B.C. Incorporation – Share Structure

Rights Attached to Shares

Shares may have any number of different rights such as the right to vote, the right to participate in the equity growth of the Company, the right to receive dividends out of the profits of the Company and the right to a fixed or special return on an "investment" in the Company. A different class (or series of a class) of shares may have one or more of these rights, but does not have to have all of them. For example, a share does not necessarily carry with it the right to vote at General Meetings of the Company nor to receive dividends, although it will unless the Notice of Articles or the Articles of the Company otherwise provide.

Right to Vote

The right to vote generally means the right to vote at General or Special Meetings of the shareholders of the Company. The voting shareholders have the right to elect or appoint directors of the Company in accordance with the Articles and the Business Corporations Act and to make changes to the information in the Notice of Articles and Articles of the Company. (Note however that every share has the right to vote on matters which would prejudice the rights of holders of their class of shares, even if the shares are expressed to be non-voting.)

Right to Equity Growth or on Winding Up

The right to equity growth is normally expressed as the rights on the dissolution, winding up or return of capital of the Company – in other words, if any of those things were to occur, what portion of the equity of the Company would be attributable to those shares. Often one class of shares may have a prior right over other classes. If so, the amount must be clearly specified or able to be calculated. A share with that right is often issued to a shareholder making an "investment" in the Company where the shareholder requires some priority for the return on the investment. The "Common" shares are normally considered those which share in some specified manner in the residual equity in the Company after all other share classes.

Right to Dividends

Generally, dividends are paid out of the profits of the Company. Dividends may not be declared if the Company is insolvent or if declaring/paying the dividend would render the Company insolvent. Sometimes a share may carry a special right to dividends, usually stated as a percentage of a fixed amount per year. This right is often attached to a share which has a prior right to the equity of the Company. Other share classes have a right to receive dividends when declared by the directors.

Participating

When Shares are referred to as "Participating" this usually means they participate in the equity growth of the Company and have the right to receive dividends when declared by the directors.

Right of Company to Redeem

A share class may have attached to it the right of the Company to buy back for a specified amount, or "redeem" shares in that class upon notice to the shareholder at their "redemption value" or "redemption price". The redemption value may be "fixed" at a certain amount per share or "flexible" where the redemption value may be varied based on a price adjustment clause.

Preference or Preferred

Shares referred to as "Preference" or "Preferred" usually have some preference or preferred rights on a winding up or to receive dividends.

Right of Retraction

A share class may have attached to it the right of the shareholder to require the Company to redeem those shares for a specified amount upon notice to the Company.

Par Value

A share may also have a par value. This is the amount which must be paid for a share when issued by the Company. There may be particular income tax related advantages and disadvantages to having par value shares.

Choosing Which Classes of Shares to Include

Choosing which share classes to include when incorporating a Company (known as the "share structure") is complicated and should be made in consultation with your accountant and tax advisor. However, new share classes may be added after incorporation, although the cost to do so will be greater than if they were included on incorporation of the Company. Accordingly, it may be that when incorporating, you simply wish to include one class of shares known as "Common" shares, which have the right to vote, to equity growth and to dividends when declared by the directors of the Company.  Following are some of the many options available: