Navigating minor’s share ownership in OBCA corporations: Exceptions, risks, and mitigation strategies

The Ontario Business Corporations Act (OBCA) serves as the regulatory backbone for the establishment and operation of corporations in Ontario. However, can a minor hold shares in an OBCA corporation? What if a parent wants to pass on shares to their child? And if so, what risks come with this possibility? This blog post will discuss the legal considerations one needs to take with potential risks associated with minors holding shares as well as provide strategies to mitigate these risks.

The fundamentals of share ownership

Before exploring the possibility of minors holding shares in OBCA corporations, it is important to gain an understanding of how share ownership works. Simply put, shares represent an ownership interest in the corporation. They are property, much like a car or a house. Any “person” can hold shares in a corporation. Under the OBCA, “person”, does not exclude minors.

In a corporation, shares represent ownership interests, giving shareholders specific rights and responsibilities, such as voting, receiving dividends, and participating in decision-making processes. Shares not only give financial privileges but also represent a form of participation and control within the corporate structure. For minors, this becomes a critical consideration.

Minors and contractual capacity

Contractual capacity is essential in understanding the rights of minors concerning OBCA corporations. In Ontario, minors are generally recognized as lacking complete capacity to enter binding contracts as a protective measure to prevent them from making decisions beyond their full comprehension.

However, exceptions exist, and when it comes to share ownership, minors benefit from this exception. Unlike traditional contractual agreements, the ownership of shares is more aligned with property law principles. Shares, being a form of property, allow minors to hold an ownership interest, even if they lack the capacity for most contractual transactions.

Understanding how contractual capacity and share ownership apply to minors is important to figure out how minors can own shares in a company while making sure they’re legally protected. Finding the right balance means considering how minors’ abilities change as they grow and understanding the unique aspects of owning shares in the legal system.

Giving your minor child shares

But what if you want to give your child shares? Is this any different? In Ontario, the question of whether parents can legally gift shares to their minor children is a nuanced one. While the act of gifting shares is generally accepted, the details lie in the management and control of these shares on behalf of minors.

To legally gift shares to a minor child in Ontario, it is common that parents often establish a trust structure, such as a family trust or a testamentary trust. These trusts allow parents to transfer shares to the trust, with themselves as trustees and the minor child as the beneficiary. This arrangement ensures that the parents retain control over the shares until the child reaches the age of majority.

Potential risks associated with minors holding shares

1. Limited control: When it comes to minors holding shares in a company, they might not have a lot of say or power in making important decisions. This is because the rules of the company, called corporate bylaws, and agreements among shareholders, can limit the control and voting rights that minors have. Generally, share ownership alone may not automatically grant voting rights to minors. The corporation’s governing documents, such as the bylaws and any shareholder agreements, typically dictate the rules for voting and participation in corporate decision-making.
2. Legal guardianship: In certain situations where the company needs to make important decisions or take specific actions, having someone legally responsible (a legal guardian) for the minor may be needed. This legal guardianship ensures that important choices involving the minor align with what is best for them. It is an added layer of protection to make sure the minor’s well-being and rights are safeguarded when the company needs to make significant moves.
3. Repudiation: If a minor buys shares in a company, they can’t change their mind and reverse those decisions if it would harm the company¹. This rule is there to make sure that when minors make choices about owning shares, those choices are serious and have a lasting impact. It’s a way of emphasizing the importance of being responsible and committed when making financial decisions in the business world.

Mitigation strategies

1. Consult with legal counsel: When you’re thinking about having a minor involved in a company regulated by the OBCA, it’s crucial to get detailed advice from legal counsel. Legal guidance helps you navigate the rules and requirements to ensure everything is done the right way. It’s important to follow the laws and regulations to make sure the minor’s involvement in the OBCA corporation is legally sound and meets all the necessary standards.
2. Detailed shareholder agreements: Creating clear and detailed agreements among shareholders is essential, especially when minors are involved in a company. Shareholder agreements should spell out exactly what rights and responsibilities the minor shareholders have and any limits on what they can do. This helps prevent misunderstandings and sets the expectations straight for everyone involved in the company. By being explicit about the roles and limitations, it ensures the minors and the other shareholders in the corporation are both in complete understanding. One example of this could be to have the minor re-sign the shareholder agreement upon turning 18 years old. This would allow the minor to obtain autonomy and control when they eventually get to the age of majority by completing a share transfer. However, this could be dependent on a company’s bylaws and articles of incorporation.  
3. Appoint a trustee or guardian: Assigning a responsible adult as a trustee or guardian for a minor’s shares is like appointing a guide to help them navigate through important decisions and financial matters. This designated adult takes on the role of making critical decisions and managing the financial aspects related to the minor’s share ownership. This not only adds an extra layer of protection for the minor but also ensures that someone with experience and wisdom is overseeing their interests.

Navigate corporate law intricacies with legal advice

In Ontario, a minor can typically hold shares in an OBCA corporation due to the unique nature of shares as property rather than contractual agreements. However, the associated rights and responsibilities may be subject to specific conditions or limitations. Whether you are considering involving a minor in your OBCA corporation, a parent looking to gift shares to your child, or a minor looking to invest in shares, seeking legal advice is crucial to navigating corporate law intricacies.

If you have questions about the information contained within this article or any other business law questions, please reach out to a member of the Siskinds Business Law Group.

¹ Business Corporations Act, R.S.O. 1990, c. B.16, section 67(5)