What are bonus shares and share splits, and can an Ontario corporation use them?

A share split (or stock split) occurs when a corporation divides its existing shares into a larger number of shares. For example, a two-for-one split doubles the number of shares outstanding while halving the value per share. Economically, nothing changes — the shareholders' total ownership percentage stays the same. The Ontario Business Corporations Act permits share splits, which typically require a directors' resolution and, in some cases, an amendment to the articles if the split changes the authorized share capital.

Bonus shares are shares issued to existing shareholders at no cost, funded by capitalizing retained earnings or other surplus accounts. Like a share split, a bonus share distribution does not change the overall ownership percentages but does increase the number of shares outstanding. The tax treatment of bonus shares must be reviewed carefully, as there can be deemed dividend implications depending on the structure.

For private Ontario corporations, share splits and bonus share issuances are less common than in public companies, but they do arise — often in the context of preparing for a sale, restructuring the capital of a corporation, or implementing a compensation plan. The mechanics and tax implications should be reviewed with a corporate lawyer and tax advisor before proceeding, as details of the transactions matter significantly to the tax outcome.