Issuing shares is a common corporate transaction, whether a company is bringing in a new investor, compensating a founder, or raising capital. In British Columbia, however, a share issuance must be properly authorized, the shares must be fully paid, and the transaction must be accurately recorded in the company’s corporate records.
For closely held companies, these steps are particularly important. Problems with past share issuances can create uncertainty about ownership and make future financings, reorganizations, or a sale of the business unnecessarily difficult.
Before Issuing Shares
Before issuing shares, the company should review its constating documents to ensure that the proposed class or series of shares is authorized and to identify any applicable rights, restrictions, or conditions. Any shareholders’ agreement or other contractual restrictions should also be reviewed.
Under the Business Corporations Act (British Columbia), the directors generally determine when shares are issued, the person or entity to whom they are issued, and the number of shares issued, subject to the Act and the company’s governing documents.
The directors should also determine the issue price and consideration. Consideration may include money, property, or past services, but the shares cannot be issued until they are fully paid. The statutory requirements under the Act concerning the value of property or past services should also be considered.
Approving and Documenting the Issuance
Once the terms of the issuance have been determined, the issuance should be authorized by a directors’ resolution identifying the class and number of shares, the issue price, the subscriber or purchaser, and the consideration to be provided.
A subscription agreement is not required in every case but is commonly used to document the terms of the issuance and the subscriber’s agreement to acquire the shares. Where one is used, it should set out the parties’ respective obligations, the payment terms, and any conditions that must be satisfied before the shares are issued.
Updating Corporate Records
After the issuance, the company should promptly update its corporate records. Most importantly, the issuance must be recorded in the company’s central securities register, including the shareholder’s name and address, the class and series of shares, the number of shares, and the date and particulars of the issuance.
The company should also retain the directors’ resolution, subscription or share purchase agreement, evidence of payment or other consideration, and any supporting documents in its records.
A share certificate is not necessarily required. B.C. companies may issue certificated or uncertificated shares, provided the applicable requirements are followed.
Ongoing Compliance
The company should keep its corporate records current as shares are later transferred, issued, redeemed, or reorganized. Shareholders’ agreements and other ownership records should also be kept consistent with the company’s actual shareholdings.
Authorize, Document, and Record
The basic process for a share issuance is straightforward: confirm the shares can be issued, obtain the necessary directors’ approval, document the transaction, confirm the shares are fully paid, and update the corporate records. Taking these steps when the shares are issued is often far easier and less costly than reconstructing the company’s ownership history later.
This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637.