for all corporate securities. New rules establishing how to redeem outstanding shares can also be documented.
Since this is a vital step in the incorporation process, it’s necessary that all corporations create their own shareholder ledgers to document this information. Traditionally, it has been a time consuming and tedious process. Therefore, is there any way to more efficiently track transfers of corporate shares among shareholders?
How to create your shareholder ledger
A shareholder ledger is the best resource to keep track of all issued shares to a corporation’s various shareholders. It allows for a smooth and accurate tracking of all shares issued by the corporation to each individual shareholder, and it’s also used to monitor the transfer of shares from shareholders back to the corporation.
We’ve created a helpful guide on how to create the perfect shareholder ledger to help you create the outline of one for your own corporation. This will give you an idea of what to include in your shareholder ledger so that you correctly follow all of the requirements to incorporate your business within Canada.
5 ways to efficiently track transfers of corporate shares
Once you have your shareholder ledger firmly established, you can keep track of all share exchange transactions in a diligent manner. But what are the various ways you can go about doing this work? Here are the five most common methods with some proving to be more efficient than others. Have a review and decide what’s best for you.
Paper records and written documentation
In the old days, the only way to keep track of shareholder transactions was through a registry notebook. Companies keep their shareholder registry locked in the corporate office space to ensure it remains safe and securely under lock and key. Each time that shares are issued or transferred among shareholders, a new record is added into the registry.
The good thing about this approach is it’s very traditional, and every party involved will know exactly how to read records in the shareholder ledger. The bad news is that because it’s such an antiquated system, it’s very time consuming and tedious for legal professionals to do. Too much time is lost to administrative work that can otherwise be spent on billable hours with new or existing clients.
One office computer as master of all records
If you’ve moved on from paper shareholder ledgers, that’s likely a step in the right direction. Some companies have only begun the initial stage of this journey by transitioning to digital recordkeeping on one secure office computer. In this scenario, records are maintained in an Excel spreadsheet to track the transfer and issuance of any new shares.
The good thing about this approach is that it is more secure than paper transactions, and there’s significantly less risk that documentation will be lost or misplaced. The bad thing is that it limits accessibility to the shareholder ledger. Only people who log onto that specific office computer can view the records in a convenient manner.
Spreadsheets shared with all shareholders
The next step beyond keeping files on one office computer is to pass them around with all shareholders. Spreadsheets built within Excel can be sent to all relevant parties. This way, all shareholders can view the current capitalization of the company whenever they choose.
The good thing about this approach is that it’s far more transparent as all relevant parties can receive copies of the master file and plainly see the numbers for themselves. The bad thing about this approach is that it doesn’t allow new or updated records to be viewed as conveniently. A new transaction may occur before an updated spreadsheet is passed on, leaving shareholders unaware of the exact state of the company’s capitalization.
Send all information via email
In some cases, companies may do away with a spreadsheet altogether. Any issuance or transfer of corporate shares is communicated via email in one message that highlights the most recent shareholder transaction(s).
The good thing about this approach is that information can be delivered to all shareholders, and they can store the messages in their inboxes or in one manually created file for their own records. The bad thing is that this is a very non-secure approach. Emails can be lost, forwarded, or even corrupted on the web, potentially exposing private shareholder information to the public.
Entity management software
Modern entity management software simplifies the entire process of issuing and tracking shares among all shareholders. You can use the technology to easily report share exchanges in a secure database, document all relevant information about the shareholders in notable fields, and record the value of all corporate ledgers in secure cloud-based registers.
Using entity management software to report all shareholder transactions is your best approach to modernizing your share tracking process. It’s far more efficient than all other methods and, since the platform’s are protected with advanced biometric and hardware key authentications, you have the most secure method of protecting shareholder information.
The best part is that all shareholders can have access to the digital ledger, ensuring everyone is up to speed on the latest issuance or transfer of shares. This allows decisions by the board to be made in more efficient and prudent manners. You can learn more about how to track shareholder transactions with entity management software here.