In a post I wrote about stock dividends last fall, I mentioned that the Ontario government had tabled a bill to amend the Business Corporations Act to clarify that a nominal amount could be added to the stated capital of shares issued in satisfaction of a dividend.
The bill in question, Bill 152, received Royal Assent and became law as S.O. 2006, c. 34, on December 20, 2006. Subsection 38(2) of the OBCA now provides as follows:
If shares of a corporation are issued in payment of a dividend, the corporation may add all or part of the value of those shares to the stated capital account of the corporation maintained or to be maintained for the shares of the class or series issued in payment of the dividend.
The amended Act also provide that
The articles [of a Corporation] may provide that two or more classes of shares or two or more series within a class of shares may have the same rights, privileges, restrictions and conditions.
The latter amendment is quite helpful. Clients often need to have separate classes of common shares, but before the amendment it was thought necessary to distinguish the classes, if not through their voting rights, then through a small preference in the dividend or liquidation entitlements among the varous classes. Unfortunately, these preferences could give rise to other, unwanted tax consequences. For example, the shares could become taxable preferred shares, dividends on which could be subject to Part VI.1 tax, or shares that were not prescribed shares for the purposes of the capital gains exemption. Bill 152 seems to have removed this concern by permitting separate classes even though the rights and restrictions of the classes are identical.
