What is a stated capital account and why does my Ontario corporation need to maintain one?

Under the Ontario Business Corporations Act, every corporation must maintain a stated capital account for each class and series of shares it issues. When shares are issued, the corporation must add to the stated capital account the full amount of any consideration received for the shares.

Stated capital is a legal concept that represents the amount shareholders have paid into the corporation for their shares. It matters for several reasons. First, the solvency test for dividends and other financial assistance measures the corporation's assets against the sum of its liabilities and stated capital. Second, stated capital affects what happens when shares are redeemed or repurchased. Third, certain reductions in stated capital require shareholder approval and potentially government filings (articles of amendment for certain reductions).

For many small corporations, the stated capital account contains a nominal amount because shares were issued for a token consideration at incorporation. As the corporation grows and additional shares are issued — to investors, employees under share plans, or new partners — properly recording the consideration and stated capital becomes more important. Maintaining accurate stated capital records is part of good corporate bookkeeping and is something that any investor or purchaser will review during due diligence.