Transferring Shares of an Ontario Corporation: What Actually Needs to Be Done?

What is a share transfer?

A share transfer changes ownership of existing shares from one holder to another. It is different from the corporation issuing new shares. In a transfer, the corporation’s outstanding shares may remain the same while the identity of the registered shareholder changes.

Ontario’s Business Corporations Act states that shares of a corporation are personal property. That does not mean they can always be transferred freely: the corporation’s articles, by-laws, unanimous shareholder agreement or other contractual arrangements may impose restrictions or approval requirements.

Step 1: Review the corporation before agreeing to the transfer

Before documenting the transaction, review the articles, by-laws, shareholder agreements, existing share certificates, securities register and prior resolutions. A transfer that ignores a restriction can create problems even if the buyer and seller have agreed on price.

Where the transfer is part of a business purchase, the buyer should also conduct appropriate due diligence because a buyer of shares acquires an interest in the existing corporation with its history, contracts, assets and liabilities.

Step 2: Document the commercial deal

A simple internal reorganization may require only focused transfer documentation. A true arm’s-length sale may require a detailed share purchase agreement addressing purchase price, representations, warranties, indemnities, closing deliverables and post-closing obligations.

The right document depends on the transaction; there is no single universal "share transfer form" that solves every deal.

Step 3: Obtain required corporate approvals

Depending on the governing documents, director or shareholder approval may be needed before the transfer is registered in the corporation’s records. Existing shareholders may also have rights of first refusal, pre-emptive rights, buy-sell rights or consent rights.

Step 4: Update the securities register and certificates

The Ontario Business Corporations Act requires a corporation to maintain a securities register. The register records persons who are or have recently been registered as shareholders and the number and class of shares registered in their names.

At closing, the seller’s certificate may be endorsed or surrendered and cancelled, and the corporation may issue a replacement certificate to the buyer, depending on the corporation’s records and practices.

Step 5: Review individuals-with-significant-control information

Privately held Ontario business corporations are required to maintain information about individuals with significant control. Ontario’s guidance states that the register generally captures persons who own, control or direct 25% or more of voting shares or shares worth 25% or more of all outstanding shares, as well as certain persons who exercise control in fact.

Ontario requires the information to be reviewed at least annually and updated within 15 days after the corporation becomes aware of a relevant change. A material share transfer can therefore trigger an update.

Step 6: Address tax and related agreements

The seller and buyer should obtain tax advice where appropriate. A transfer can also affect shareholder loans, guarantees, banking arrangements, voting agreements, key-person insurance, employment arrangements and beneficial ownership.

What should the minute book contain after closing?

At minimum, the corporate records should accurately reflect the new registered ownership and the approvals/documentation used to implement it. For a professionally maintained corporation, the minute book should be capable of showing an auditor, lender, purchaser or lawyer how ownership moved from the former shareholder to the new one.