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How Do You Transfer Shares of a Private Corporation?

How Do You Transfer Shares of a Private Corporation?

When a corporation is incorporated, the articles of incorporate set out the issuance of shares—who owns the shares and by what percentage. But one can become a shareholder by other means—by a transfer of shares from an existing shareholder after the initial issuance of shares.  A transfer of shares may occur for consideration, either money or another form of payment, or without consideration however this may attract tax consequences. Share transfers can also be transferred to both individuals and entities, such as partnerships and corporations.

Restrictions on Transfer

Share Transfer

In the case of a transfer of shares in a private corporation, a transfer of shares cannot occur without a directors’ resolution approving the transfer. Further, there may be restrictions in place on share transfers as indicated in a corporation’s shareholders agreement or Articles of Incorporation. Restrictions may apply to all transfers or only to those in specific cases, such as transfers between spouses or other family members.

Common share transfer restrictions include:

  • Who can buy or sell shares
  • How many shares can be transferred
  • A requirement that existing shareholders agree to the transfer
  • A requirement that a shareholders’ resolution approving the transfer be passed
  • A Right of First Refusal, which states that a shareholder must first offer to transfer or sell his/her shares to the other shareholders of the company before offering them to an outside entity
  • Rules for the transfer of shares when certain events occur, such as death, resignation, dismissal, personal bankruptcy or divorce of a shareholder, detailing when the transfer should be made as well as what happens to the shares in these circumstances. The shareholder agreement, for example, could require that the shares be transferred to the remaining shareholders or to the corporation, often at fair market value
  • Non-competition clauses, confidentiality agreements, dispute resolution mechanisms and details on how the shareholder agreement itself is to be amended or terminated

The reason for restrictions is understandable; because the shareholders of a corporation are usually the directors, officers, and employees of the corporation, it is natural for them to control who they will be doing business with.

Necessary Documents

Other than a Directors Resolution, other documentation required in a transfer of shares include:

1) Share Purchase Agreement – to the extent the shares are purchased by another, this must be recorded in an SPA which detail the price per share and other matters

2) Directors resolution approving the SPA

3) New share certificates to reflect the share transfer that are signed by the president and secretary of the corporation. If only a portion of the shares represented by the share certificate is transferred, then two share certificates will need to be prepared—one reflecting the shares that are transferred and another for the balance of shares still remaining in issuing shareholder’s name.

4) Updating the Shareholders Ledgers and Registers: the Shareholders Ledger, Share Transfer Register and Shareholder’s Register of a corporation list and track those who hold the shares and by what percentage. These ledgers must be updated.

5) Resignations and Form 1 – typically, where one decides to exit a corporation they also wish to resign from their positions as director and officer. To this end, corporate resolutions in which the shareholder resigns from this capacity are prepared and must be signed by the corporation. As well, a return must be filed with the corporate governing body to update the corporation’s records within the government.

Public Corporations:

For public corporation, a transfer of shares happens according to the rules set out by the provincial Securitas Transfer Acts. Generally, shares are openly traded on a stock exchange–such as the Canadian Securitas Exchange, Toronto Stock Exchange, Alberta Stock Exchange, Montreal Exchange, Vancouver Stock Exchange and the TSX Venture Exchange—and traded with the help from professional stock brokers and investment dealers.

Kalfa Law Firm can assist you in preparing the corporate documentation required to transfer shares of a private corporation. With both our business expertise and tax know-how, we can help you minimize your tax burden resulting from the capital gains secured from the transfer of shares. 

-Shira Kalfa, BA, JD, Partner and Founder

Shira Kalfa is the founding partner of Kalfa Law Firm. Shira’s practice is focused in corporate-commercial and tax law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law. Shira graduated from York University achieving the highest academic accolade of Summa Cum Laude in 2012. She graduated from Western Law in 2015, with a specialization in business law. Shira is licensed to practice by the Law Society of Ontario. She is also a member of the Ontario Bar Association, the Canadian Tax FoundationWomen’s Law Association of Ontario, and the Toronto Jewish Law Society. 

© Kalfa Law Firm 2021

The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.

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