Share Certificate

The Ontario Business Corporations Act (OBCA) defines a security certificate as "a certificate evidencing a security". A share certificate is the version of that document for shares. It is issued after the directors pass a resolution issuing the shares and the subscriber pays for them. The shares exist because they were validly issued and recorded, not because a certificate was printed.

Section 56 of the OBCA sets the minimum contents. The face of each certificate must state:

• the name of the corporation;
• the words "Incorporated under the law of the Province of Ontario", "Subject to the Business Corporations Act (Ontario)" or words of like effect;
• the name of the person to whom it was issued; and
• the number and class of shares, and the designation of any class or series, that it represents.

Where the corporation can issue more than one class or series, the certificate must also either set out the rights, privileges, restrictions and conditions of each class or state that the corporation will provide the full text to a shareholder on demand and without charge. Under section 55, at least one director or officer (or a transfer agent or trustee) must sign, and the signature may be printed or mechanically reproduced.

Federal corporations follow the same pattern under section 49 of the Canada Business Corporations Act, which also entitles every security holder, at their option, to a certificate or a non-transferable written acknowledgment of the right to obtain one.

A legend is a statement printed on the certificate that warns anyone dealing with the shares about a limit on them. In a private corporation, legends do real legal work.

Transfer restrictions. The articles of a private corporation typically require board or shareholder consent before shares can be transferred. Under section 62 of Ontario's Securities Transfer Act, 2006, a transfer restriction imposed by the issuer is ineffective against a person without knowledge of it unless it is noted conspicuously on the certificate (or, for uncertificated shares, the registered owner was given notice of it).

Corporate liens. Section 66 of the same Act makes a corporation's lien on a certificated share valid against a purchaser only if the lien is noted conspicuously on the certificate.

Unanimous shareholder agreements. Anyone who acquires shares subject to a unanimous shareholder agreement is deemed a party to it. But if a purchaser for value had no notice of the agreement and the seller's certificate did not refer to it, OBCA section 108 gives the purchaser 60 days after receiving a complete copy to object and then either rescind the purchase or require the seller to pay the fair value of the shares. A reference to the agreement on the certificate closes off that right. Federal corporations face a blunter rule: section 49(8) of the CBCA makes a transfer restriction, corporate lien or unanimous shareholder agreement ineffective against a transferee without actual knowledge unless it is noted conspicuously on the certificate.

A typical private-company legend states that the shares are subject to transfer restrictions in the articles and to a unanimous shareholder agreement, and that the corporation will provide copies on request.

Section 141 of the OBCA requires every corporation to keep a securities register at its registered office or another place in Ontario designated by the directors. For each class or series, it lists in alphabetical order the persons who are, or within the last six years were, registered shareholders, with their addresses and the number and class of shares held, plus the date and particulars of each issue. A separate register of transfers records every transfer. Both sit in the corporate minute book.

The register, not the paper, drives day-to-day rights. Section 67 lets the corporation treat the registered holder as the person exclusively entitled to vote, receive notices and receive dividends. When a certificate and the register disagree, the corporation should correct the record deliberately with resolutions; where the dispute cannot be resolved that way, section 250 lets the corporation, a security holder or any aggrieved person apply to court to rectify the registers. A cap table is a useful summary for founders and investors, but it is not the legal register.

Uncertificated shares, which the directors can authorize by resolution unless the articles say otherwise, and certificates signed with electronic signatures are covered in our corporate minute books guide.

Transfers. On a sale, the seller endorses the back of the certificate or signs a separate share transfer power, the directors give any consent the articles require, and the corporation cancels the old certificate, issues a new one to the buyer and updates the register of transfers. In a share purchase agreement, delivery of the certificates duly endorsed for transfer is a standard closing deliverable, so missing or inconsistent certificates surface at the worst moment.

Lost, destroyed or stolen certificates. Section 92 of the Securities Transfer Act, 2006 requires the corporation to issue a replacement if the owner requests it before the corporation has notice that a protected purchaser has acquired the original, provides an indemnity bond sufficient in the corporation's judgment, and meets any other reasonable requirements. Section 93 adds a warning: an owner who does not notify the corporation within a reasonable time after learning of the loss cannot complain if the corporation registers a transfer of the original before receiving notice.

The usual process in a private corporation:

1. The shareholder notifies the corporation in writing as soon as the loss is discovered.
2. The shareholder signs a statutory declaration describing the loss and an indemnity in favour of the corporation, in a form the board accepts as sufficient.
3. The directors pass a resolution cancelling the lost certificate by number and issuing a replacement.
4. The register is updated to show the cancellation and the new certificate number.

Farid Haidari owns 40 of the 100 common shares of Kerrwood Optical Inc., a Mississauga lens-finishing lab; Ioana Popescu and Brandon Wu own 30 each. A buyer agrees to purchase all 100 shares for $3.2 million. In due diligence, the buyer's lawyer finds two problems: Farid's certificate C-2 was lost in an office move, and there is no directors' resolution behind the 30 shares the register shows were issued to Brandon in 2019.

Farid notifies the corporation, signs a statutory declaration of loss and an indemnity, and the board cancels C-2 and issues replacement certificate C-6. Because all three shareholders agree on who owns what, the fix for Brandon's shares is consensual: the directors pass a resolution confirming the 2019 issuance, all three sign an acknowledgment of the share ownership, and the register is reconciled to the minute book. Had anyone disputed the issuance, a court application to rectify the register might have been needed instead. Closing moves two weeks later than planned at the same price, and the buyer still asks for a specific indemnity from the sellers for any claim to the cancelled certificate.