This article provides an overview of the steps involved in issuing shares, once the negotiations with investors have been completed. To summarize, the process includes the following steps:
\nTo grow beyond a certain point, most businesses must issue shares. However, the process is a minefield of regulations. The following aims to provide a step-by-step outline for what needs to be done to minimize the chance of procedural errors.
\nThe first step in issuing shares is negotiating and signing a Subscription Agreement with each party (individual or other corporation) that wishes to become a shareholder in your corporation. At a minimum, the agreement should set out the number and class of shares the incoming shareholder is buying (the classes and rights attached thereto should be consistent with those set out in your Articles of Incorporation), and clearly set out the the price per share. The method and timing of payment should also be included. If payment has been made, the corporation should issue a receipt for payment.
\nIf you are relying on an exemption from prospectus requirements, the applicable exemption must be clearly stated, and supporting documentation (eg. a shareholder declaration) must be attached as an exhibit to the subscription agreement. If there is a shareholders’ agreement, the subscription agreement will usually contain a provision requiring the shareholder to adopt the shareholders’ agreement as a condition to the share transfer.
\nThe second step is to pass a Directors’ Resolution approving the transaction. In some corporations, the shareholders’ agreement may also require approval by the shareholders for the issuance of shares, so be sure to check the articles of incorporation, the shareholders’ agreement, and the by-laws for the voting and meeting requirements. The resolution should contain an approval of the terms and conditions of the subscription agreement, (attached as an exhibit to the resolution), as well as authorize the specific share issuance pursuant to the agreement, with details as to the names of the new shareholders, the quantity and price of the shares.
\nIf the share issuance requires an amendment to the articles of incorporation, resolutions by both the directors and the shareholders is likely to be required for approval of the amendment. Approval should be obtained before the articles of amendment are filed.
\nThe resolutions approving the share issuance should also approve an updated share capitalization table which reflects the share issuance (attached as an exhibit to the resolution).
\nThe final step is to issue share certificates, if share certificates are to be issued.
\nFor more information, check out these blog posts:
\n","frontmatter":{"title":"Breaking Down Share Issuance Step by Step","date":"October 17, 2017","description":"This article provides an overview of the steps involved in issuing shares, once the negotiations with investors have been completed. The process includes the four (4) steps.","author":{"id":"rajah@cobaltcounsel.com","first":"Rajah","last":"Lehal","bio":"Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.","image":{"childImageSharp":{"fluid":{"base64":"data:image/jpeg;base64,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","aspectRatio":1,"src":"/static/d7bbad08c257f3987a4a5710553e9e17/bdd4d/Rajah.jpg","srcSet":"/static/d7bbad08c257f3987a4a5710553e9e17/2b9ee/Rajah.jpg 80w,\n/static/d7bbad08c257f3987a4a5710553e9e17/e5d64/Rajah.jpg 160w,\n/static/d7bbad08c257f3987a4a5710553e9e17/bdd4d/Rajah.jpg 320w,\n/static/d7bbad08c257f3987a4a5710553e9e17/6e63d/Rajah.jpg 400w","sizes":"(max-width: 320px) 100vw, 320px"}}}},"tags":["Company Formation","Rajah","Articles of Incorporation","Canada (ON)","Canada (General)"]}}},"pageContext":{"slug":"/breaking-share-issuance-step-step/","previous":{"fields":{"slug":"/pick-of-the-litter-solar-power-try-seaweed-power/"},"frontmatter":{"title":"Pick of the Litter: Solar Power? Try Seaweed Power!","tags":["aching","POTL"],"author":{"id":"alva@clausehound.com","first":"Alva","last":"Ching"}}},"next":{"fields":{"slug":"/authorizing-vs-allocating-vs-issuing-shares-company/"},"frontmatter":{"title":"Authorizing vs. Allocating vs. Issuing Shares in your Company","tags":["Shareholders Agreement","Company Formation","Rajah","Articles of Incorporation","Canada (ON)","Canada (General)"],"author":{"id":"rajah@cobaltcounsel.com","first":"Rajah","last":"Lehal"}}}}}}