Shares need not be immediately issuable
35. One of the requirements that must be met for section 85 to apply to a transfer of property to a corporation is that the transferor receives consideration that includes at least one share of the capital stock of the corporation. It is the practice of the CCRA to accept an election under subsection 85(1) where the shares to be issued as consideration for the transferred property have not been legally authorized under the articles of the corporation at the time of the transfer provided that all of the following conditions are satisfied:
(a) there is an agreement between the transferor and the transferee which requires, among other things, that the transferee issue the required shares;
(b) the transferee immediately carries out the necessary steps to authorize the issuance of the shares, that is it files supplementary letters patent or articles of amendment, as the case may be;
(c) once the necessary amendments to the corporation's constituting documents are made, the transferee corporation issues the shares without delay.
If for any reason the transferee corporation does not obtain, under the applicable corporate legislation, the necessary authorization for the issuance of the shares, the election under subsection 85(1) will be considered to be invalid.
