Shares
| Author | J. Anthony VanDuzer |
| Profession | Faculty of Law University of Ottawa |
| Pages | 225-253 |
225
CHA PTER 6
SHAR ES
A. INTRODUCTION
One of the primar y ways in which corporations fi nance their activities
is by is suing share s. Sometimes r aising money by issuing shares is re-
ferred to as “equity financing” as distinguished from debt financing,
which involves raising money by borrowing it.
But what are shares? A share is a bundle of rights against a corpora-
tion. Although a share is personal property, the claim it represents in
the corporation is neither a property right in the corporation’s assets1
nor is a proportionate ownership interest in the corporation itself.2
Even though shareholders are sometimes referred to as the “owners” of
the corporation, th is is not technically accurate. The particula r rights,
privileges, restr ictions, and conditions of each class of shares (referred
to here collectively as “characteristics”) are set out in the articles of
the corporation, as discussed in Chapter 4. Subject to a few statutory
and common l aw limit ations, the characteri stics that may be given to
shares are restricted only by the imagi nation of the person drafting the
articles. The cha racteristics of a share determ ine the ri sks and retur ns
associated with the holder’s investment. In particular, share charac-
vestments Ltd . v. Union Gas Company of Can ada, [1966] 1 O.R. 165 (C.A.). On the
basic natur e of a shareholder’s rights, see Chap ter 3.
THE LAW OF PARTNERSHIPS AND COR PORATIONS226
teristics determine the degree of control a shareholder has over the
corporation through the voting rights attached to her shares, her right
to share in the corporation’s profits when distributed, and to receive its
property when it dissolves.
The particular share provisions in a corporation’s articles are often
drafted to provide a bundle of rights that wi ll be attractive to prospect-
ive shareholder investors and may be highly customized to meet an
investor’s specific needs. Often, especially in corporations with few
shareholders, however, share provisions are kept simple for several rea-
sons. It will be more expensive to have complex, specialized share pro-
visions drafted. As well, highly customized provisions may not meet
the needs of future investors a nd articles of amendment to ch ange the
provisions may be required before new investors are willing to invest.
Shares with unusual specialized character istics may be hard to sell for
the same reason. Finally, because articles are public, shareholders may
not want t he specific nature of their investment reflected in the share
provisions.
In this chapter, we set out the statutory scheme relating to shares,
as well as the most important common law rules. Some of the more
common practices in drafting share provisions are al so described.
B. BASIC RULES
The basic rights associated with shares are as follows:
-
poration remaining after creditors and any other persons with claims
against the corporation are paid.
Where a corporation has only one class of shares, the rights of each
shareholder are equal in all respects and must include each of the three
basic rights listed above (CBCA, s. 24(3)).3 If the articles provide for
3 Most statutes ba sed on the Canada Business Cor porations Act, R.S.C. 1985, c.
C-44 [CBCA], follow this approach. E.g., Albe rta Business Corporations Ac t,
R.S.A. 200 0, c. B-9 [ABCA], s. 26. The Ontario Business Corporatio ns Act, R.S.O.
1990, c. B.16 [OBCA], only require s that shares have the ri ght to vote and to
receive the rema ining property of the cor poration on dissolution (s. 22). These
minimum req uirements for shares are not add ressed in the Briti sh Columbia
Business Corporatio ns Act, S.B.C. 2002, c. 57 [BCBCA], apart from a requirement
for equality of sh ares within a clas s (s. 59(4)).
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