Investor Protection & Dual Class Share Structures

The recent initial public offerings (IPOs) of major players in the Canadian market, including Aritzia in September 2016, Freshii in January 2017 and Canada Goose in March 2017, have sparked debate about the use of dual class share structures and whether regulatory reform is necessary in order to ensure adequate investor protection.

Corporate Legislation of Dual Class Share Structures:

Pursuant to section 24(3) of the Canada Business Corporations Act (CBCA),[1] when a corporation has only one class of shares, the rights of the holders of those shares are equal in all respects and include the right to vote at any meeting of shareholders of the corporation; to receive any dividend declared by the corporation; and to receive the remaining property of the corporation on dissolution.

Section 24(4) of the CBCA allows for a corporation to have more than one class of shares (Dual Class Share Structure).  The CBCA requires that the rights, privileges, restrictions and conditions attaching to each class of shares be set out; and that the rights to vote, to receive any dividend declared, and to receive the remaining property of the corporation on dissolution be attached to at least one class of shares, but all such rights are not required to be attached to one class.

Although the use of a Dual Class Share Structure is allowed by the CBCA (as well as by provincial corporate legislation, including the Business Corporations Act (Ontario)), securities regulators have imposed some regulations regarding the use of such a structure. For example, the Toronto Stock Exchange (TSX) requires that companies issuing a class of shares with multiple votes have a coattail provision in order to ensure that all investors are treated equally in the case of a takeover[2], and the Securities Act (Ontario) mandates various initial and continuous disclosure requirements for securities issuers.[3]


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In today’s marketplace, most shareholder voting is done by way of proxy. Few shareholders choose to attend shareholder meetings in person. Under the current rules of the U.S. Securities and Exchange Commission (SEC), shareholders who attend meetings in person typically receive a universal ballot, which allows shareholders to choose from a complete list of all