31 January 2000 External T.I. 1999-0010955 - MEANING OF FULL VOTING RIGHTS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether a class of shares will be considered as having full voting rights under all circumstances where the ability to elect members to the board of directors is split between two classes of shares.

Position: No.

Reasons: The circumstance, in this case being the ability to participate fully in the election of the board of directors is being limited.

XXXXXXXXXX 		1999-001095

Attention: XXXXXXXXXX

January 31, 2000

Dear Sir:

Re: Meaning of Expression "Full Voting Rights Under All Circumstances"

This is in reply to your letter of February 5, 1999, wherein you requested our views under the Income Tax Act (the "Act") in the following situation.

In your letter you describe a situation where a corporation has issued two classes of common shares, one class being non-voting, except as described below, the other class being voting. The non-voting common shares give the holders the right to elect a specified number of directors to the company's board. This is accomplished by holding a separate meeting for the non-voting shareholders whereby they are entitled to vote for candidates to fill the specified number of director positions so allotted under the articles. The holders of the voting common shares have the right to elect the remaining number of directors that, in the example you provided, represents a majority of the board of directors. You ask whether the voting common shares, for the purpose of subsection 186(2) and subparagraph 186(4)(b)(i) of the Act, have "full voting rights under all circumstances".

Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R3 (IC-70-6R3) dated December 30, 1996. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's views must be made to your local Tax Services Office. Although we are not able to comment specifically on the situation described in your letter we can offer the following comments.

It is our view that the voting common shares would not have "full voting rights under all circumstances" for the purpose of subsection 186(2) and subparagraph 186(4)(b)(i) of the Act. The ability or right of the holders of a particular class of shares to participate in the election of the board of directors is but one circumstance or condition under which such holders must have the full or complete right to vote for each open position. Where the right to participate in the election of the board of directors is divided into two or more separate and distinct processes whereby the holders of one class of shares cannot participate in the election process of the other class, as described above, such division, in our view, places a limitation or restriction on the voting rights of all holders such that neither class of shares would have full voting rights under all circumstances.

Our comments are provided in accordance with the practice outlined in paragraph 22 of IC-70-6R3.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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