What are share classes and why would my corporation have more than one?

When you incorporate, you design the corporation's share structure by setting out the classes of shares and their rights in the articles of incorporation. The most basic structure is a single class of common shares — the simplest option for a solo owner who does not yet need flexibility.

Multiple share classes allow you to give different groups of shareholders different rights. Common distinctions include voting vs. non-voting shares, shares entitled to dividends vs. shares that are not, and shares with preference on winding up. A typical private corporation might have Class A voting common shares for the founder, Class B non-voting shares for a family trust or spouse, and preference shares for future estate-freeze transactions.

The most common practical reason for multiple classes is flexibility in paying dividends. If you have two classes of common shares with different dividend entitlements, you can pay dividends to the class you choose in a given year — potentially routing income to a lower-income family member. However, the tax on split income (TOSI) rules restrict this for adult family members who are not actively engaged in the business, so always get tax advice before building in dividend flexibility for family shareholders.