How do Ontario corporations structure their share capital?

Ontario corporations incorporated under the Business Corporations Act (OBCA) or federally under the Canada Business Corporations Act (CBCA) have considerable flexibility in how they structure their share capital. Shares are created in the articles of incorporation and can be divided into classes with different rights and restrictions.

Most small Ontario businesses start with a simple structure: a single class of common shares that carry voting rights, the right to dividends, and the right to the residual assets on dissolution. As the business grows or investors come on board, multiple share classes become valuable.

Multiple classes are often used to achieve income splitting (a professional tax strategy using family trusts and discretionary dividend shares), to accommodate investors who want preferred returns or redemption rights, or to create a structure that allows employees or founders to have different levels of ownership and control.

Common share classes include: common shares (voting, residual value), preference shares (priority dividends, redemption features, often non-voting), and special shares used in tax-driven reorganizations (estate freezes, crystallization of the capital gains exemption).

Any change to share capital after incorporation requires an amendment to the articles of incorporation, which is a formal process. Tax and corporate lawyers typically collaborate on complex share structures.