A Share Split is a simple way for a company to increase the number of shares in circulation without changing the proportion owned by each shareholder. Below is a description of Share Splits and how one could be helpful for your business.
When initially incorporating a company, it's common for the shareholders to each take a small number of shares. This keeps things simple at the start. But as the business grows, the shareholders often want a larger number of shares so they can manage ownership in smaller increments. A Share Split, which splits the existing shares into multiple shares, is a simple way of accomplishing this.
Here's an example: Two founders of a company each take 50 shares at the time of incorporation for a total of 100 shares. A few months later, the founders have hired their first few employees and want to set up an Employee Stock Option Plan (ESOP), so they can award shares to employees over time. But a single share is worth 1% of the company when there's only 100 shares in circulation. If the founders want to award in smaller increments they'll need to get more shares or they'll have to offer fractional shares to their employees (which opens up all kinds of complications).
Through a Share Split, the founders can decide to split each of their 50 existing shares in 1,000 shares. This would mean they now each hold 50,000 shares, rather than 50 shares, and there are a total of 100,000 in circulation. Now they have much more flexibility when awarding shares to employees in small increments.
Keep in mind that a Share Split is different from issuing new shares. A Share Split just divides the existing shares into smaller pieces. Issuing new shares requires the shareholders (whether they're founders, employees or investors) to actually purchase the shares from the company. Issuing shares is an important step in growing the company, but a Share Split is often completed first as a simple way to increase the number of shares held by the founders.
How to Perform a Share Split on Founded
You can complete a Share Split easily from your Founded account when you're on the Managed Corporation Plan. There are two different ways to perform a Share Split depending on your jurisdiction of incorporation. For federally incorporated companies, you will need to perform an amendment to the Articles of Incorporation. From your corporate dashboard, navigate to Share Classes under the Shares tab, and click the button that says "Change Share Classes." The will begin the Amendment process.
Proceed to the Share Classes and Restrictions section of the Amendment helper and enable this amendment type by clicking the switch at the top right of the window. While active, you can click the "Split Shares" button and simply enter a value for how many times your shares will be split.
For companies incorporated under the Alberta or British Columbian provincial government, the process is a little easier as it does not require amendments to be performed on your Articles of Incorporation. Once again, go to Share Classes under the Shares tab. Here, you will see a button prompting you to split your shares. Simply click this button and enter the value for how many times you wish your existing shares to be split.