Choosing Share Classes for Your Startup: Guidance from Falcon Law PC

When incorporating your startup, one important decision to make is determining the share classes that will be included in your articles of incorporation. Share classes define the rights and privileges associated with different types of shares. Falcon Law PC is here to provide expert legal guidance in selecting the appropriate share classes for your startup. Contact us at 1-877-892-7778 or info@falconlawyers.ca to discuss your specific needs and ensure that your articles of incorporation align with your business goals.

Understanding Share Classes

Share classes are different categories of shares that a company can issue, each with its own set of rights and privileges. The most common share classes for startups include:

  1. Common Shares: Common shares are the most basic type of shares and typically represent ownership in the company. Holders of common shares have voting rights and may receive dividends if declared by the company.
  2. Preferred Shares: Preferred shares have certain preferences and rights that are not available to common shareholders. These may include priority dividend payments, preferential treatment in the event of liquidation, and the ability to convert into common shares.
  3. Founder/Management Shares: Founder or management shares are typically issued to the founders and key individuals involved in the management of the company. These shares may have special rights and restrictions, such as enhanced voting power or restrictions on transferability.
  4. Non-Voting Shares: Non-voting shares, as the name suggests, do not carry voting rights. They are often used to provide economic benefits to shareholders without granting them control over company decisions.
  5. Class A, Class B, etc.: Additional share classes, such as Class A, Class B, or Class C, can be created to differentiate between different groups of shareholders. These classes may have distinct rights, such as different voting powers or dividend preferences.

Factors to Consider in Choosing Share Classes

Selecting the right share classes for your startup depends on several factors, including:

  1. Ownership Structure: Consider the ownership structure you want to establish. This includes determining the allocation of voting rights and the distribution of dividends among shareholders.
  2. Investor Requirements: If you plan to seek external funding, investors may have specific requirements regarding share classes. They may prefer preferred shares with certain rights or the ability to participate in future financing rounds.
  3. Founder Incentives: Founder or management shares can be used to incentivize key individuals by providing them with special rights or benefits. Consider the equity distribution and incentives you want to offer to attract and retain talent.
  4. Future Growth and Financing: Anticipate the future needs of your startup. Will you need to raise additional capital through future financing rounds? Different share classes can facilitate these processes, such as offering convertible preferred shares to potential investors.
  5. Flexibility and Scalability: Choose share classes that provide flexibility for future changes and growth. This may include the ability to issue new classes of shares or modify existing rights as the company evolves.

How Falcon Law PC Can Help

Falcon Law PC understands the intricacies of share class selection and the legal considerations involved in drafting articles of incorporation for startups. Here’s how we can assist you:

  1. Legal Expertise: Our experienced lawyers will provide expert guidance on selecting the most appropriate share classes based on your unique business objectives and circumstances.
  2. Drafting and Review: We will draft or review your articles of incorporation, ensuring that the share classes are accurately reflected and comply with legal requirements.
  3. Customized Solutions: Falcon Law PC takes a tailored approach, considering your specific needs, ownership structure, and future growth plans to develop a customized solution that aligns with your goals.
  4. Legal Compliance: Our team will ensure that your articles of incorporation comply with relevant laws and regulations, minimizing potential legal issues in the future.

Contact Falcon Law PC Today

Make informed decisions about share classes for your startup by seeking the guidance of Falcon Law PC. Contact us at 1-877-892-7778 or info@falconlawyers.ca to schedule a consultation and benefit from our expertise in startup incorporation and legal services.

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