Whenever shares are issued or transferred, you must do so in accordance with laws that restrict who can acquire shares in your company. By default, any company that offers its shares to shareholders is required to register with a securities regulator (like the Ontario Securities Commission) and provide prospective shareholders with a detailed prospectus, which is a comprehensive legal document about the company.
However, there are exceptions for small closely-held companies which makes it easier for them to distribute and manage shares. The most common exception is the "Private Issuer Exemption".
If your company is eligible, you can use Founded to issue and transfer shares under the Private Issuer Exemption.
Companies are eligible for the Private Issuer Exemption if they have fewer than 50 shareholders (including other security holders) and must have restrictions on the transfer of their shares. When you incorporate with Founded, your Articles of Incorporation are automatically generated with these restrictions (see Schedules "B" and "C" of your Articles of Incorporation).
But even if your company qualifies under the Private Issuer Exemption. There are still restrictions on who can receive the company's shares.
The specific list of people that can receive shares under the Private Issuer Exemption are the following:
- A director, officer, employee or control person of the Corporation
- A spouse, parent, grandparent, brother, sister or child of a director, senior officer or control person of the Corporation
- A close personal friend of a director, senior officer or control person of the Corporation
- A close business associate of a director, senior officer or control person of the Corporation
- An Accredited Investor (A high net-worth individual as is defined in National Instrument 45-106)
Keep in mind it's your responsibility to confirm that the individual receiving shares is eligible before they become a shareholder. For example, you may need to confirm that a prospective shareholder is an Accredited Investor before shares are issued or transferred to them. Companies that improperly offer their shares can face serious penalties under securities laws.