Canada | Canadian not for profit incorporation.

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to incorporating a federal not for profit corporation or an Ontario not for profit corporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can also contact me directly if you need a business lawyer.

For the purposes of this blog, I’ll be discussing federal not for profit corporations.  These corporations are created and governed by the Canada Corporations Act.  That Act does not call them not for profit corporations; rather they are called “Corporations Without Share Capital”.  This means that they do not have shareholders, but rather members.  An important difference between for profit and not for profit corporations is that the latter cannot distribute dividends (from profits) to members.  Rather, that money can only be put towards the objects or purposes for which the not for profit corporation was created.

For Profit Corporations (Generally)
Now, I’ve previously blogged extensively about corporations generally, but some things are worth repeating here.  First, corporations are separate legal persons.  They have their own assets.  They have their own rights and obligations.  They can sue and be sued.  They are separate from their owners (called shareholders) and managers (directors, officers, employees).  Now, corporations are great business vehicles because they afford limited liability protection to the shareholders: the personal assets of the shareholders cannot generally be touched if the corporation has to pay for something.  The corporation is created by legislation through the filing of Articles of Incorporation.  You should check out my previous blog posts about corporations, shares, articles, roles and responsibilities, etc.

Canadian Not-For-Profit Corporation
Part II of the Act deals with Corporations Without Share Capital.  Section 154(1) of the Act says that the Minister of Industry MAY issue letters patent to any persons who apply for the creation of a corporation without share capital.  There are a few important caveats here.  First, there must always be at least 3 incorporators and directors of the not for profit corporation.  Second, the letters patent is simply a government document – much like the Articles of Incorporation of a for-profit business.  Third, the corporation must carry on a purpose without monetary gain to its members.  So it must have a purpose that is national, patriotic, religious, philanthropic, charitable, scientific, artistic, social, professional, or sporting in nature.

Application of Letters Patent
To apply for letters patent, you need to submit:

1. Cover Letter
2. Application
3. By-Laws
4. Statutory Declaration
5. Filing fee of $200

Each will be discussed in turn.

Cover Letter
The cover letter should be addressed to:

Corporations Canada
Industry Canada
9th Floor, Jean Edmonds Towers South
365 Laurier Avenue West
Ottawa, Ontario, K1A 0C8

The letter should indicate who you are, what your contact information is and what documents are enclosed.  You will also need to enclose a cheque in the amount of $200 payable to the “Receiver General of Canada”.  If you are requesting them to do a NUANS name search report, then you’ll also need to enclose or add another $15 to cover the cost of that search.

Application
The application must indicate:

• The proposed name of the not for profit corporation (so you’ll need to provide a recent NUANS name search report for the proposed name which is less than 90 days old – or you can simply pay $15 and get the government to do it for you)
• Who the incorporators are (there must be at least 3 of them)
• The objects of the corporation

There are also additional clauses which can be included in the letters patent dealing with the director’s ability to borrow money, issue debt, and pass by laws as the directors see fit.

The application must be signed in duplicate and the originals are to sent to the government.

The By-Laws
Two copies of the by-laws of the proposed corporation must be provided with the application for incorporation. If you need help drafting these by-laws, give me a shout.

Statutory Declaration
One of the incorporators must swear (before a commissioner for taking oaths) that the contents of the application are true.

Processing Time
Processing times vary, depending on whether you’ve provided the government will all required documentation and there are no problems with your proposed name.  It can be as quick as 3 days for expedited processing, or 5 days for standard processing.

Extra-Provincial Licensing
If you have a federal not for profit corporation, you’ll need to obtain provincial licenses for those provinces which you operate in.  If you operate in Ontario, then there is no fee.  But this varies from one province to the next (e.g. Alberta charges $175 for an extra provincial license).

In a future blog, I’ll get into maintenance fees and taxes with respect to federal not for profit corporations (i.e. corporations without share capital).

For more information about incorporating a not for profit corporation in Canada, check out the government’s website here.

written by admin \\ tags: articles of incorporation, business lawyer, business vehicles, canada corporations act, educational purposes, legal advice, legal persons, liability protection, limited liability, ontario lawyers, professional assistance, profit corporation, profit corporations, share capital, shareholders

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to incorporating (e.g. registering articles of incorporation, drafting by-laws, director / shareholder resolutions, registries), you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can also contact me directly (I am a Toronto business lawyer).

In this blog, I’m going to be talking about Ontario corporate shares and what it means when someone says they are authorized, issued and outstanding.

Authorized and Issued
So when a corporation is created through the filing of articles of incorporation, you will need to indicate the limit (if there is one) on the number and type of shares.  For example, do you only want the corporation to be AUTHORIZED or permitted to issue (i.e. give to a person in exchange for receiving money, property, or past services rendered) only 100 shares?  Once these 100 shares are then issued, the corporation will not be able to issue any more unless the articles are amended to authorize the corporation to issue more shares.  Get it?

So if the parties want to try to limit the VALUE of the corporation, they will limit the number of shares which the corporation is authorized to issue.  This way, the directors of the corporation (who are elected by the shareholders entitled to vote) cannot issue additional shares and dilute existing shareholders. This is only done in situations where all the shareholders are content with the value of the company and don’t need to seek external financing.  If they want external financing, they will make the corporation authorized to issue an UNLIMITED number of shares.

Outstanding
Once the corporation issues shares, it generally collects money or property.  The value of what it receives is recorded and called the paid up capital (in tax terms) or stated capital (in corporate or accounting terms).  Now, when it does issue corporate shares, it records the number and type (class, series) of share that is outstanding.  This is another way for the corporation to keep track of who owns what and how much they paid for it.  Remember: the value of the shares may not be adequately reflected in the paid up capital or stated capital.  This is just the amount of money that was paid at one point in time to the corporation in exchange for getting shares issued at that time.  The fair market value of the shares may be based on future prospects, intangible assets, etc.

written by admin \\ tags: articles of incorporation, brampton, business lawyer, corporate shares, legal advice, mississauga, money property, ontario lawyers, ottawa, professional assistance, shareholder resolutions, shareholders, toronto business

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to incorporating (e.g. registering articles of incorporation, drafting by-laws, director / shareholder resolutions, registries), you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can also contact me directly (I am a Toronto business lawyer).

Since I’m doing a series of blogs about shares, their rights, privileges, duties, etc., I thought it would be worthwhile to take a step back and talk about shares generally with respect to Ontario and Federal Corporations.

Shares Generally
We start off with the idea that corporations are separate legal entities from their owners and managers.  They are persons created by statute.  Now, whoever owns these things called “shares”, end up owning some or all of the company.  The company issues (gives) shares to others in exchange for receiving money, property, or past services provided.  Now, if a company has shares, the Ontario Business Corporations Act assumes that those shares are EQUAL in all respects:.  This means they all get the right to vote at shareholder meetings and receive corporate property on dissolution.

Class
That said, you can have different CLASSES OF SHARES and SERIES OF SHARES WITHIN THOSE CLASSES with UNEQUAL RIGHTS when it comes to voting, dividends, and entitlements to corporate property on dissolution.  Yes, there must be at least ONE class of shares with the right to vote and receive property.   But, besides that, you can get creative.

So what is a “CLASS OF SHARE” and what is a “SERIES OF A CLASS OF SHARES”?  Well, each and every share in a corporation must belong to a CLASS of shares.  This can be, for example, Class A shares, Class B shares, etc.  A specific share cannot belong to more than one Class of shares.  The Class of shares is identified by certain characteristics – such as the rights, conditions, restrictions, etc.  Now, when you sub-divide the class of shares, you’re creating a “SERIES”.  A SERIES may have specific rights, privileges, and duties attached to them.  More specifically, a SERIES (e.g. SERIES 1) may have certain privileges over another SERIES within the same class.  Get it?

Keep in mind that the articles of incorporation must state what the different rights, privileges, and terms of the shares (classes and series) are. The directors cannot do this unilaterally after the corporation exists. They will need to amend the articles with the shareholders’ consent. So make sure you get it right from the beginning or things may get sticky (particularly if some shareholders don’t agree on creating new share classes or series!).

written by admin \\ tags: articles of incorporation, brampton, business corporations act, business lawyer, dissolution, dividends, federal corporations, legal advice, legal entities, mississauga, money property, ontario business corporations act, ontario lawyers, privileges, professional assistance, respects, shareholder meetings, shareholder resolutions, toronto business

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to incorporating (e.g. registering articles of incorporation, drafting by-laws, director / shareholder resolutions, registries), you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you.  You can also contact me directly (I am a Toronto business lawyer).

Corporate Shares: Ontario Corporation
So for the purposes of this blog post, I’m going to be talking about corporate shares for Ontario corporations.  Remember: corporations are creatures of statutes and are governed by the jurisdiction in which they were incorporated or operate.  For example, an Ontario corporation is governed by the Ontario Business Corporations Act, whereas a federal corporation is governed by the Canada Business Corporations Act.

Shareholders: Voting and Non-Voting
Ontario corporations are owned by shareholders.  A shareholder is a person (which include individuals, sole proprietorships, partnerships, trusts, joint ventures, not-for profit corporations, and other corporations) who owns the corporation’s shares.  Each corporation, through its articles of incorporation, can designate different classes of shares (i.e. shares with different characteristics).  At a minimum, section 22(3) the Act requires that a corporation have at least one class of shares.  That class of shares are called voting shares because they allow the holders to vote at any shareholder meetings.  They also allow the shareholders to receive dividends as declared from time to time and in the discretion of the board of directors (recall that the shareholders vote in the board of directors through an election).  Finally, the voting shares give their holders the right to receive the remaining property of the corporation on dissolution.   Remember that creditors (secured and unsecured) are entitled to be repaid before shareholders upon dissolution.

Classes of Shares
If the articles of incorporation provide for more than one class of share, then things can get interesting.  For example, a corporation can have 3 classes of shares (call them Class A, B, and C), all of which carry different rights with respect to voting (voting vs. non-voting), dividends (variable vs. fixed), and priority upon dissolution.  For example, Class C shares may be non-voting, having a right to regular dividends, and have priority over Class A shares.  This puts the Class A shareholders at risk of not getting anything if the corporation goes into dissolution – particularly if there isn’t enough assets to pay out creditors and priority shareholders.

Valuing Shares
Whenever shares are issued (i.e. sold/transferred to a shareholder in exchange for money, property, or past services rendered – see s. 23(3)), their value fluctuates depending on (1) the value of the company and (2) the total number of issued and outstanding shares.  With respect to the latter, if the corporation continues issuing more shares to different parties, then the original shareholders’ shares will be diluted in value.  In privately-held companies, valuing the shares is much more difficult.  Sometimes, shareholders value the shares as a multiple of something (e.g. book value) instead of potential earnings discounted to today. The value of the shares is typically pre-determined according to some formula set out in a Shareholders Agreement.  If a Shareholder Agreement doesn’t exist, the parties can seek help through a lawyer, consultant, business valuator, accountant, etc.  At the end of the day, the fair market value of the shares is typically described as the price that two arms length individuals would be willing to buy/sell the shares if they didn’t have to (i.e. if they weren’t forced to).

Restrictions on Share Transfers
Worth mentioning is that the ability to transfer shares may be restricted in the Articles of Incorporation or a Shareholders Agreement.  Furthermore, private corporations (unlike public ones) are restricted in terms of the number of shares they can have issued and outstanding.  Specifically, private corporations can only have 50 different shareholders or less.

Class A vs. Class B; Common vs. Preferred; Voting vs. Non-Voting, etc.
What you find in a typical corporation is 2 classes of shares.  These can be called Class A and Class B, Common and Preferred, Voting and Non-Voting.  The name of the shares isn’t terribly important.  What’s important is the duties, privileges, and rights of the holders of those shares.  Those things are described in the articles of incorporation.  So we already know that at least ONE of the class of shares that exist must:

• entitle the holders to vote at all shareholder meetings; and
• entitle the holders to receive the remaining property upon dissolution.

So we can call this Class A, Common, or Voting Shares (or even a combination of those terms, such as Class A Voting Shares, or Common Voting Shares, etc.).  The next class of shares can be characterized as Non-Voting shares, Preferred Shares, Class B shares (or a combination thereof).  These shares typically:

• DO NOT allow the holders to vote at ALL shareholder meetings (i.e. they can’t vote in the board of directors);
• give the holders the right to a dividend in advance of a dividend to the holders of the Class A, Voting, or Common shareholders; and
• give the holders the right to receive the corporation’s remaining property in advance of the Class A, Voting,  or Common shareholders.

In the next blog, I’ll be discussing dividends (which are after-tax earnings paid to shareholders)….

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Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to setting up a dental, health, or legal professional corporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your professional corporation.  I should know – I’m one of them and you can contact me directly (michael@carabashlaw.com).

So you are a dentist and you want to have a professional corporation for tax purposes.  Here’s the general process:

1. Under the Regulated Health Professions Act, 1991, no corporation shall hold itself out as a health profession corporation unless it holds a valid certificate of authorization: s. 34.1(1).
2. Schedule 2 of that Act discusses Health Profession Corporations (ss. 85.8 through to 85.14).
3. Subject to the regulations made the Act and the by-laws, one or more members of the same health profession may establish a health profession corporation for the purposes of practising their health profession: s. 85.8(1).
4. The Certificates of Authorization (Ontario Regulation 39/02) are made under the Act.
5. You will need to have a corporation BEFORE you can have a health profession corporation.  In other words, a health profession corporation is simply a corporation holding a certificate of authorization. So the corporation will need to be registered under the Canada Business Corporations Act or the Ontario Business Corporations Act.  To register a corporation, you should have a lawyer prepare the articles of incorporation, the by-laws, director and shareholder resolution and meeting minutes, director and shareholder registry, etc.  A lawyer may also be needed to  create a special class of shares for certain family members (for income-splitting purposes).
6. If you would like a lawyer to fill out the Certificate of Authorization, lawyers would charge extra for their time and it would also cost $750 in fees to the Royal College of Dental Surgeons of Ontario.
7. Depending on the name you choose for your professional corporation, the normal time frame to incorporate is between 1-3 business days.  If there are issues with the name you’ve selected, it could take longer.

FYI, you might want to consider getting a memo from a lawyer on the tax advantages/potential traps of having a dental professional corporation.  There are many things that you should be aware of (e.g. income splitting, loans, attribution rules, etc.).  The way I see it, if you’re going so far as to spend $2,500 to $3,000 incorporating (which includes getting a certificate of authorization), you should spend a bit extra to find out what you can legally do with a corporation with respect to taxes.

written by admin \\ tags: articles of incorporation, business corporations act, business lawyers, canada business corporations act, dental health, health profession, health professions act, ontario business, ontario regulation, professional assistance, professional corporation, regulated health professions, regulated health professions act, shareholder resolution, valid certificate

My final blog in anticipation of being on Goldhawk Live tomorrow at 7:00 p.m. deals with the question: do I really need a lawyer?  The answer, in my humble opinion, is not so straightforward.  In some cases, a lawyer would be highly recommended (e.g. you get charged for a serious crime or sued for lots of money or child custody is at stake) whereas in other situations, the tools may be readily available to do without their services.  Let’s look at one example of incorporating which I will use to drive home the “it depends” message.

Incorporation
There are enough service providers and information out there to help you incorporate a business yourself without a lawyer.  Just do some research on articles of incorporation, by-laws, annual returns, shareholders/directors/officers, meeting minutes, corporate taxes, etc. and you too will know how to incorporate and maintain a business.  In fact, just check out this blog and you’ll find a lot of what you need to know about each of these topics.  Here is a great government website from Corporations Canada that has 60 pages worth of valuable information on how to incorporate a business federally.

But what if you need specific by-laws concerning director liability and insurance (which you can’t find in some boilerplate precedent)?  What if you need a special class of shares for a certain group of shareholders with specific rights attached?  What if you need a shareholders’ agreement with share transfer restrictions built in place?  What if you need help getting the money out of your corporation while paying the least amount of taxes?  What if you want to expand your business and are wondering which legal vehicle (e.g. division, subsidiary, franchise, etc.) is ideal? …  You see where I’m getting at?  You will undoubtedly have questions about your corporation and where it is heading and a lawyer MAY BE NEEDED to get answers to your particular situation.  In fact, if you went ahead and incorporated without consulting with a lawyer, but then need to amend your articles of incorporation after consulting with a lawyer, you will need to pay a few hundred dollars more in government fees to do so!  So you could have saved time and money by consulting with a lawyer first.

written by admin \\ tags: articles of incorporation, articles of incorporation by laws, boilerplate, corporate taxes, corporations canada, director liability, government website, how to incorporate a business, lawyer, liabilities, share transfer, shareholder, shareholders agreement, shareholdings, transfer restrictions

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to creating a limited liability company or amending a corporation’s articles of incorporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa business lawyers registered on the website who can answer your questions or help you with your  Ontario or Federal corporations.

As a follow up to my recent post about income-splitting shares, I neglected to mention one of the biggest benefits of using income splitting preference shares: income splitting to reduce reduce household taxes.

Take the following example.  You have a corporation.  It earns $300,000 in taxable income.  Because of the small business credit (which I will be discussing in a future blog post), the corporation only pays 16.5% tax on that amount (this rate is going down to 15.5% starting July 1, 2010).  What do you do with the after-tax dollars?  Well, you could either keep it in the company and let it accumulate or you could dividend it out.  The latter is where the income-splitting shares come into play.  You can simply give these shares to members of your family who have little or no income.  Then, when the corporation’s directors (e.g. you) declares a dividend to the shareholders of this class of shares, they will receive and have to pay tax on those dividends.  They will get the benefit of the dividend tax credit.  But the beautiful thing is that less taxes end up being paid than if someone (e.g. you) had a higher income and received the same dividends (because of how our marginal taxes work).  These shares are not susceptible to the attribution rules found in the Canada Income Tax Act.

Remember, if you need help structuring your corporation to create income-splitting preference shares, you should make a post on Dynamic Lawyers.

written by admin \\ tags: articles of incorporation, business, canada, Canada Income Tax, canadian income tax, canadian income taxation, corporation, declarations, dividend, dividend tax credit, income tax act, incorporation, lawyers, shareholder, shareholders

So what’s the difference between a shareholder, director, and officer in a limited liability corporation?  People often confuse directors and officers or believe that shareholders must also be a director and/or officer.  I’m going to spell it out here to dismiss all the confusion about these three parties by talking about their respective roles and responsibilities.

Shareholder
Shareholders own the corporation through their share ownership.  They have the right to attend and vote at meetings (assuming they have voting shares).  This often happens on an annual basis, but can happen sooner if they want to change the board of directors they elected.  Their role is that of hands-off manager: they delegate their decision-making powers to the board of directors they elect.  Shareholders aren’t totally out of the decision-making picture, however.  Shareholder must approve by-laws (i.e. power-giving documents which authorize corporate action) and vote on important matters concerning the corporation’s Articles of Incorporation (e.g. issuance of shares, new share class, restrictions on share transfers, restrictions on business, changing the corporation’s name, etc.).  But generally, shareholder do not participate int eh day-to0day operations unless they are also officers and/or directors.  However: there is no requirement that they be officers and/or directors.

Directors
Directors are elected by the shareholders.  The articles of incorporation specify the maximum and minimum number of directors there can be and the by-laws generally have provisions in place for things like director vacancies (e.g. by death, resignation, etc.).  Directors meet every so often to decide on long-term strategy and evaluate the progress of the corporation.  They themselves delegate decision-making on a daily or more routine basis to the officers of the corporation.  Directors are responsible for declaring and paying out dividends to shareholders and get involved in important corporate matters.

Officer
Officers are those individuals who manage the day to day affairs of the corporation.  They have titles like CEO, President, Treasurer, Vice-President, CFO, Secretary, etc. but these are just titles and there’s no formal requirement that they have a particular title.  The duties and responsibilities of the officers are generally spelled out in the corporate by-laws and more specifically spelled out in an employment contract.

written by admin \\ tags: articles of incorporation, board of directors, corporate matters, corporation directors, limited liability corporation, roles and responsibilities, shareholder, shareholders

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to transferring shares from a limited liability company or amending a corporation’s articles of incorporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa business lawyers registered on the website who can answer your questions or help you with your  Ontario or Federal corporation.

So you want to sell your shares, eh? Well, the first step to actually selling your shares is to determine if the corporation’s Articles of Incorporation have anything to say about transferring the shares.

Many a time, you’ll find standard boilerplate language that says the following in part 8 of the Ontario corporation’s Articles of Incorporation:

The right to transfer shares of the Corporation shall be restricted in that no shareholder shall be entitled to transfer any share or shares of the Corporation without the approval of:

1. The directors of the Corporation expressed by resolution passed by the votes cast by a majority of the directors of the Corporation at a meeting of the board of directors or signed by all of the directors of the Corporation; OR

2. The shareholders of the Corporation expressed by resolution passed by the votes cast by a majority of the shareholders who voted in respect of the resolution or signed by all shareholders entitled to vote on that resolution.

So the articles of incorporation are basically saying that a resolution is required by those in charge of the corporation to permit the share transfer.  Otherwise, someone could yell ‘foul’ and put the whole share transfer up into the air (leading to court case).  This shouldn’t be a problem if there’s only 1 shareholder, 1 director, and 1 officer (all happening to be the same person).  But disputes may arise where a group of shareholders try to transfer their shares without the directors’ or other shareholders’ approval.

So, make sure you read the Articles of Incorporation to see if there are any restrictions on transferring the shares.   The key thing to keep in mind is that if, for some reason, it’s too difficult for a shareholder to obtain the approval necessary to have their shares transferred, then they might make a case to amend the Articles of Incorporation to remove those restrictions.  Attempting to amend the Articles is not easy: you need a resolution from two thirds of the shareholders entitled to vote and who cast their vote at a special meeting.

As an alternative to having restrictions on share transfers in the Articles of Incorporation, shareholders could simply place such restrictions in a Shareholders Agreement.  Amendments could be made without the need to have the corporation file Articles of Amendment.

written by admin \\ tags: articles of incorporation, board of directors, business lawyers, court case, limited liability company, ontario corporation, share transfer, toronto

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to creating a limited liability company or amending a corporation’s articles of incorporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa business lawyers registered on the website who can answer your questions or help you with your  Ontario or Federal corporations.

Sure, you’ve heard it before: corporations typically have Class A shares (or common voting shares) and Class B shares (or preferred non-voting shares).  But have you heard of Class C shares which are designed specifically for income-splitting?  The reality is that, so long as you have one type of common voting share, you can be quite innovative with the characteristics you assign to other classes of shares.

So lets get into nitty gritty of what I mean byClass C “income-splitting” shares.  Basically, these are a class of shares that are subservient to Class A and Class B shares in virtually all regards. Specifically, you can design Class C shares such that they:

• have no voting rights;
• have no voting rights or right to dissent with respect to issues revolving around shares, classes of shares, cancellation of shares, issuance of shares, etc.;
• have a right to receive a non-cumulative dividend (as determined and declared by the board of directors from time to time);
• be redeemable by the corporation for a pre-determined price (e.g. $1.00);
• be redeemable by the corporation upon liquidation, dissolution, or winding up for a pre-determined price (e.g. $1.00 each);
• be denied entitlement to any additional profit above and beyond what was declared by the board (which would go to Class A and/or Class B shareholders)

So what’s the purpose of having such a subservient class of shares subect to the rights and entitlements of Class A and Class B shares?  Simple: keep corporate control out of these shareholders’ hands while giving them compensation in the form of dividends from time to time .  These class of shares can be redeemed (which means cancelled) for a pre-determined “redemption amount”.  Overall, this class of share seems good for a silent investor who is comfortable with not getting involved in the long-term or day-to-day decision making that is undertaken by the Class A voting shareholders, the board of directors, and the executive team (i.e. the President, Vice-President, Secretary, Treasurer, etc.).  The difficulty with these class of shares may be in trying to value them (i.e. getting to a “redemption amount”).  This will be negotiated by the corporation (through its directors/officers) and the potential shareholders.  Typically, valuing shares is based on the future earning potential of the corporation discounted to today and then divided among the shares.  When you add up all the future expected dividends of a particular class of shares, you’ll end up with something that resembles the future price of the share today.  It’s more of an art than a science to value shares.  Getting a professional valuator, accountant, or lawyer involved could help get to a fair market value.  At the end of the day, the value of a Class C preference income-splitting shares will be whatever the potential shareholder and the corporation are willing to agree upon (which depends on a number of real life circumstances).

written by admin \\ tags: articles of incorporation, business incorporation, business lawyers, class a shares, class b shares, common voting shares, corporation, cumulative dividend, income-splitting shares, incorporation, lawyer, lawyers, limited liability company, preferred non-voting shares, shareholder, shareholders, shareholdings