Attributes of shares

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Tax Question:

What are the attributes of shares and what is their purpose?

Facts:

Typically, a corporation will authorize numerous share classes. Each of these share classes can have different attributes. These attributes give the holder of those shares different rights and impact the value of the shares.

Discussion:

Common attributes of shares are votes and the ability to receive dividends.

Votes

Voting shares are generally given to the active shareholders. These give the shareholder voting power and a say in the direction and activities of the corporation. Generally, each voting share is worth one vote. If 100 voting shares are issued, the shareholder or group of shareholders with more than 50 votes has control. Voting rights are considered to add value to the shares because they impact the future of the company.

Dividends

Dividend rights allow the shareholder to receive a dividend payment equal to other shareholders of the same class in proportion to the number of shares of that class they hold. Shareholders participate in the equity growth of the company through dividends. Dividends may be discretionary (determined and declared by the board each year) or may be set at a predetermined rate or using a calculation outlined in the shares rights and restrictions. These dividend rights add value to the shares because they receive profits.

Other less common attributes of shares are the right to convert the shares into another class of shares, the right to retain the corporation’s assets upon dissolution or the right of redemption (buy back the shares). This attribute may be assigned with rights for the corporation to redeem the shares with or without the shareholder’s permission.

In order to achieve tax savings in Canada by income splitting with family members, each shareholder must own at least 10% of the votes and value of the company.

Dawn Loeffler, BA (Hons), CPA, CA
Manager, Gilmour Group CPA’s
Email: faqs@gilmour.ca
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