How to issue shares in a corporation in Canada: A step-by-step guide

When new investors come in, a corporation must follow the legal process for issuing shares under Canadian corporate law.

In this guide on how to issue shares in a corporation in Canada, we'll break the process into clear steps and explain how lawyers can help throughout the process. For tailored advice on these steps, consult a corporate lawyer in your area.

What are the steps to issue shares in a corporation in Canada?

Here are the steps to issue shares in a Canadian corporation:

1. Check your corporation's authority to issue shares
2. Review your corporation's by‑laws and any shareholder agreement
3. Obtain and document the subscription or offer
4. Confirm that consideration meets the law's requirements
5. Obtain board review and approval by resolution
6. Get shareholder approval if corporate documents require it
7. Issue the shares and receive full payment
8. Prepare and deliver share certificates to the shareholders
9. Update the corporate records and share registers
10. Do the required external filings after issuing the shares

We'll discuss each of these steps below. You can also use the table of contents above to go directly to any of these steps. You should also consult a lawyer to understand how these steps apply to your specific corporation.

1. Check your corporation's authority to issue shares

Your corporation's articles of incorporation must authorize the class and series of shares you want to issue. Canada's corporation laws, such as the Canada Business Corporations Act (CBCA) or the provincial business corporation laws, say that these articles must set out the:

• classes and any maximum number of shares your corporation is authorized to issue
• rights, privileges, restrictions, and conditions for each class, if there is more than one class of shares

The articles must set out these details clearly, and voting rights, dividends, and residual property must be attached to at least one class of shares. Otherwise, the articles must be amended before issuing those shares.

You can also learn more about how to issue shares in a corporation and how to do its share structuring with this video:

Reach out to the best corporate finance lawyers in Canada as ranked by Lexpert for more information about your company's shares and structuring strategies.

2. Review your corporation's by‑laws and any shareholder agreement

Beyond the articles of incorporation, you must also review your corporation's by-laws and any shareholder agreements.

Conditions to issue shares in a corporation

Corporation laws state that shares may be issued at any time and to any person:

• if allowed by the by‑laws and shareholder agreement;
• when determined by the board of directors;
• but subject to the articles of incorporation's rules

This means that, unless the articles or the by‑laws say otherwise, the directors can issue shares whenever they wish, to whomever they choose, and for whatever value they decide. However, the by‑laws can restrict this power; for example, they can require that share issuances be approved by shareholders first.

Looking at the pre-emptive rights

Another important thing to consider when issuing shares is to check that the other shareholders' pre‑emptive rights are not violated. This usually applies:

• to issuances of shares in the future, or after the incorporation
• if this right is granted in the articles, by-laws, or shareholder agreements

If pre-emptive rights apply, your corporation must give current shareholders the required offer and allow them to subscribe first before offering them to the public.

3. Obtain and document the subscription or offer

A future shareholder may be issued shares by any of the following methods:

• by offering to subscribe to any of class of shares of the corporation
• by accepting an offer from your corporation, which grants the option to buy shares

Under the first option, you must give the other party a subscription offer, which must contain the following information:

• the name of the subscriber (the future shareholder)
• the number and class of shares they want to subscribe to
• the consideration they're offering

In any case, the consideration for the subscribed shares can either be in the form of money, property, or past services. If property or past services are used, corporation laws require that their value must not be less than the cash equivalent that your corporation would have received had the shares been issued for money.

Check out this video that gives tips on how to issue shares in corporation in Canada:

Head over to Lexpert's Special Edition on Finance Law for more resources that can help new companies and start-ups in Canada.

4. Confirm that consideration meets the law's requirements

There are several requirements your corporation must meet to issue shares. For a federal incorporation, the CBCA states that:

• the consideration must be fully paid (either in money, property, or past services)
• for property or past services, the following can be considered:
  • reasonable charges and expenses of organization or reorganization
  • reasonably expected payments for property and services
  • "properties" does not include a promissory note or a promise to pay

Provincial corporate laws would also have the same parameters. You should consult a law firm with expertise in corporate finance law in the province or territory where your corporation is registered.

5. Do a board review and approval by resolution

Once the board of directors approves the share issuance, the process does not end there. Corporation laws require that the issuance be recorded in the corporation's minute book, including the details and the approving resolution.

The resolution must also include important details, such as:

• the subscriber's name
• the number and class of shares
• the share certificate number
• the consideration received

6. Get shareholder approval if corporate documents require it

Depending on your corporation's by‑laws or unanimous shareholder agreement, shareholder approval may be necessary for certain share issuances. For instance, it may be required that new shares be:

• offered first to existing shareholders, also called pre-emptive right
• require a higher level of shareholder approval than corporate laws require

If these agreements or provisions exist, your corporation must notify the shareholders and obtain the required shareholder resolution before issuing the shares.

7. Issue the shares and receive full payment

The actual issuance takes place only after the statutory and contractual requirements are met, including your corporation receiving the full consideration for the shares.

At this point, the subscriber now becomes a shareholder in the eyes of the law. For instance, the CBCA states that the shares are non‑assessable and shareholders are not liable to the corporation or its creditors once they have paid the shares in full.

8. Prepare and deliver share certificates to the shareholders

After payment, your corporation must deliver a share certificate to each shareholder. The certificate must show the following:

• name of the corporation
• name of the shareholder
• number and class of shares
• restrictions on the transfer of shares, if any

This certificate is important, since it confirms the shareholder's equity ownership in the corporation.

9. Update the corporate records and share registers

After issuing the shares and certificates, the corporation must now update its internal records. This is where the corporate secretary and other relevant officers play a key role.

Aside from putting the approving board resolution in the minutes book, as mentioned above, your corporation must also update the following:

• shareholder registry: with the new shareholder's name and information
• share registry: with the class, number, and consideration received for the shares

These updates confirm that the share ownership and capital structure are properly documented.

10. Do the required external filings after issuing the shares

Lastly, updating the key regulators with the changes in your corporation's equity must be done. This is especially important for individuals with significant control (ISC) in your corporation:

• information on ISCs must be filed with Corporations Canada together with your corporation's annual return
• changes to ISC information must be filed within 15 days of the change in the corporation's ISC register

Other external filings applicable to your corporation are best managed by corporate lawyers who work with or for your company. This helps confirm that all legal requirements for the issuance of shares are met.

How to issue shares in a corporation: Following corporate law's checklist

Knowing how to issue shares in a corporation is a good starting point, but legal advice from a corporate lawyer is just as important. As each corporation has its own mix of founders, investors, and share classes, combining all these factors can make an otherwise standard process more complex. With the help of legal professionals, these steps can be managed properly, and potential disputes over share ownership or corporate authority can be avoided.

Subscribe to the free Lexpert newsletter for updates on Canadian laws, including corporate laws and how to issue shares in a corporation in Canada.