Any company that intends to incorporate within Canada must abide by the Articles of Incorporation as mandated under Canadian law. Administrative tasks are among the most important steps of the incorporation process, including the rules for corporate governance as well as the parameters to report the transfer and issuance of corporate shares.
When it comes to shareholder rights, there can be no room for error. For the sake of ensuring the business entity is compliant with federal law, it’s crucial that all share transaction records are diligently tracked and reported.
When does a corporation issue new shares?
At the outset of a company’s article of incorporation, shares are issued to the initial round of investors in the business. Their names, home addresses, and positions on the Board of Directors are listed in the official shareholder ledger as the statement of record.
Shares can also be issued at later dates in the lifecycle of the corporation. The company can issue shares from its treasury to new investors who are not current shareholders as well as issue shares to existing shareholders at the discretion of the board. The primary reasons that these shares are issued include any of the following:
To raise additional capital from new or current shareholders
To add a new board member whose investment is in the form of knowledge, contacts, or technology to enhance business operations; this is a form of a non-capital investment
To celebrate higher than expected profits that are shared by all shareholders
To assist with capital tax or estate planning
A relatively new legal structure is an Employee Ownership Trust (EOT), which allows employees of a corporation to become shareholders without paying directly for the shares. The shares are held in trust, and employees receive payments for their shares as a percentage of corporate profits. The federal government intends to amend legal corporate language with rules and structures for EOTs, which should include details of how to report these types of transactions in shareholder ledgers.
What information belongs in a shareholder ledger?
Whenever shares are issued by the corporation or transferred from shareholder to shareholder, the transaction must be recorded in a detailed shareholder ledger. A shareholder ledger is necessary for corporations to comply with Canadian federal law.
A fully accountable shareholder ledger must contain personal information about the shareholders who invested in the corporation. It must also include the share certificate numbers attached to each issuance or transfer of shares, the total amount of outstanding public shares, as well as the current and projected capital share structures for the corporation.
All of these details must be accurately reported in the shareholder ledger. You can learn more about how to craft the perfect shareholder ledger using our helpful guide to ensure your company is fully compliant with the articles of incorporation.
How to automate share issue and transfer reporting
Maintaining an accurate, up-to-date accounting of all share issues and transfers is vital for corporate compliance. Each time a new share transaction is issued, a record containing the name of the involved shareholders, the date of the transaction, the current value of the shares, and additional details must be inputted into the shareholder ledger.
As you can imagine, this process takes a significant amount of time and resources for corporate counsel to maintain accurate records. The task is all the more time consuming when records are maintained using paper documents, requiring counsel to take time and manually write each and every important note related to the issue or transfer of shares.
How much time do legal professionals spend maintaining these records? Rather than focusing on more revenue-driven actions for the corporation, they spend valuable hours on manual tasks to comply with federal law.
Entity management software streamlines share transaction reporting
Thankfully, this outdated method of corporate recordkeeping no longer has to be the norm for legal professionals. Instead, all records can be maintained electronically using entity management software to maintain a digitized shareholder ledger for corporate compliance.
Unlike traditional methods of reporting share transactions, digital shareholder ledgers can be updated using advanced drag and drop features to input new data. Imagine how much time can be saved by inputting share transaction records into a digitized ledger as opposed to manually writing out all information related to the issue or transfer of shares. That’s valuable working time that can be reallocated towards helping to grow the business in more productive ways.
Reporting on share issues and transfers is a mandatory requirement for corporations to abide by federal laws. But the process can be far more efficient with the right subsidiary or entity management solution, saving valuable time. Having these advanced pieces of software can even help recruit the most talented legal minds to join your company, as they’ll appreciate the advanced technology at their disposal.