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Multiple Shareholders and Incorporating


I’ve Incorporated – Now What?!?

If you decide to incorporate your company, another decision you will be making is regarding shareholders. You might decide to have only one class of shareholder, and everyone holding these shares will have all the same rights, conditions, responsibilities, and privileges.

You might also decide to have more than one class of shareholders, with different conditions for each class (for example, you might make a class of shareholders that includes your children—these shares might receive dividends, but have no voting rights).

As noted on the Government of Canada website: “If there is only one class of shares, those shares must, as a minimum, have:

  • The right to vote.
  • The right to receive dividends (if the board of directors has declared any).
  • The right to receive the remaining property of the corporation after it is dissolved.

If there are more than one class of shares, each of the three rights have to be assigned to at least one class of shares, but one class does not need to have all three. Also, each right can be given to more than one class.”

USA? What The Heck Is a “USA?”

If a person buys shares in your company, they become a shareholder. If you have multiple shareholders, it is probably in their best interest to develop a Unanimous Shareholder Agreement (USA).

BD&P Law explains, “A unanimous shareholder agreement ("USA") is a specific type of shareholder agreement that (i) is signed by all shareholders at the time it is first signed; (ii) binds future shareholders whether or not they sign; and (iii) removes, in whole or in part, the duties and powers from the directors of the corporation to the extent shareholders assume them.”

A unanimous shareholder agreement (USA) protects the interests of all shareholders, and sets out specific terms and conditions for different types of transactions that the shareholders may wish to take in the future. A USA is more likely to be most effective when it is created before any disagreements among shareholders arise, rather than waiting to sort things out after conflict has occurred.

It can also be a cost-saving measure, as noted by BD&P Law: “A USA can be a useful mechanism in preventing disputes between shareholders in the future. If a dispute does arise, a USA may drastically reduce the costs of such dispute.”

A critical point for a USA—it must transfer power from the Board of Directors to shareholders. If this is not a feature of the USA you have created, you will need to add it in.

Help!

Along with shares and USAs, there are annual meetings and minutes, special meetings, quorums, agendas, etc. that go along with incorporating your company and creating shareholders. Your best plan for incorporating your company is to have a company like Shaw & Associates in your corner, guiding you through these decisions every step of the way.

Contact Shaw & Associates Chartered Accountants for accounting help you can count on. One complimentary meeting with us will put you and your business on a more profitable and positive path.