Overview of the different categories of shares

In general, the articles of incorporation of a company provide for different classes of shares as authorised share capital. Authorised share capital means that these shares can be issued by the company, but are not necessarily issued. Unless otherwise specified in the articles, the authorised share capital is unlimited, as an unlimited number of shares may be issued. Furthermore, if the articles of association do not provide for several classes of shares, the company will be deemed to have only one class, with the three basic rights: voting rights, right to dividends and right to the residue in case of dissolution and liquidation.

We offer an overview of the different categories of shares that are usually found in the articles of incorporation of a company. It should be noted that this list is not exhaustive. Other types of shares exist. For example, there are discretionary dividend shares, high-low shares and life insurance shares.

1. Ordinary shares

This class of shares is the most common and the most important. These are usually the shares that are issued when the company is organised. By definition, ordinary shares confer the three basic rights: voting, dividends and remainder. These shares are called "participating" shares, and are often subject to priority rights of other classes, which we will see later.

2. Non-voting participating shares

These are essentially ordinary shares, but they do not carry any voting rights. These shares therefore participate in the dividends declared by the company and in the remainder in the event of liquidation, but do not have voting rights, in particular to participate in the election of directors. Non-voting shares may, however, vote in certain specific cases provided for by the law, in particular to consent to the company not appointing an auditor.

3. Rollover preference shares

Rollover shares are preferred shares that are usually issued on the occasion of a "rollover" of property to the company. This is a tax manoeuvre that consists of transferring one or more assets (e.g. a building or the assets that make up a business) to the corporation, with no immediate tax impact. At least one share of the company's capital stock must be issued in exchange for the property. The issued rollover shares are redeemable at the fair market value of the property transferred to the corporation in consideration for the shares; to this effect, a price adjustment provision is provided in case the tax authorities are of the opinion that the redemption value of the shares does not represent the fair market value of the transferred property. In the event of dissolution and liquidation of the company, these shares have a priority right over the participating shares to receive the redemption value of the shares. Preferred shares generally do not have voting rights.

4. Investment Preference Shares

These shares have characteristics similar to a cash loan. The subscriber of investment preference shares invests an amount in the company, and in return receives these shares, which entitle the subscriber to a fixed cumulative dividend rate. These shares have priority over participating shares when a dividend is declared. Like the rollover shares, they also have priority in receiving the redemption value in the event of liquidation and dissolution of the company.

5. Control actions

Control shares usually confer only one right: the right to vote. They can be used, for example, by an entrepreneur who includes his children in the ownership of his company, but who wishes to keep the majority of the voting rights of the company. These shares can also be useful for tax purposes, in particular to ensure that a company has the status of a Canadian-controlled private corporation (CCPC), or to avoid the application of certain association rules between companies.