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The Beneficial Ownership of Shares in a Corporation

Estates practitioners generally consider beneficial entitlements to arise from the existence of a Trust.  But section 1(1) of the Ontario Business Corporations Act defines "beneficial interest” or “beneficial ownership” as "includ[ing] ownership through a trustee, legal representative, agent or other intermediary."  Note that the definition does not exclude other means by which a beneficial interest can be established.

In Paragon Development Corp v. Sonka Properties Inc., a decision recently reported in the Ontario Reports, the Ontario Court of Appeal clearly pronounced that the definition above is to be liberally construed.  In short, beneficial ownership in shares is not limited to ownership through a trustee. Rather, the case law has adopted an expansive interpretation. 

The Court applied the 2008 decision of the Ontario Superior Court in Fedel v. Tan.  In that case, the Court held that "the evidentiary record establishe[d] a contractual obligation upon Mr. Tan to give effect to Mr. Fedel’s claim to a shareholding interest in GPI and BVI/WW. Mr. Fedel acted upon, and relied upon, the oral agreement that he was to have an ownership interest in GPI and BVI/WW. He provided both financial consideration and services in reliance upon the agreement. Mr. Tan is in breach of his contractual obligation."

The idea that beneficial entitlements flow from contractual obligations appears in other cases considered under the OBCA.  For instance,  in Abdalla v. Skalin, the plaintiff alleged that he was a beneficial shareholder because, based on a contractual agreement for the purchase of shares, he had a reasonable expectation of becoming a registered shareholder.

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