Companies with, or considering, dual class share structures
("DCSs") should take note of the new
policy released by the Canadian Coalition for Good Governance
("CCGG"). Companies with DCSs generally
divide their capital into subordinated voting shares
("SVs") (one vote per share) and
multiple voting shares ("MVs") (many
votes per share). The holder or holders of MVs can control the
company while only holding a small portion of its equity. The CCGG
noted that there have been no material changes to the rules for
DCSs in 25 years.
Not all stock exchanges allow DCSs, but prominent companies that
have recently undertaken initial public offerings on the NYSE and
NASDAQ, including Google, LinkedIn and Facebook, have DCSs.
Alibaba, the large Chinese internet company, broke off discussions
with the Hong Kong Stock Exchange and approached the NYSE because
the former would not allow structures to preserve corporate
The CCGG notes that DCSs have arisen in Canada for various
reasons, including for founders to preserve corporate control, as
with Rogers Communications Inc. and Magna International Inc., and
to ensure compliance with rules limiting foreign ownership (for
example, in airlines). DCSs can exist for legitimate and
justifiable reasons, but can also be subject to abuse.
The CCGG's principles attempt to strike a balance. DCSs are
discouraged in general. Companies using DCSs in exceptional
circumstances will be expected to comply with the CCGG's
principles or explain in their public disclosure documents why they
have not done so. In addition, companies that already have DCSs are
encouraged to take the principles into account.
The following summarizes the CCGG's principles:
The number of directors nominated by a holder of MVs should be
limited. The maximum number of directors that a holder of MVs
should be entitled to nominate is the least of (i) two-thirds of
the board, (ii) the number obtained when the board size is
multiplied by the percentage of total voting rights held by the MV
Shares (rounded up to the nearest whole number), and (iii) if the
holders of MV Shares are related to management of the controlled
corporation, then one-third of the board. In addition, when
disclosing voting results, a DCS company should disclose separate
results for the holders of SVs and MVs.
Holders of MVs should be required to maintain a meaningful
equity stake. While a "meaningful equity ownership stake"
may vary between companies, the CCGG notes that a ratio of voting
rights of an MV to an SV of no more than four to one would
generally qualify (ensuring that a holder of MVs would need to hold
20% of the company's equity to maintain control).
Reporting issuers should not have non-voting common
DCS companies should have coattails, allowing all shareholders,
regardless of class, to participate in a change of control on equal
DCSs should be subject to a sunset date. The structure should
collapse at a time appropriate for the given company, with all MVs
automatically converting into SVs at such time on a one-for-one
Derivative transactions with respect to MVs should be
MV holders should not be entitled to a premium on collapse of
the DCS. The CCGG has been consistent on this principle since 2010,
when members of the CCGG opposed Magna's decision to pay an
1,800-per-cent premium to Frank Stronach, the company's
founder, upon the collapse of Magna's DCS.
While the CCGG's policies are not law, they are influential
and indicate best practices for public issuers. Public issuers with
DCSs, and those private issuers with DCSs considering a public
offering, should consider whether they comply with these principles
and, if not, how their disclosure will address any technical
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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