Are you issuing your company shares with intention? There’s more to it than just issuing shares to Jack and Jill down the street and being done with it. And that’s because today, our companies operate in a model of shareholder primacy. Making shareholders top priority in your company. And making the who and the what of your shareholder structure crucial.
Is your company registered publicly on the stock exchange, or is it registered privately with a minimal number of shareholders? Did you happen to sell shares to someone that’s not interested? Not invested? And not motivated in your company? Are your shareholders challenging your every decision? Knowing this going in might impact the classes of shares you issue and what rights are attached to them.
Who else wants company shares?
A power struggle can be real. So how do you control the power and the rights in your business? By issuing the right classes of shares to the right shareholders.
Bryce C. Tingle of the Faculty of Business Law at the University of Calgary tells the “Two Stories About Shareholders” where he explains the two contradictory stories about the role of shareholders. On the one hand, he explains that shareholders play the role of countering the force of self-interested corporate parties. On the other hand, shareholders lack the information and motivation to contribute to a company’s governance.
Where do your company shares stand?
How much power will your shares give to your shareholders? To grasp the power of a shareholder, we need to understand and review their rights and how shares are formed.
1. Classes of Shares
There’s no limit to the number of shares you can issue; however, there are a few parameters that you must meet. The classes of your company shares must, at a minimum, have the following rights:
The right to vote
The right to receive dividends
The right to remaining assets after dissolution.
For example, if you have more than one class of shares, you could choose to have shares that include only the right to vote and others that include the right to remaining assets only, if the third type of share consists of the right to receive dividends.
The voting ability is usually based on the number of shares owned. When determining the classification of shares, it’s essential to keep in mind the proper allocation to protect the rights and interests of minority shareholders, including a voting ratio cap and other restrictions which would defend against a takeover bid.
2. Share certificates
The details of issued share certificates are noted in your articles of incorporation. Keep in mind, you cannot issue company shares without receiving consideration for the share. The consideration can be in the form of money or the form of property.
The share certificate will confirm:
Corporation’s name
Name of the Shareholder
Number and Class of shares held
All company shares are without nominal value, and therefore no value would appear on the share certificate.
3. Rights and Responsibilities of Shareholders
After a shareholder pays for their company shares, depending on their class of shares, they could have the right to:
Vote at shareholders’ meetings
Get a percentage of the company’s profits (in dividends)
Get a share of the company’s remaining assets upon dissolution
Attend and be notified of shareholders’ meetings
Elect and dismiss directors
Approve and change company by-laws
Appoint an auditor (if necessary)
Review corporate records
Examine the company’s financial statements
Approve significant company changes
One of the most powerful rights of the shareholder is the right to vote. The right to vote on important decisions and a right to vote for the people who will be helping in making those important decisions, i.e., the directors of the company.
4. Shareholder’s Resolutions & Meetings
The shareholder’s influence by vote occurs by passing resolutions at shareholder meetings.There are different types of resolutions, i.e., ordinary, special, and unanimous.An ordinary resolution would need what’s called a simple majority (50 percent plus 1).These ordinary resolutions would be for things such as changing directors, appointing auditors and/or making changes to by-laws.
Now you can issue your company shares with intention.
Are you registering as a public or private corporation? Who are your shareholders? What are their perceived intentions? What rights do you want them to have? These are all things that come into play when issuing your shares.
Your business is your business – so take this information with a grain of salt. You need a plan that’s tailored specifically for you, your company shares, and your tax situation. The best way to come up with a plan is to do it with a professional. Chat with us today to learn more.