Frequently Asked Questions

How do shares work?

How do shares work?

Ownership in the corporation is represented by and divided into shares. Each share class has certain attributes relating to voting rights, dividend rights, and liquidation rights.  These rights can be attributed to different share classes.    Share rights are set forth in a corporation’s articles.  Shares are issued with the approval of the board of directors upon receipt of a subscription agreement.

Each share class has certain attributes relating to voting rights, dividend rights, and liquidation rights which are set forth in a company’s articles.  Lawnch’s standard form articles of incorporation contemplates five separate classes of shares (two classes of voting common, two classes of non-voting common and one class of preferred shares). These five classes are designed to give you some level of flexibility.  In the event these five share classes do not meet your needs, please contact us and we can review your situation more specifically.

On incorporation, at a minimum, you’ll typically want to issue voting common shares. Unless you are looking to declare dividends on one class of common shares to the exclusion of other share classes, you are looking to issue a class of non-voting shares or there is some other legal or regulatory requirement limiting your ability to issue certain types of shares, it is likely that you will only be issuing Class A Voting Common Shares.  In addition, it would be unlikely that you would be looking to issue a class of preferred shares at the incorporation stage.

If you are incorporating a company that will be providing professional services (including, but not limited to, the legal, accounting, medical, dental, engineering, and architecture fields), you will want to confirm whether or not there are any share ownership restrictions with your applicable professional governing body.

You will have to set the initial share price payable for the shares to be issued on incorporation. You do not have to set an issue price for the classes of share that are not going to be issued on incorporation at this time. It is not uncommon for shares to be issued for nominal consideration at the time of incorporation. Often, the price per share ranges between $0.01 and $1.00 per share.

There are many variables to be considered when establishing the authorized share capital of a corporation and the classes of shares to be issued (and at what price). If you are unsure on how to proceed, we are here to help, contact us.

The 5 Classes of Shares

Class of Shares
Voting Rights
Dividend Rights
Liquidation Rights
Other Rights
Class A Common
Yes
YES, as and when declared by the board of directors which can be to the exclusion of other classes of shares.
Subject to the preferential rights of the Class E Preferred shares, on liquidation, holders of class A common shares will share rateably with all other classes of Common shares.
Class B Common
Yes
YES, as and when declared by the board of directors which can be to the exclusion of other classes of shares.
Subject to the preferential rights of the Class E Preferred shares, on liquidation, holders of class B common shares will share rateably with all other classes of Common shares.
Class C Common
Yes
YES, as and when declared by the board of directors which can be to the exclusion of other classes of shares.
Subject to the preferential rights of the Class E Preferred shares, on liquidation, holders of class C common shares will share rateably with all other classes of Common shares.
Class D Common
No
YES, as and when declared by the board of directors which can be to the exclusion of other classes of shares.
Subject to the preferential rights of the Class E Preferred shares, on liquidation, holders of class D common shares will share rateably with all other classes of Common shares.
Class E Common
No
YES, as and when declared by the board of directors which can be to the exclusion of other classes of shares, but only up to a maximum of 5% of the redemption value of the Class E Preferred shares.
On liquidation, holders of Class E Preferred shares will receive the redemption value plus the amount of any declared and unpaid dividends.
Redeemable and retractable.

The content on this website is provided for general information purposes only and does not constitute legal advice or a legal opinion of any kind. Users of this website are advised to seek legal advice by contacting Lawnch (or other legal counsel) directly to discuss any specific legal issues.

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