Understand how your company’s share structure affects control, returns, and business flexibility.

When incorporating a private corporation in Ontario—or anywhere in Canada—one of the most important decisions you’ll make is how to structure your company’s shares. While it might be tempting to issue a single class of shares and move on, the truth is: your share structure has a long-term impact on ownership, control, tax planning, and the ability to attract investors or partners.

In this article, we’ll break down the different types of shares commonly issued by private corporations—common shares, preferred shares, and special rights shares—and explain how each one works, why they matter, and how you might use them to your advantage.

What Are Shares and Why Do They Matter?

In simple terms, shares represent ownership in a corporation. Every share carries certain rights, which may include voting, receiving dividends, or sharing in the proceeds if the business is sold or wound up.

But not all shares are created equal. The Canada Business Corporations Act (CBCA) and Ontario Business Corporations Act (OBCA) allow private companies to create different classes of shares with customized rights and restrictions. This flexibility can be a powerful tool when used strategically.

Common Shares: The Standard Starting Point

Common shares are the most basic and widely issued type of share. They typically come with:

• Voting rights – Shareholders can vote on corporate matters, including electing directors.
• Rights to dividends – If the company declares dividends, common shareholders may be eligible to receive them.
• Residual rights – In a liquidation or sale, common shareholders are paid after creditors and preferred shareholders.

Common shares are ideal for founders, early employees, and partners actively involved in the business. They represent both ownership and control, although they carry more risk because they rank last in payout order.

🔹 When to Use Common Shares:

• Issuing equity to founders or co-founders
• Distributing ownership in an early-stage business
• Keeping control within a tight-knit group of stakeholders

Preferred Shares: Flexibility for Investors or Succession

Preferred shares are customizable shares that carry certain advantages—often in exchange for limited or no voting rights. The main features can include:

• Priority dividends – Preferred shareholders may receive a fixed dividend before common shareholders receive anything.
• Preference on liquidation – Preferred shareholders are paid first (usually up to a specific amount).
• Convertible or redeemable rights – These may be converted into common shares or redeemed at a set price.
• Voting restrictions – Many preferred shares have no voting rights or limited voting rights on specific matters.

🔹 Common Use Cases:

• Raising capital from outside investors (e.g., angel investors or family members)
• Estate freezes for tax planning
• Rewarding passive shareholders with fixed returns

Preferred shares can be tailored with great precision—making them an excellent tool for founders who want to raise funds without giving up control or for families planning intergenerational wealth transfers.

Special Rights or “Custom” Share Classes

One of the best-kept secrets in private corporation structuring is that you can design entirely customized share classes to suit your goals. These “special rights” shares can include features like:

• Multiple voting – Shares with more than one vote per share (used to maintain founder control)
• Dividend priority or restrictions
• Participation rights in future share offerings
• Anti-dilution protection
• Veto or approval rights for key decisions

These classes are defined in your Articles of Incorporation and further detailed in your shareholder agreement. This is one of the features that makes Canadian corporate law flexible and founder-friendly.

Example: Share Structure in a Startup

Imagine a founder incorporates a tech company. She might structure the shares as follows:

• Class A Common Voting Shares – Issued to herself and her co-founder
• Class B Non-Voting Common Shares – Reserved for future employees via an option plan
• Class C Preferred Shares – Given to investors with a 6% dividend and liquidation priority
• Class D Special Shares – Held by a family trust, with transfer restrictions

How to Create Multiple Share Classes

To issue multiple share classes, you must:

1. Include them in your Articles of Incorporation
2. Reflect them in your Shareholder Agreement
3. Update your share register and cap table

If your corporation started with one class of shares, you can file Articles of Amendment to add or change share classes.

Legal and Tax Considerations

• Voting control – Issuing voting shares may impact your decision-making authority
• Dividend complexity – Different dividend classes require careful planning and tracking
• Capital Gains Exemption (LCGE) – Ensure your structure qualifies under the Income Tax Act
• CRA scrutiny – The CRA may challenge the pricing or purpose of share issuances

Consult a lawyer and accountant before creating or modifying share classes. A few small decisions now can have major tax and legal implications later.

Frequently Asked Questions

Can I change my share structure after incorporation?

Yes. You’ll need to file Articles of Amendment and pass a special resolution with shareholder approval.

Do preferred shareholders control the company?

Usually not. Preferred shares are typically non-voting unless certain triggering events occur.

What’s the difference between voting and non-voting common shares?

Voting shares provide control (e.g., electing directors); non-voting shares don’t, though they may still receive dividends or appreciation.

Conclusion

Your corporation’s share structure is more than just paperwork. It’s a foundational tool for ownership, governance, tax planning, and growth.

At Blueprint Law, we help founders and business owners create share structures that align with their long-term goals—whether that means retaining control, attracting capital, or setting up a family trust.

Need help structuring or reviewing your company’s shares?

We’ll walk you through your options and make sure your share setup supports your future plans.