Shares, Shareholder Agreements, and How to Generate Wealth through these Important Corporate Vehicles
The corporation is a business entity that is responsible for driving a significant portion of the country’s capital and, along with small businesses, forms the bedrock of the Canadian economy. As increasing personal and corporate wealth through the issuance of shares is a concept that our clients often inquire about, we have decided to bring you a complete guide to shareholder agreements and shares for our readers’ easy access.
We will begin with a series of articles on the basics and fundamentals: What is a shareholder’s agreement, what are some of the basic clauses that one should consider including in the shareholder’s agreement, and what are the different types of shares that will dictate decision making powers, both with respect to how a corporation is run and how a corporation’s wealth is distributed.
The Fundamentals
Every agreement for purchase or sale of a business’s assets or shares includes a two-step process involving, firstly, a negotiation that culminates in the closing of a deal. Following the agreement, the process continues with the fulfillment of conditions outlined in the agreement and a variety of closing documents, which must be drafted and signed.
Click on the article below “The Two-Step Process for Buying or Selling a Business” to learn more.
The Shareholder’s Agreement: What it is and why you need it:
A shareholder’s agreement, also called a stockholder’s agreement, is an agreed-upon arrangement among a corporation’s stockholders.
Critical Shareholder Clauses to Include in a Shareholder’s Agreement:
Any good shareholder agreement needs to protect the interests of the shareholders that are party to the agreement.
What are the Types of Shares that Can Be Issued by a Corporation:
To appreciate the different types of shareholders’ agreements that can be drawn, one must understand the different types of shares that can be issued.
Protecting the Rights of Shareholders:
Shareholders have rights under the OBCA, among them voting rights, rights with respect to meetings, and rights pertaining to access to information. Protecting the rights of shareholders also means protecting the value of shares from being diluted in the event of unforeseen circumstance, such as a marriage breakdown, death, disability, divestiture and dispute.
The following section will outline the different circumstances that may arise leading to the dilution of a corporation’s shares, as well as what you can do to ensure that both a shareholder’s rights are protected and that the shares in a corporation retain their value.
Creating Wealth and Tax Planning
With an understanding of the most fundamental concepts related to shares and shareholders’ agreements, let us turn to a discussion of how wealth is created through the issuance of shares and some tax planning tools, including extending shareholder loans and the use of a corporation’s Stated Capital and Paid Up Capital Accounts.
Paid Up Capital and Stated Capital of a Corporation
What is the Paid-Up-Capital and Stated Capital of a corporation and how can I use these concepts to tax plan and save money? We've got your answers.
We hope that you enjoyed our compilation of articles relating to shareholder agreements, shares, and how to increase wealth through these vehicles. As corporate and business lawyers, our firm’s lawyers are ready to assist you in setting up your corporation for success. We will draft iron-clad shareholder agreements that protect the rights of shareholders and provide tax planning advice to ensure your corporation’s wealth.
You work hard for your money. We work hard for you to keep it™.