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PUBLICLY TRADED SHARES VS. PRIVATELY HELD SHARES

Differentiating between share characteristics is critical to ascertaining a shareholders' interest in the particular company.

Shares can have a wide range of characteristics, which play an important role in determining their value and the rights that their owner can exercise with respect to his or her ownership of those particular shares. Among the many traits that can be found in corporate shares, the following are the more prevalent:

Publicly Traded Shares: shares traded on an established stock exchange, which provides liquidity for the shares that is derived from this public market.

Privately Held Shares: shares that are not traded to the public through a stock exchange, requiring private transactions (as dictated by the pertinent securities legislation and frequently unanimous shareholders agreement).

Common Shares: entitle the shareholder to participate in the profits of the company and exercise control via their assigned vote, while creating increased risk of loss as opposed to preferred or special shares.

Preferred/Special Shares: entitles the shareholder to priority with respect to their participation in the company's profit, while forgoing to vote or otherwise control the company.

Shares (equities or securities) provide individual investors with part ownership in a corporation through their acquisition of 'a share' of the corporation. Corporations issue shares to raise money and investors buy shares because they believe the corporation will do well and they want to 'share' in that business success.

Corporations do not have to be quoted on the stock market to issue shares. To be on a publicly traded stock market, a corporation must have achieved the pre-determined financial targets. As such, most corporations begin their existence as privately held companies, wherein their investor base is quite narrow - hence privately held. Investors at this stage can take the form of friends, family or benefactors, or certain individuals who perceive the long-term potential in the company's business (i.e., venture capitalists). Since there is no public market for these shares, any exit strategy will be reliant upon the corporation and the other shareholders acquiring or reacquiring outstanding shares (If required by operation of a shareholders agreement).

When the corporation seeks to raise money more widely, it can apply to become publicly listed on a stock exchange, such as the Toronto Stock Exchange. Once it has gone through the approval process, the corporation proceeds through a public office and its shares become entitled to be traded on the exchange, such that shares can be bought by individual investors and large investing institutions, such as pension funds and insurance companies. Corporations have to satisfy specific legal and financial criteria before their shares can be listed with the stock exchange and their stocks become quoted on a daily basis.

For knowledgeable and experienced legal representation in advancing your prospective or current shareholdings, while protecting your position as a shareholder, contact us at Chris@NeufeldLegal.com or as follows:

Calgary, Alberta: 403-400-4092 (admission: Alberta Law Society)

Toronto, Ontario: 416-887-9702 (admission: Law Society of Upper Canada)

New York City: 646-681-4491 (admissions: New York State Bar, Southern and Eastern Districts of New York - United States District Court)

 

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