A share is a unit of ownership in a company, which is a separately incorporated entity created pursuant to legislation in a particular jurisdiction (a “Company”).  To understand “shares”, one must first understand that a company is a separate legal entity distinct from the shareholders composing it. Being a separate legal entity, a Company owns all its assets, including the shares authorized in the Notice of Articles to be issued by the Company. Shares are a form of property of the Company, which can be bought and sold by the Shareholders or by the Company itself, in which case they are issued to another party for agreed consideration. Notably, the shareholders who own a share can either be an individual, corporations or trusts.

The term “shares” is often used interchangeably with the term “stocks”. It may seem confusing, but these two terms represent a Company differently. Stocks is a general term referring to the financial instruments issued by the Company whereas shares are what you actually buy. For example, a Company may have, among its authorized shares, the Class A Shares, and a shareholder purchases 10 Class A Shares, each share representing 1% of ownership. The authorized Class A shares is the stock while the 10 Class A shares bought by the shareholder is the share. Simply put, the Company issued stock and the shareholder bought shares of it.

There are basically three core types of rights (or lack thereof) associated with shares: the right to vote, the right to receive dividends and the right to receive the remaining property of the Company upon winding up of its affairs. These rights can be allocated to the different types or classes of shares the Company is authorized to issue.

Classes of shares can be assigned names, like Common or Preferred shares or simply be listed as Class A Shares, Class B Shares, etc. If the Company issues only one class of shares, then the shares will have equal rights on the above noted items, although shareholders may hold different numbers of those shares. However, if there are more classes of shares authorized to be issued by the Company, each class may have different rights and restrictions attached to it as identified in the Articles. Generally, there is no limit to the type or number of classes of shares the Company may authorized in its Notice of Articles. The number of shares for each class can also be unlimited unless the Notice of Articles sets for a maximum number of shares for each class.

Primarily, there are two types of class of shares a Company may issue if the Company has those types of shares in its authorized share structure: the common shares and the preferred shares, each of which would have different rights and benefits for the shareholders.  Most commonly, the holders of this class are entitled to the remaining property (after any amounts are paid to share classes in priority) of the Company if it’s dissolved. This class of shares also provide possible returns through value appreciation and dividend payments, if so authorized. On the other hand, preferred shares often do not offer value appreciation but can be redeemed at an attractive price as set by the directors and may also offer dividend rights and/or voting rights. This class of shares also takes priority over holders of common shares when the Company winds up its affairs or when bankruptcy happens, at least for the amount to which the share class is entitled in the Articles. The Company may also give priority to the holders of preferred shares in the payment of dividends over the holders of common shares.

When incorporating a Company, the Company may issue as few or as many shares as it deems desirable. The proportion of the shares initially issued to each shareholder determines the share ownership of the Company. As the Company continues to grow, it may issue new shares for various reason, such as to raise capital for the Company’s growth or expansion, as stock dividends, or otherwise. It is recommended to seek advice from an accountant and/or a financial advisor when dealing with shares, either prior to incorporation or doing any share transactions as there may be tax implications on actions taken.

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 or any of our lawyers practicing in the area of real estate at the following:

Jane Otterstrom: jane@touchstone.law

Una Kuzio: una@touchstone.law