MIC Share Structure: Preferred, Common and Multiple Classes

An investor reading a mortgage investment corporation’s offering memorandum will usually find more than one kind of share: common shares, perhaps preferred shares, and classes with letters or series names attached. The differences between them decide how income is shared, who controls the MIC, how and when money can be withdrawn, and who absorbs losses first. Understanding MIC shares starts with what a share is and what it is not.

This guide explains MIC share structure: what MIC shares are, how classes differ, what “preferred” does and does not mean, how the pari passu condition in the Income Tax Act shapes the classes, and what to read before choosing one. This is general education, not investment, tax or legal advice.

What are MIC shares?

MIC shares are equity in a mortgage investment corporation, not loans to it. The money paid for them is pooled and lent on mortgages, and the shareholder’s return is the dividends the MIC pays out of its income.

Three features follow from being equity. Shares have no maturity date; the investor gets capital back only by redemption under the MIC’s terms or on a wind-up. Their value depends on the portfolio, so loan losses that exceed income can reduce it. And shareholders rank behind every creditor, including any bank that has lent to the MIC. For a private MIC, the issue and redemption price per share is set out in the offering memorandum (OM), along with how losses would affect it.

Why share structure matters to an investor

The class an investor holds decides five things: how much of the MIC’s income reaches them, where they rank against other shareholders, whether they vote, how they can redeem, and which fees apply to them. Two investors in the same MIC, in different classes, can have different results from the same portfolio.

What is the difference between MIC share classes?

The difference between MIC share classes is whatever the MIC’s articles say it is. Labels such as Class A, Class B or Series F are not standard across the industry, so the same letter can mean different things in two MICs.

Classes commonly differ in voting rights, any preferred dividend entitlement, redemption notice periods and early-redemption fees, the dealer compensation or management fee built into the class, the minimum subscription, and who may buy (for example, a class for fee-based dealer accounts). The table shows a common pattern; any MIC can differ.

MIC preferred shares and the pari passu condition

MIC preferred shares carry a priority set by the articles, usually to a stated dividend before common shareholders are paid and sometimes to a return of capital on a wind-up. That priority is over common shares only. It does not make the shares a debt, does not rank them ahead of any creditor, and does not protect them from loan losses.

The Income Tax Act limits how far a preference can go. Paragraph 130.1(6)(e), summarised, requires that preferred shareholders, after receiving their preferred dividends, participate pari passu, on an equal footing, with common shareholders in further dividends. A MIC whose share terms broke that condition would not qualify as a MIC; the condition sits alongside the others in the nine conditions a MIC must meet. Read the statute on the Justice Laws Website for the exact sequence of payments it describes.

Whether a missed preferred dividend accumulates for later payment (cumulative) or is lost (non-cumulative) depends on the articles.

Worked example (illustrative)

Assume a MIC with 1,000,000 preferred shares and 100,000 common shares, each issued at $10, for $11,000,000 of capital, all lent out. The preferred shares carry a preferred dividend of $0.60 a share. All figures are illustrative.

1. Gross income: assume 12% on $11,000,000 = $1,320,000.
2. Fees and costs: management fee 1.5% of $11,000,000 = $165,000, plus operating costs of $55,000. Net income: $1,320,000 − $165,000 − $55,000 = $1,100,000.
3. Preferred dividend: $0.60 × 1,000,000 = $600,000.
4. Like amount to common: $0.60 × 100,000 = $60,000.
5. Remainder shared pari passu: $1,100,000 − $600,000 − $60,000 = $440,000, over 1,100,000 shares = $0.40 a share.
6. Total: $1.00 a share for both classes, 10% on the $10 issue price.
7. One investor: 5,000 preferred shares ($50,000) receive $5,000. Taxed as interest at an assumed 40% marginal rate outside a registered plan, tax is $2,000 and after-tax income $3,000, or 6.0%. Tax content is as at October 2026; confirm your position with a Canadian tax professional.

In a weak year with net income of $440,000, the preferred entitlement of $600,000 cannot be met: preferred shareholders could receive at most $0.44 a share and common shareholders nothing. The preference decided who was paid first; it did not create income. If the classes had been issued at different prices, equal amounts per share would produce different percentage yields, which is one more reason to read the terms rather than the label.

Mortgage investments are not guaranteed. Returns are targets, not promises, and principal can be lost. A class offering a higher distribution is not lower-risk for it: higher return, higher risk.

How redemption rights differ by class

Redemption is how a MIC shareholder gets capital back, and the terms often differ by class. The articles and OM set the notice period, any limit on redemptions per period, any fee for redeeming early, the price, and the board’s right to defer or suspend redemptions. Private MIC shares have no secondary market, so these terms are the investor’s main exit.

At Lendmax Capital MIC, for example, redemption is governed by the articles and the OM, with notice periods and the board’s right to defer or suspend, and distributions are paid quarterly in cash or reinvested through a dividend reinvestment plan. The general mechanics, including what happens when many shareholders ask at once, are in liquidity and redemption.

The 25% shareholding limit applies class by class

Paragraph 130.1(6)(d) bars any shareholder, together with related persons, from holding more than 25% of the issued shares of any class. Because it is tested class by class, a small class reaches the limit quickly, and a MIC may cap subscriptions to a class for that reason.

What to read before choosing a MIC share class

• Rights of each class — the articles of the MIC, summarised in the OM’s description of the securities offered.
• Fees and dealer compensation by class — the OM.
• Redemption terms by class — the OM and the articles.
• Classes outstanding and redemptions during the year — the share capital note in the audited financial statements; see reading a MIC’s financial statements.
• Reinvestment terms — the dividend reinvestment plan.
• Your subscription limit — the subscription agreement.

Common mistakes with MIC share classes

• Treating “preferred” as protected. Preferred MIC shares rank ahead of common shares, not creditors, and still share in losses.
• Comparing classes on headline yield alone. Fees and redemption terms differ by class.
• Assuming a class letter means the same thing in every MIC.
• Overlooking voting. Investor classes are often non-voting.
• Assuming redemption at the issue price on request. The articles set the price, timing and limits.

What this means for a mortgage investor

MIC shares are equity whose rights are set class by class in the articles, and the pari passu condition limits how far a preferred class can be favoured. A preferred class decides who is paid first, not whether there is income to pay. The class sits inside the investment structure, one of the seven axes on which every mortgage investment varies, alongside the borrower, the property, the loan-to-value, the security position, the term and the jurisdiction.