What’s the Right Structure? Part 2: Voting vs. Non-Voting Shares
When incorporating a business, choosing the right share structure is an essential decision that affects control, taxation, succession planning, and long-term corporate strategy. A common point of confusion is the difference between voting and non-voting shares and how each class can be used to achieve specific business and tax planning objectives.
This guide breaks down the key distinctions, common uses, and legal considerations to help business owners, families, and investors structure ownership effectively.
What Are Voting Shares?
Voting shares provide the holder with the legal right to influence major corporate decisions, including:
- Electing or removing the board of directors
- Approving mergers, acquisitions, and major corporate transactions
- Authorizing the issuance of new shares
- Making decisions that significantly impact the business’s direction
These shares are typically held by founders, key executives, or controlling shareholders because they represent ultimate decision-making authority in the corporation.
In summary: Voting shares = control and governance.
What Are Non-Voting Shares?
Non-voting shares do not give shareholders a say in corporate decisions. However, they do provide important economic benefits:
- Eligibility for dividends
- Participation in the company’s growth
- Potential priority rights on dividends or liquidation
- Ability to share profits without sharing control
Common uses include:
- Family-owned businesses wanting to share value without giving up control
- Employee compensation plans, such as stock bonus programs
- Passive investors looking for returns without involvement in management
In summary: Non-voting shares = economic value without decision-making power.
Strategic Uses of Non-Voting Shares
1. Income Splitting With Family Members
Non-voting shares are traditionally used in income splitting strategies to distribute dividends among family members, often resulting in significant tax savings.
However, income splitting must be done carefully due to the Tax on Split Income (TOSI) rules introduced in 2018.
TOSI Key Rules to Remember:
- Family members under age 25 must actively work in the business to receive dividends.
- Family age 25–64 must own at least 10% of the votes and value to qualify for certain exclusions, meaning non-voting shares alone may not suffice unless they meaningfully contribute to the business.
Because of these rules, non-voting shares must be used intentionally and with legal guidance.
2. Estate Freezes
Estate freezes allow business owners to “lock in” the current value of their shares and transfer future growth to children or a family trust through non-voting growth shares. This protects the founder from future capital gains while enabling tax-efficient intergenerational transfers.
These freezes are implemented under s. 86 of the Income Tax Act.
Important Update: Bill C-59 (2024)
Bill C-59 significantly modifies intergenerational business transfers. Most importantly:
To access the Lifetime Capital Gains Exemption:
- The parent must fully relinquish control (including voting rights).
- Non-voting shares cannot be used if the intention is to claim the LCGE.
Two transfer options are available:
- Immediate transfer (within 3 years)
- Gradual transfer (over 5–10 years)
Failing to meet the conditions could lead to:
- Gains are being reclassified as taxable dividends
- Loss of access to the LCGE
Legal Rights of Non-Voting Shareholders
Even though they lack voting power, non-voting shareholders still have important protections under the OBCA and CBCA, including:
- Access to financial statements
- Protection from oppression or unfair prejudice
- Rights to fair treatment
- Ability to seek legal remedies in certain circumstances
This is why non-voting shares must be issued carefully and strategically, not casually.
Conclusion
Choosing between voting and non-voting shares is more than a technical decision, it impacts control, taxation, succession, family planning, and long-term business strategy.
Because the legal and tax implications are significant, especially with new rules such as Bill C-59, business owners should seek professional advice before issuing or restructuring shares.
FAQs
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 private M&A law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law.
© Kalfa Law Firm , 2025. Updated January 2026.
The above provides information of a general nature only. This does not constitute legal or accounting 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.
