To issue different classes of shares (e.g., Class A, Class B, Class C) in an Ontario corporation, you must amend your Articles of Incorporation by filing Form 3 with the Ontario Business Registry. The government fee is $150 CAD, allowing you the flexibility to pay different dividend amounts to different family members or holding companies.
When you first register a basic business in Ontario, the government typically provides a default share structure consisting of a single class of ‘Common Shares’. While this is fine for a single owner, it becomes highly restrictive if you have multiple shareholders. 📈 If your spouse, children, or a holding company own the same class of shares as you, any dividends declared must be paid out strictly based on the percentage of ownership. You cannot pay one person $10,000 and another $0.
The solution to this rigidity is creating a multi-class share structure, commonly referred to as ‘Alphabet Shares’ (Class A, Class B, Class C, etc.). By assigning a different class of shares to each individual, the directors gain the discretionary power to declare a dividend on Class A shares without being legally forced to declare one on Class B shares. This guide explains how to legally implement this structure in your Ontario Business Corporations Act (OBCA) company.
Step-by-Step Process for Creating Alphabet Shares in Ontario
Changing the share structure of your corporation is a fundamental change that requires amending the constitution of your company. 📍 It is generally recommended to have a corporate lawyer draft the specific rights, privileges, and restrictions attached to each new class of shares to avoid future legal disputes.
Step 1: Draft the New Share Provisions
You cannot simply tell your accountant you have Class B shares now; they must be legally defined. You must draft the ‘share provisions’ outlining what each class can do. For example, Class A might have voting rights and dividend rights, while Class B might be non-voting but have priority on dividends. These exact definitions will replace the basic share structure in your current Articles of Incorporation.
Step 2: Obtain Shareholder Approval (Special Resolution)
Because altering the share structure affects ownership rights, the existing shareholders must approve the change. 👥 Under the OBCA, you must pass a ‘Special Resolution’, requiring the approval of at least two-thirds (66.7%) of the voting shares. A formal document must be signed by the shareholders and placed into the corporate minute book to authorise the directors to file the amendment.
Step 3: File Articles of Amendment with the Province
Once approved, the directors must log into the online Ontario Business Registry (OBR) and file Form 3 (Articles of Amendment). You will be prompted to paste the newly drafted share provisions into the system. Once the provincial government processes the filing, they will issue a formal Certificate of Amendment. Your corporation is now legally authorised to issue the new alphabet shares.
Step 4: Update the Corporate Minute Book
Filing the amendment only authorises the existence of the new shares; it does not automatically give them to anyone. 📄 The directors must pass a resolution to issue the new shares from the treasury to the specific individuals (e.g., issuing 100 Class B shares to a spouse). You must then update the Registers of Directors and Shareholders, and print new physical or digital share certificates for the new owners.
How Much Does It Cost to Amend Share Classes?
The cost of restructuring your shares depends on whether you handle the paperwork yourself or hire a professional. 💰 Here are the typical costs in CAD:
- Ontario Filing Fee: The provincial government fee to file Articles of Amendment online via the Ontario Business Registry is exactly $150 CAD.
- Legal Fees: Hiring an Ontario corporate lawyer to properly draft the share provisions, prepare the special resolutions, file the amendment, and issue the new share certificates generally costs between $800 and $2,000 CAD.
- Accounting Advice: Consulting a CPA to ensure the new share structure does not trigger adverse tax consequences usually costs an additional $500 to $1,500 CAD.
How Long Does the Process Take?
If handled efficiently, creating a new share structure is quite fast. Drafting the provisions and signing the shareholder resolutions can be done in a few days. The online filing of the Articles of Amendment through the Ontario Business Registry is usually processed immediately or within 24 hours. Updating the minute book takes another day. Overall, you can expect the process to take roughly 1 to 2 weeks.
Examples of Alphabet Share Structures
Every corporation’s needs are unique, but here is a very common way families structure their shares in Ontario to maximise flexibility. 📝
| Share Class | Typical Owner | Typical Rights & Restrictions |
|---|---|---|
| Class A Common | Founder / Primary Operator | 100% Voting Rights, Participating in Dividends, Growth. |
| Class B Common | Spouse | Non-Voting, Participating in Dividends, Growth. |
| Class C Preferred | Corporate Holding Company | Non-Voting, Fixed Dividend Amount, Redeemable. |
Frequently Asked Questions (FAQ)
Can I remove voting rights from a share class?
Yes. The OBCA allows you to create non-voting shares. This is incredibly common when issuing shares to children, employees, or passive investors where you want to distribute profits but do not want them interfering in the daily management of the business.
Will Alphabet Shares lower my taxes automatically?
No. While they provide the mechanism to pay different people, the Canada Revenue Agency has strict rules called Tax on Split Income (TOSI). If you pay large dividends to a family member who does not actively work in the business, the CRA may tax those dividends at the highest marginal rate.
Is there a limit to how many share classes I can create?
Practically, no. An Ontario corporation can create an unlimited number of share classes. However, overly complex share structures (e.g., going from Class A all the way to Class Z) can become an administrative and accounting nightmare.
Do existing shareholders have to pay for the new shares?
Yes, legally shares cannot be issued for free. However, the corporate directors can set the subscription price at a nominal amount, such as $1.00 CAD per share, making the total cost to acquire 100 Class B shares just $100.
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