Why would an Ontario corporation create multiple classes of shares?

Ontario corporations can create multiple classes of shares, each with different rights, and there are several legitimate reasons to do so. The most common are tax and estate planning, investor financing, and governance control.

For tax and estate planning, multiple share classes allow family corporations to split income among family members in certain circumstances, and to implement estate freezes that lock in the current owner's tax exposure while directing future growth to the next generation. The rules on income splitting changed significantly with federal changes to the tax on split income (TOSI) rules, so this requires careful planning with a tax advisor.

For financing, a corporation might issue one class of shares to founders (with voting control) and a separate preferred share class to investors (with financial protections but limited voting). This structure protects founders from losing control while still giving investors the protections they need.

For governance, dual-class share structures allow certain shareholders — often founders — to retain greater voting power per share than other shareholders, even if they own a smaller economic percentage. This is common in publicly traded companies and can also be built into private company articles.

Each additional share class adds complexity to the articles and requires careful legal drafting to ensure the rights of each class are clearly defined and work together as intended.