In Ontario, many dentists operate their practices through a Dentistry Professional Corporation (DPC)—a strategic choice that can unlock significant financial, legal, and operational advantages. However, setting up a DPC with the right share structure is crucial to fully realizing these benefits. This blog post will walk you through what a share is and how they are authorized, issued, and organized within your DPC. We will also share practical insights into setting up an effective share structure tailored to dentists’ unique needs.
If you’re new to the reasons for incorporating a DPC, check out our blog post on why dentists should consider incorporation for foundational insights.
What Are Shares?
Think of shares as pieces of a larger pie—each representing a portion of your corporation’s ownership. While the assets of the business are owned by the corporation, the shares are owned by shareholders. When shares are issued to shareholders, the corporation divides its ownership so that each shareholder holds a piece of the assets and is entitled to certain rights. These rights could include the right to vote, receive a dividend or receive a specific portion of the assets upon the DPC’s dissolution.
Shares can generally be transferred by the shareholder to someone else, though some shares may be restricted by their specific share conditions, articles of incorporation or a shareholder agreement.
Authorizing Shares: Articles of Incorporation
When setting up a DPC in Ontario, the Articles of Incorporation detail essential information such as the DPC’s name, initial registered address, and initial director. Most importantly, they outline the share structure – the types and number of shares your DPC can issue, as well as the specific rights and restrictions that come with them. Key share conditions often include:
- Voting Rights: Whether shareholders have the right to vote on key decisions.
- Dividend Management: How profits are paid out to shareholders.
- Redemption Rights: Whether the corporation can buy back shares under specific conditions.
- Number of Shares: The number of shares of each class or series that can be issued.
- Distribution on Dissolution: How the DPC’s assets are allocated if dissolved.
Types and Classes of Shares
Under the Ontario Business Corporations Act (the OBCA), there are no requirements on the number, type, or conditions shares of a DPC must have. Shares can be divided into separate classes with different rights, privileges, and restrictions assigned to each of them. However, if there is only one share class authorized within the DPC’s Articles, those shares must contain some minimum conditions:
- the right to receive dividends (if any are declared)
- the right to vote
- the right to receive any remaining assets of the corporation if it is dissolved
If there are multiple share classes, each of the rights above must be assigned to at least one class. However, no singular class is required to have all three.
DPCs often use a combination of multiple share classes with different provisions assigned to each of them. In Ontario, only registered dentists can have voting rights within a DPC, so creating additional share classes without voting rights allows for non-dentists to be shareholders as well. It is also possible to limit the total number of shares for each class. However, a typical DPC will authorize the issuance of an unlimited number of shares within each class for maximum flexibility.
If you wish to add or change share characteristics, you can do so by filing Articles of Amendment. However, it is essential to note that this comes with added costs and administrative work, so it’s often best to set up your DPC upon incorporation in a non-restrictive manner with a range of types and classes of shares to avoid the need for amendments.
Sample DPC Share Structure
To help you visualize how shares can be structured, let’s look at an example: ABC Dentistry Professional Corporation. This hypothetical case highlights how different share classes can be tailored to fit both operational needs and personal financial considerations.
Authorized Shares: When incorporating ABC Dentistry Professional Corporation, the Articles of Incorporation authorize the following classes of shares:
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- An unlimited number of Class A Common Shares
- An unlimited number of Class B Common Shares
- An unlimited number of Class A Special Shares
- An unlimited number of Class B Special Shares
Issued Shares: Although an unlimited number of each share class is authorized, ABC Dentistry Professional Corporation initially issues the following:
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- 100 Class A Common Shares issued to Dr. ABC
- 100 Class A Special Shares to Dr. ABC’s Spouse
- 100 Class B Special Shares to ABC’s Parent
Shareholder Rights: Each class of issued shares comes with the following rights, privileges and restrictions:
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- Class A Common (Dr. ABC)
- right to vote on key decisions
- ability to receive dividends
right to assets on dissolution, if any remain, after the special shareholders
- Class A Special (ABC Spouse)
- no voting rights
- ability to receive dividends
- the right to assets on dissolution, if any remain, before Common shareholders
- the DPC may redeem shares under specified conditions
- Class B Special (ABC Parent)
- no voting rights
- the right to assets on dissolution, if any remain, before Common shareholders
- the DPC may redeem shares under specified conditions
- Class A Common (Dr. ABC)
In this example, ABC Dentistry Professional Corporation has a simple share structure of four classes. As the only dentist, Dr. ABC holds Common shares with voting rights and actively makes the decisions for the DPC. ABC Spouse and ABC Parent hold Special shares, which allows them to own part of the DPC but not have a role in decision-making. Lastly, the authorization of unlimited shares across the share classes allows for flexibility in the future, including issuing new shares.
Issuance of Shares
Once the Articles are filed and your share structure is set, it’s time to issue shares to the chosen shareholders. This step formally establishes ownership of the DPC. While OBCA regulations only require that at least one shareholder has voting rights, the timing and process for issuing additional shares can be customized to suit your business needs. Shares can be issued immediately upon incorporation or at any later date.
When issuing shares, the DPC must maintain proper records documenting who received them, how many were issued, and which class they belong to. These records are contained in the DPC’s minute book, a book of corporate records that establishes a corporation’s history and activities. To learn more about minute books, check out our blog post here.
The corporate records relating to share issuance will include organizational resolutions authorizing the issuance of shares, a Share Register listing all shareholders of the DPC and a Share Ledger noting any share transfers over the DPC’s history. The DPC will also provide shareholders with share certificates as proof of ownership.
The Importance of a Good Share Structure
Setting up a DPC is not simple. Many considerations are involved, such as how shares are issued, who will be the shareholders, how many shares to issue, and which types of shares to choose. Establishing a well-thought-out share structure can unlock significant benefits while you are practicing and when you sell your dental practice. For example, if you choose to sell your practice through a share purchase, a good share structure can make a big difference in terms of tax treatment and overall financial outcome.
Professional advisors will often recommend setting up multiple share classes for the dentist and eligible family members. This approach allows flexibility in paying dividends and can increase your eligibility for the Lifetime Capital Gains Exemption (LCGE). It also positions you well for any pre-sale corporate reorganizations that might be necessary down the road.
Bottom Line
As a dentist, incorporating and practicing through a DPC with a carefully designed share structure can unlock significant benefits, from tax savings to operational flexibility. And though this might seem overwhelming, DMC specializes in working with dentists and has extensive experience helping them establish their DPCs. Contact us today to set up your new DPC or evaluate your current share structure. At DMC, we help you navigate the complexities of business ownership by making the complex decisions simple so you can focus on growing your practice.
Finally, remember that owning a DPC comes with regular maintenance responsibilities. It is imperative to keep your minute book up-to-date, not just when shares are issued or changed but on an annual basis, to maintain your DPC properly. Check out our Corporate Maintenance Membership to learn how to stay organized and compliant with your corporate responsibilities easily.
