Issuing shares? Better make sure they are paid for.
Pursuant to the corporate law in Ontario, British Columbia and Canada (and potentially other jurisdictions), a share in the capital of a corporation cannot be issued until the shares are fully paid for, and the consideration paid for the issuance of a share cannot be a debt owing to the company by the subscriber, and in the case of Ontario and Canada, a debt owing by any person related to the subscriber.
This is usually not a concern when a company is obtaining equity financing, but is more of an issue at incorporation and/or when an internal reorganization of the shares (for tax or estate planning purposes) takes place.
When issuing any shares in a corporation, care should be taken to ensure that the subscription proceeds are received by the corporation in cash, past services, or some other property, and the corporate and accounting records reflect the receipt of those amounts. Ensuring there is a paper trail for each share subscription will also assist any tax audit that the company may undergo.
If you have any questions about issuing shares, and the documentation you should have to record an issuance and payment for shares, please do not hesitate to contact a member of our Tax Team.
By LaBarge Weinstein’s Taxation, Tax Planning, and Tax Litigation team.
This information is correct as of the date of posted.