Should My Spouse be a Shareholder of My Company?

You likely already share a home with your spouse, but should you share your business and make your spouse a shareholder, too? 

Deciding whether to have your spouse as a joint company owner is a complex decision that depends on various factors. You must consider the nature of your relationship, individual involvement in the business, shareholder structure and taxes.

What is a Shareholder?

Before we dive into the pros and cons of having your spouse as a shareholder of your business, let’s first define what a shareholder is. 

A shareholder, also known as a stockholder or equity holder, is an individual, company, or organization that owns shares in a corporation. Shareholders are the legal owners of a portion of the company and, as a result, have certain rights and entitlements. By owning shares, shareholders have a financial interest in the corporation and can participate in the profits and growth of the business.

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The Decision to Make Your Spouse a Shareholder

If your business goals and interests align with your spouse’s, having them as a joint owner can be beneficial. It allows you to work together closely, share responsibilities, and make important decisions together. Even if your spouse has different skill sets and expertise, these skills can add value to the business.

It’s still important to consider that mixing personal and professional dynamics can add complexity and strain. Having your spouse as a joint owner might limit your ability to pursue personal entrepreneurial ventures or investment opportunities. It can create dependencies and affect your individual decision-making abilities.

Have a plan in place for the worse. If you separate, untangling the business ownership can become complicated. It could lead to disputes over the division of assets and financial implications. Discuss and plan a succession plan if either of you decides to leave the business or in the event of unforeseen circumstances.

Ultimately, the decision depends on your specific circumstances, preferences, and mutual agreement. Communicating openly and honestly about expectations, roles, and responsibilities is essential. 

Seeking professional advice and having open conversations with your spouse will help you make an informed decision that aligns with your goals.

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How to Structure Your Spouse’s Shares

If you opt to include your spouse as a shareholder, here are different classes of shares you can issue your spouse:

1. Non-Voting Shares with Rights to Dividends

If you want your spouse to receive dividends but don’t need to give them control over company matters, you can issue them non-voting shares with rights to dividends. This allows them to receive a percentage of the profits without being involved in the business.

2. Voting and Non-Voting Shares Without Rights to Dividends

If you want your spouse to be an owner of the company but not receive dividends, you can issue a different class of shares that do not have dividend rights. This might be suitable if your spouse is employed elsewhere and it’s not beneficial for them to receive dividends due to the extra tax they’d pay.

3. Non-Voting Shares Without Rights to Dividends

If you want your spouse to be a shareholder but not receive dividends or have voting rights, issue them non-voting shares without the right to receive dividends. This is often set up so the company can seamlessly pass on to your spouse if you pass away.

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For different classes of shares, you’ll want to create shareholder agreements that outline the ownership structure. This agreement should be drafted with the help of a legal professional to ensure it abides by the laws and regulations in your jurisdiction.

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