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Be share savvy: Setting structure and price upon incorporation

Be share savvy: Setting structure and price upon incorporation

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.

When first organizing your corporation, at a minimum, you will typically issue voting common shares.

Are you are looking to declare dividends on one class of common shares to the exclusion of other share classes?

No? Then you’re likely 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).

More often than not, you will likely be looking to simply issue a single class of 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.

Professional corporations – 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.

Initial share price

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 the time of incorporation.

The subscription price for the share to be issued on incorporation will depend on how the incorporator intends to capitalize or fund the new corporation.

This can be done through equity (ie. subscription proceeds received in conjunction with the issuance of shares), debt or a combination of both.

It is not uncommon for shares to initially be issued for nominal consideration at the time of incorporation for the purposes of organizing the corporation.

Often, the price per share ranges between $0.01 and $1.00 per share.

Thereafter, capitalization of the corporation can be achieved through additional equity offerings or debt, including shareholder loans made to the corporation.

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).

Speaking to qualified legal and tax advisors prior to issuing shares is always recommended.

If you have questions or would like to discuss shares structure or price for your company, reach out to us at [email protected].

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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