How do I add a cofounder to my corporation?

Issue new shares, or transfer existing ones?

	Company issues new shares	Existing founder transfers shares
Who gives up ownership	Everyone, proportionally	Only the transferring founder
Approval	Directors’ resolution	Usually directors’ approval under transfer restrictions
Money goes to	The company	The transferring founder
Tax questions	Value of shares received for services or below value	Disposition by the transferor, plus value received by the new founder

New shares are more common, because the dilution is shared and the paperwork is simpler.

What price should the new cofounder pay?

That’s the hard part. Section 25 of the CBCA, and section 23 of Ontario’s Business Corporations Act, require shares to be fully paid in money, property or past services before they’re issued. At incorporation, founders pay a nominal amount. Once the company has customers, a product or investment, the shares are worth more, and receiving them for less can be a taxable benefit, especially if the cofounder is also an employee under section 7 of the Income Tax Act.

Options to discuss with an accountant include paying fair value, granting options instead, or issuing a different class of shares. Get tax advice before the shares are issued, not after.

Which securities exemption applies?

A founder, director, officer or employee can usually receive shares under the private issuer exemption in section 73.4 of Ontario’s Securities Act, provided the company still qualifies. Employees, executive officers and directors can also rely on the exemption in section 2.24 of National Instrument 45-106, if their participation is voluntary.

What paperwork is needed?

1. Agree the deal in writing: number of shares, price, role, time commitment and vesting. See how should cofounders split equity?
2. Subscription agreement (new shares) or share transfer agreement.
3. Directors’ resolution approving the issuance or transfer.
4. Vesting terms on the new cofounder’s shares. See founder vesting.
5. IP assignment. Under section 13 of the Copyright Act, work they’ve already done for the company may still be theirs until assigned in writing.
6. Shareholder agreement: a joinder to the existing one, or a new one. See do I need a shareholder agreement?
7. Registers: the securities register, cap table and, if they’ll hold 25% or more, the significant control register.
8. Board seat, if agreed, elected by shareholders, with a notice of change filed within 15 days.

What if they’ve been working without shares already?

Paper it now. A cofounder who has worked for months on a handshake may have an equity claim and may own the code they wrote. A short agreement confirming the equity, the vesting start date (often backdated to when they started) and an IP assignment protects both of you.

What about existing investors?

Check your SAFEs, side letters and shareholder agreement. Some require investor consent for new share issuances, or give investors pro rata rights.

Our founder vesting and IP assignment work starts at $920 and a shareholder agreement at $1,320. See fees.

This guide is general information about Ontario and Canadian law, not legal or tax advice for your situation. To bring on a new cofounder, book a free 15-minute consult.