One of the first decisions of the board of directors, following theincorporation of the company, will be to authorize the issuance of shares, at the price determined by the directors. How many shares to issue to the founders of the company, and at what price?
At the outset, it should be noted that in Quebec and in Canada, the share capital is by default unlimited, unless otherwise stipulated in the articles. This simply means that the directors can decide to issue as many shares as they wish, unless otherwise provided for in the articles of incorporation.
Generally, one seeks to issue a number of shares that is easy to divide or calculate as a percentage, in order to facilitate any future share transactions. For example, very often the sole shareholder will be issued 100 or 1000 common shares at the formation of the company. Subsequently, if he wishes to dispose of half of his shares, he can simply sell 50 or 500 shares to the purchaser, thus avoiding any stock split or the need to change his number of shares before the transaction (see subdivision or consolidation below).
If there are two founders at 50% each, they can each have 50 common shares issued, for a total of 100 shares outstanding, or 100 shares each. If there are three equal shareholders, a total of 100 shares would imply fractions of shares, which is generally avoided, although it is permitted under the Quebec business corporation regime. It would make more sense to issue each of them, for example, 100 shares, for a total of 300 shares outstanding.
In any case, the decision on the number of shares is not necessarily permanent. It is always possible to modify the number of shares subsequently, by way of subdivision of the shares (for example, from 10 shares to 100 shares) or consolidation of the shares (for example, from 100 shares to 10 shares). These changes will be made by resolution for corporations incorporated under the Quebec system, whereas under the federal system, the articles must be amended.
It is important to note that the number of shares, basically, has no impact on the value of the shares or the company.
Corporate laws do not permit or appear to permit the issuance of shares for no consideration. Even if the founder of a company does not expect to make any capital outlay at the start of the business, an issue price will still be established, albeit often a nominal one. It is very common to see 100 shares of common stock issued for $1 per share, or $100 of issued and paid (or stated) capital stock.
If a significant down payment is made by the shareholder, the shares can be issued in consideration of this down payment, but generally the down payment will be in the form of a loan from the shareholder, and the shares will be issued for a small amount. This reduces the shareholder's liability to the corporation and simplifies the repayment of the down payment at a later date, if any. A special resolution of the shareholders is required to authorize the repayment of the capital paid by the shareholders, by way of a reduction of the issued (or declared) share capital.