The fallacy of the fully paid share

Often I will review agreements where clients are making representations that shares are fully paid upon their issuance. This practice has developed from US law and migrated north of the border over time, but the basis for it as a concern here is rather limited, even putting it charitably. Under Canadian law, shares cannot be issued at all unless fully paid. You may want a representation that the shares have been validly issued, but once you have that, asking for one saying they are fully paid does not actually get you any further. They can’t be the former without the latter. This does, however, raise a question of what a fully paid share should look like, not in terms of the appearance of the certificate, but when you can count a share as fully paid so that it can be issued and you can close your transaction. Let’s take a look at the three most common ways to pay for shares: Certified cheques: Certified cheques are cheques that, historically at least, included…

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