Issuing Shares After Business Incorporation: The Three Primary Types of Shares
Shares are units of ownership of business corporations which are purchased by one or more shareholders. Initially, shares are subscribed by one or more shareholders once a new company is incorporated. Individuals, trusts and other corporations can own shares, and owners of shares are referred to as “shareholders.” Since shares are considered a type of property, they can be purchased and sold, but the right to do so may be limited based on provisions set forth in the corporation’s Articles and unanimous shareholder agreement (if any).
Prior to business incorporation, the incorporators can determine what types of shares they wish to issue. Although there are nearly no limits to the types of shares that can be created upon incorporation, most corporations use the following two general types of shares:
- Common shares — Common shares typically have the right to receive dividends at the discretion of the board of directors and to receive any remaining property that the corporation owns if it is dissolved. Voting common shares also have the right to vote on certain matters, including the election of the board of directors, audit exemption, and approval of the corporation's financial statements. Non-voting common shares can have similar rights as the voting common shares, without the right to vote in most circumstances.
- Preferred (Preference) shares — Preferred shares have some type of “preference” attached to them over the common shares. For example, those who hold preferred shares may have the right to receive dividends or a distribution of assets upon dissolution before the common shareholders. Like common shares, preferred shares may be voting or non-voting.
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