Overview
You have built a successful company, and now you want to bring in a new investor or partner for a percentage of the business.
For most founders, the immediate assumption is that they need to sell a portion of their own shares to make room. But doing so triggers a "secondary sale", meaning the money goes into your personal pocket, and the CRA will be waiting to collect capital gains tax on that transaction.
If the goal is to put money into the business to fund growth, selling your own shares is often the most tax-inefficient way to do it. The smarter route is a primary issuance, having the company issue brand new shares directly to the investor. The money goes straight into the corporate treasury, and no personal tax is triggered for the founder.
But this creates a new problem: Dilution.
When the company issues new shares, the total number of shares increases, shrinking the ownership percentage of everyone already on the cap table. If you have early backers, family members, or co-founders who were promised a fixed percentage of the company, a standard primary issuance breaks that promise.
The Solution: Percentage-Based Anti-Dilution In British Columbia, corporate structures are highly flexible. Instead of selling your personal shares to protect an early investor’s percentage, you can utilize a specific legal mechanism: Percentage-Based Anti-Dilution (or the "Top-Up").
By structuring your corporate Articles and Shareholders' Agreement correctly, you can create a special class of shares for protected investors.
Here is how it works in practice:
The Raise: The company issues new shares from the treasury to the new investor. The capital goes into the company, tax-free to the founder.
The Trigger: This new issuance automatically triggers an anti-dilution clause for your protected early investors.
The Top-Up: The company immediately issues "bonus" shares to the protected investors for a nominal fee (or $0), topping them up so their ownership percentage remains exactly where it was.
In this scenario, the company gets the cash, the early investors keep their guaranteed slice of the pie, and the founder absorbs the dilution to grow the business without taking a personal tax hit.
Why Isn't Everyone Doing This? While the legal and tax strategy is sound, the execution is usually a headache.
Running an anti-dilution model requires complex, recursive cap table math. Every time a new share is issued, the company has to calculate the exact fractional top-up required for protected shareholders, draft the directors' resolutions, update the Central Securities Register, and issue multiple new share certificates.
Historically, this meant paying a corporate lawyer by the hour to manually calculate and draft the paperwork for every single transaction.
The Sinclair Centre Law Advantage We believe that high-level corporate strategies shouldn't be gated behind administrative friction.
When you structure your company with Sinclair Centre Law, you gain access to our exclusive Client Corporate Portal. We have built a proprietary, automated cap table engine designed specifically for BC corporations.
Instead of paying hourly fees for manual updates, our system handles the heavy lifting. If your company operates with an anti-dilution structure, our portal manages it automatically:
Automated Math: Enter the new shares you want to issue, and the system instantly calculates the required top-up shares for any protected investors.
Instant Documentation: With one click, the system updates your Allotments and Shareholders registers and generates formal, legally compliant BC share certificates for both the new investor and the top-up recipients.
Clean Cap Table: You maintain full visibility over who owns what, without the spreadsheet errors.
You can execute complex capital raises and protect your early investors cleanly, accurately, and without triggering unnecessary personal taxes.
Ready to structure your next raise? Contact us to discuss your corporate strategy and get access to our digital corporate tools.