Brian asked:

I have a new start-up company in which I am currently the sole shareholder.

I have worked for the past 18 months putting the company together. I am wondering if there are any strategies regarding allocation of shares to myself for these "past services," prior to offering shares to friends and bringing in more people to the company. I currently have 1,000 shares (all that has been issued). Should it be one million shares prior to seeking other investors?

James Piper answered:

This is not an easy question to answer. There are many issues involved and you will need professional help in putting a plan together to address your needs.

It is possible to restructure the shares of the company to fit your needs. You'll need a tax accountant to put a plan together and you'll need a lawyer to put the paperwork together.

You wrote "allocation of shares to myself for these "past services." " If you simply want to own a greater number of shares, then a share issue, stock dividend or stock split would probably be easier and result in better tax consequences.

"Should it be one million shares?" There is no magic number for the number of shares issued. It is simply a matter of circumstances.

Based on what I know, it is difficult to give any clear guidance.

Here are some questions to ponder:

• Does the company owe you money? Do you owe the company money (e.g. shareholder debt)?
• Are there retained earnings in the company?
• When was the company incorporated? What are the authorized shares per the articles of incorporation?
• What is the value of the company today?
• What was the value of the 1,000 shares when issued?
• What is the purpose of having outside investors? Are you giving up votes or seats on the board?
• When and how do the outside investors expect to see their funds returned? Through dividends?
• What will go into the shareholders" agreement?

As you can see, there are many points to be discussed. When you have had a chance to go over them, you may want to contact an accountant for advice.

About the author

James Piper is a member of the Institute of Chartered Accountants of Ontario (CA) and a member of the Society of Management Accountants of Ontario (CMA). He has been in public accounting since 1988 after obtaining his Honours Bachelor of Business Administration from Wilfrid Laurier University in Waterloo. In 1993 while working as a Tax Manager for a big six accounting firm, he completed the 2 year CICA In-Depth Income Tax Course, a comprehensive training program for income tax specialists. His clients are small businesses in the greater Toronto area. His firm is dedicated to providing the best service to his clients in the areas of accounting, tax and business and financial management.

 
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