Corporate Share Suggestions
How shares are allocated among the shareholders, and how the different classes of shares are described (for example, common and preferred shares are described differently) is called the “capital structure” of the company. By allocating different classes and different amounts of shares among the “owners”, the company can distribute and allocate (i) control; (ii) risk of loss; (iii) re-purchase of capital; (iv) participation in the profits; and (v) distribution of the assets of the corporation upon the liquidation or dissolution of the corporation.
You can choose only one class of shares – common shares. You could be sole shareholder with one common share, and the sole director, president, and secretary of the corporation. This is obviously the simplest arrangement, which can be used until your business grows.
You can choose different classes of shares, leaving yourself control of the business by retaining the voting shares, and leaving the income generating or capital appreciating shares to others in your family.
If you have more than one class of share, you should consider which of the following terms should be added to any class:
- Which class or classes of shares should be voting?
- Should any class be paid its dividends in preference to another?
- Should the dividends for a class either be based on a formula or be determined by the directors’ year-to-year?
- Should dividends be cumulative or non-cumulative (i.e. if dividends are not paid during one year, should they be carried forward to the next, and in preference to others?)
- If the company is dissolved, should one class be paid its value from any remainder in preference to another?
- Should one class of shares be convertible into another class at a set rate within a set time?
- Should the corporation be allowed to redeem shares of a class, at a set price, whether the shareholder wants to or not?