How do I confirm who owns the shares before buying a company?

In a share purchase you buy the seller’s shares, so the first question is whether the people signing actually own all of them. For a corporation under the Canada Business Corporations Act (CBCA), the Act requires the corporation to keep two registers that bear on ownership and gives security holders a right to certificates. This page covers federal corporations only.

The securities register and the certificates

Section 50 requires a CBCA corporation to keep a securities register of securities issued in registered form. For each class or series it must show the names, alphabetically arranged, and latest known address of each person who is or has been a security holder, the number of securities each holds, and the date and particulars of each issue and transfer. Section 49(1) entitles a security holder, at their option, to a security certificate or a non-transferable written acknowledgment of the right to obtain one.

The register of individuals with significant control

Section 21.1 requires a CBCA corporation to keep a register of individuals with significant control (ISC); under s.21.1(7) it does not apply to, among others, a reporting issuer or a corporation listed on a designated stock exchange. Corporations Canada describes an ISC by the share of voting shares or of shares by fair market value an individual owns, controls or directs, individually, jointly or in concert with one or more individuals, or by control in fact; its page sets out the exact test. Under s.21.1(2) the corporation must take reasonable steps, at least once during each financial year and at the other times that subsection sets, to ensure it has identified all individuals with significant control and that the register is accurate, complete and up-to-date; under s.21.1(3) it must record the required information within 15 days of becoming aware of it. Corporations Canada says some ISC information is public, and its search works by corporate name, corporation number or business number, not by an ISC’s name. The ISC register lists individuals with significant control, so do not treat it as a list of every shareholder.

Shareholder agreements and incomplete records

Section 20(1) requires a CBCA corporation to prepare and maintain records containing a copy of any unanimous shareholder agreement. If a register is missing or the records disagree, do not close on the seller’s word. Ask your lawyer how the records can be corrected and what ownership evidence the share purchase agreement should require. See also what to look for in the minute books and whether to worry when a seller cannot produce basic records.