Choosing a business structure involves more than incorporating a company. For Alberta private corporations, an important decision is how ownership will be divided and what rights will attach to each class of shares.

Two people may both be shareholders without having the same control, financial rights, or influence over corporate decisions. Voting and non-voting shares can separate economic participation from decision-making power, which may be useful for family businesses, investors, employee equity arrangements, succession planning, and companies with multiple founders.

However, these structures can also create confusion when shareholder rights and expectations are not clearly documented.

What Are Shares in a Private Corporation?

Shares represent ownership interests in a corporation. The corporation’s articles generally identify the classes of shares it may issue and the rights attached to each class.

Those rights may relate to:

  • Voting
  • Dividends
  • Redemption or conversion
  • Priority when assets are distributed
  • Participation in the company’s growth

A corporation may have one class of common shares or several classes with different rights. In a private Alberta corporation, the structure may account for founders, family members, investors, employees, holding companies, trusts, or future purchasers. The structure should reflect both the corporation’s current ownership and how the business may change over time.

What Are Voting Shares?

Voting shares generally allow shareholders to vote on certain corporate matters. Depending on the corporation’s governing documents and applicable legislation, this may include electing directors, approving significant changes, or deciding matters requiring shareholder approval.

Voting rights are often closely connected to control, as shareholders with voting power generally influence who serves on the board of directors. The directors, in turn, manage or supervise the management of the corporation’s business and affairs.

However, voting rights do not necessarily determine who manages daily operations. A shareholder may have voting rights without working in the business, while a manager may run the company without controlling most of its voting shares. Ownership, voting control, and management authority are related but distinct concepts.

What Are Non-Voting Shares?

Non-voting shares generally do not carry ordinary voting rights, although exceptions may apply. A non-voting shareholder may still be entitled to dividends, sale proceeds, or value distributed when the corporation is wound up, depending on the terms of the shares.

These shares may allow someone to participate financially without receiving control over corporate decisions. They are commonly issued to family members, employees, investors, trusts, or participants in a succession plan.

The term “non-voting” does not mean the shareholder has no rights. Non-voting shareholders may have protections under the corporation’s articles, bylaws, shareholder agreement, or corporate legislation. They may also be entitled to vote as a separate class when a proposed change would affect the rights attached to their shares.

Why Use Voting and Non-Voting Shares?

A corporation may use both types of shares to separate control from financial participation. For example, founders may want to raise capital while retaining voting control. A family business owner may transfer economic value to the next generation while continuing to direct the company. An employer may also provide key employees with equity participation without changing the company’s governance structure.

Investor arrangements may follow a similar model. An investor might accept non-voting shares but negotiate contractual protections through a shareholder agreement, including information rights, approval rights, buyback provisions, or exit mechanisms.

This flexibility depends on careful drafting. Unclear share terms can lead to disagreements over voting rights, dividends, transactions, and participation in future growth.

Control Is Not the Same as Economic Value

Voting rights determine who may participate in certain corporate decisions. Economic rights determine who may benefit from dividends, sale proceeds, or growth in the value of the company.

Those rights do not always move together. A shareholder with voting control may not receive most of the economic benefits. Conversely, a non-voting shareholder may have little influence over governance but still be entitled to substantial value if the business is sold.

For this reason, percentage ownership can be misleading. Saying that someone owns 25% of a corporation does not fully explain what that person may vote on, what payments they may receive, or what happens if they leave, die, become disabled, or want to sell. The rights attached to the shares must also be considered.

Matching Share Classes With Business Goals

A corporation’s share structure should reflect its purpose and long-term plans. A company owned by two founders may require a different structure than a family business, a professional corporation, a real estate holding company, or a corporation seeking outside investment.

Some businesses may only need one class of common shares. Others may benefit from multiple classes designed to address control, dividend flexibility, succession, tax planning, financing, or investment terms.

Planning for Change

The structure should also anticipate possible changes, including:

  • Bringing in investors or employees
  • Transferring the business to family members
  • Reorganizing the corporation
  • Buying out a shareholder
  • Selling the company
  • Raising additional financing

Legal, business, and tax considerations frequently overlap when a share structure is created or revised.

Articles and Shareholder Agreements

The corporation’s articles establish the share classes it may issue and the rights, restrictions, and conditions attached to each class. If the articles do not authorize the intended shares, they may need to be amended before the structure can be implemented.

A shareholder agreement can supplement the articles by addressing how shareholders will interact. It may cover governance, transfer restrictions, financing obligations, confidentiality, dispute resolution, buy-sell rights, and exit procedures.

These arrangements are particularly important for private companies because there is usually no public market where shareholders can easily sell their interests. Without a clear transfer or exit process, a shareholder may have limited practical options when the relationship changes.

Common Sources of Shareholder Disputes

Disputes may arise when shareholder expectations do not match the corporation’s documents. A non-voting shareholder may expect to participate in major decisions. A voting shareholder may assume control, which also provides unrestricted access to profits. An employee shareholder may believe they can keep their shares after leaving, while the corporation expects to repurchase them.

Conflicts can also arise when:

  • Dividends are paid on some share classes but not others
  • New shares are issued
  • A sale or reorganization is proposed
  • A shareholder wants to transfer or retain shares
  • One shareholder believes another is acting unfairly

Clear structuring cannot prevent every disagreement, but it can reduce uncertainty about each shareholder’s rights and the procedures that apply.

Questions to Address Before Issuing Shares

Before issuing voting or non-voting shares, business owners should consider what each shareholder will contribute. Contributions might include money, labour, property, intellectual property, guarantees, management responsibilities, or business relationships.

The shareholders should also consider who will control significant decisions, such as borrowing money, issuing shares, selling the company, entering into major contracts, hiring senior management, or paying dividends.

Exit planning is equally important. A shareholder may eventually retire, leave employment, transfer shares to a family member, separate from a spouse, become incapacitated, or die. The share structure and shareholder agreement can establish what happens in those circumstances.

Revisiting an Existing Share Structure

Share structuring is not limited to the incorporation stage. A structure that once worked may no longer match the company’s ownership, operations, financing needs, or succession goals. A business may later bring in a spouse, child, investor, employee, or partner. Changes in tax planning, risk exposure, or long-term objectives may also justify a review.

Possible changes may include amending the articles, creating new share classes, reorganizing ownership, implementing a shareholder agreement, or correcting inconsistencies in existing records.

Corporate records should also align with the intended structure. Minute books, share registers, resolutions, and shareholder records may be reviewed during financing, due diligence, a shareholder dispute, or the sale of the business.

Building a Structure That Reflects the Business

Voting and non-voting shares can provide Alberta private corporations with considerable flexibility. Their purpose is not simply to divide ownership, but to define control, economic rights, shareholder expectations, and future pathways.

For founders, families, investors, and business partners, the share structure can influence how decisions are made, how value is distributed, and how ownership changes over time.

A carefully documented structure can support investment, succession, growth, and continuity. A poorly understood structure may create uncertainty when the business or shareholder relationship changes.

DBH Law: Providing Alberta Businesses With Comprehesive Advice on Business Structures

Voting and non-voting shares can play an important role in corporate structuring, succession planning, investment, and business growth. The business lawyers at DBH Law assist owners, founders, investors, and family enterprises with incorporations, share structures, shareholder agreements, corporate reorganizations, and ownership planning.

To discuss business structure options for a private corporation in Calgary, Edmonton, Red Deer, Lethbridge, Medicine Hat, or elsewhere in Alberta, contact DBH Law online or call 403-252-9937.