Canada · Canada (CBCA)

How to issue shares in Canada (CBCA) corporations

CBCA is the federal Canadian corporate-law statute, governing federally-incorporated Canadian corporations. CBCA share issuance is more formal than US practice: shares must be issued for consideration not less than the fair equivalent of the money the corporation would have received if the share had been issued for money.

Governing statute
Canada Business Corporations Act, R.S.C. 1985, c. C-44
CBCA s. 25Issuance of shares
CBCA s. 26Stated capital account
CBCA s. 27Other forms of consideration
CBCA s. 49Stock certificates and uncertificated shares
CBCA s. 50Securities register
CBCA s. 21.1Individuals with Significant Control register
At a glance
  • Authorized by the board under CBCA s. 25; broad consideration permitted under s. 27
  • No future services permitted (s. 25(3)): consideration must be money or property or past services
  • Stated capital account must be maintained for each class (s. 26)
  • Securities register required under s. 50; ISC register under s. 21.1
  • NI 45-106 exemption (typically accredited investor) and Form 45-106F1 filing for distributions

Board authorization under CBCA s. 25

Stock issuance is authorized by the directors under CBCA s. 25. Shares may not be issued until they are fully paid; consideration must be money or property or past services performed for the corporation. Future services and promissory notes are not permitted (this is a key difference from many US states). The directors determine consideration value, and their determination is conclusive absent fraud.

No future services or notes (s. 25(3))

CBCA s. 25(3) prohibits issuance for future services or promissory notes. This is the principal difference between CBCA share issuance and Delaware or MBCA-state issuance. CBCA founder grants must rely on past services (work already done) or cash consideration (commonly a nominal amount). The stricter rule reflects the Canadian protective approach to creditor and minority-shareholder interests.

Stated capital account under s. 26

CBCA s. 26 requires the corporation to maintain a separate stated capital account for each class and series of shares. The stated capital is increased by the consideration received for issuances. Stated capital matters for tax (it represents the paid-up capital for ITA s. 84 deemed-dividend calculations) and for corporate-law solvency tests on dividends and redemptions. US states either lack the concept (Delaware uses capital surplus) or treat it less formally.

Securities register under s. 50

CBCA s. 50 requires every CBCA corporation to maintain a securities register listing every security holder with their name, address, number of securities, and other particulars. The register is the controlling record of shareholders. CBCA s. 21 grants broad inspection rights: any person may inspect on reasonable notice (no proper-purpose requirement like Delaware). Section 21.1 requires a separate Individuals with Significant Control (ISC) register listing beneficial owners of 25%+.

Securities-law compliance: NI 45-106

Distributions to Canadian investors are governed by National Instrument 45-106. The most common exemptions: accredited investor (§ 2.3), private issuer (§ 2.4), family/friends/business associates (§ 2.5), and the $150,000 minimum-investment exemption (§ 2.10). Form 45-106F1 (report of exempt distribution) is filed within 10 days of the distribution closing. The CBCA's stricter issuance rules complement Canadian securities law's prospectus regime.

Common mistakes

Common CBCA failure points in share issuance:

  • Issuing shares for future services or promissory notes (prohibited under CBCA s. 25(3))
  • Failing to maintain the s. 50 securities register or s. 21.1 ISC register
  • Not filing Form 45-106F1 within 10 days of an exempt distribution
  • Not maintaining a separate stated capital account per class under s. 26
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FAQ

Common questions in Canada (CBCA)

No, not under the CBCA. Section 25(3) requires consideration to be money, property, or past services. Future services and promissory notes are not permitted. This is the principal difference between CBCA and Delaware practice. Canadian founder grants therefore rely on past services (work already done) or nominal cash consideration, and Canadian counsel will not draft a founder grant that purports to be paid for by future services.

CBCA s. 21.1 (effective June 2019) requires every Canadian-incorporated private corporation to maintain a register of Individuals with Significant Control: beneficial owners holding 25% or more of the shares or voting rights, plus persons with indirect control through arrangements. The register is internal but a portion is filed with Corporations Canada. The ISC register is conceptually similar to the US FinCEN BOI (Corporate Transparency Act), but the thresholds, definitions, and filing channels differ. Cross-border Canadian-US corporations maintain both.

Generally no, for individual issuances within the authorized capital. The board authorizes individual issuances under s. 25. Shareholder approval is required for changes to the share structure (articles amendment under s. 173, requiring special resolution of two-thirds), for class-affecting changes, and for fundamental changes (sale of all assets, amalgamation). Pre-emptive rights default OFF under the CBCA; the articles must expressly grant them.
Records that comply with CBCA
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