Unanimous shareholder agreements are very common in the case of small corporations that have only a few shareholder-members as they provide certainty in how the corporation will conduct its affairs. Shareholder agreements often form a critical element in the overall documentation of the business relationships between the incorporators and other persons (such as investors) participating in some capacity in the incorporation of a company. The difference between an orderly exit in the event of a business dispute and an expensive exit at a business dispute is a shareholder agreement. Unfortunately, we deal with a disproportionate amount of such matters.
Unanimous Shareholder Agreements
All Unanimous Shareholder Agreements are shareholder agreements but not all shareholder agreements are Unanimous Shareholder Agreements. A Unanimous Shareholder Agreement is an agreement which is signed by ALL of the shareholders. Conversely, shareholders agreements that are not signed by all shareholders are not an unanimous shareholder agreement. These are also sometimes called voting agreements. Interestingly, a corporation with only one shareholder can sign a unanimous shareholder declaration. Such a declaration is can be used to comply with obligations to a lender or a regulatory body.
Shareholder Agreement Templates
There are numerous shareholder agreement templates on the internet. A word of caution, one should refrain from using online shareholder agreement templates. These agreements are critically important to the business relationship; especially when it is likely that the business relationship will end in failure and the agreement will be used. Some issues with online shareholder agreement templates are:
- The online template is not appropriate for use in Ontario
- The online template does not differentiate between holding shares personally or through a corporation.
- The online template does not recognize the correct governing jurisdiction
- The online template is not set up for limiting the majority shareholders interests
- The online template is not set up for limiting the majority shareholders interests
- The online template is not set up for limiting the rights of minority shareholders interests
- The online template is not set up for limiting the majority shareholders interests
- The online template does not deal with critically important elements; such as exits
Shareholder Agreement
Have a lawyer prepare your shareholder agreement
$
1480+HST
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Up to 3 revisions included after negotiations. From our expierences, this resolves 95% of cases.*
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Unlimited questions or calls with an experienced lawyer
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We can provide the first draft or review a draft provided to you
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*In our experiences, 95% of negotiated shareholder agreements are resolved in three drafts. After three drafts, an updated quote will be provided. Based on the negotiations to that point, it should be evident if you are close to completing a deal or not.
What is a unanimous shareholder agreement?
The government acts that regulate your corporation also have a definition. These are provided below.
Section 108(2) of Ontario’s Business Corporations Act states:
“A written agreement among all the shareholders of a corporation or among all the shareholders and one or more persons who are not shareholders may restrict in whole or in part the powers of the directors to manage or supervise the management of the business and affairs of the corporation.”
Section 146(1) of the Canada Business Corporations Act states:
An otherwise lawful written agreement among all the shareholders of a corporation, or among all the shareholders and one or more persons who are not shareholders, that restricts, in whole or in part, the powers of the directors to manage, or supervise the management of, the business and affairs of the corporation is valid.
A shareholders agreement usually deals with the following subject matter:
- Procedural matters
- How and by whom the Corporation will be Managed
- Promises of the corporation
- How shareholders and the corporation will deal with current and future shares
- Provisions for the resolution of any future disputes between shareholders
- The location of the business in which the corporation is to engage
- The contributions that each shareholder is expected to make to the business
- Withdrawal from membership
- Buy-sell (shotgun or buyout) provisions
- Pre-emptive rights to acquire the shares of a departing member of the corporation
- Addition of new shareholders
- Restrictions on changing of the business of the corporation
- Provisions dealing with subscription for share capital and the provision of know-how or other intellectual property to the corporation by its incorporators; and
- Even such matters as the death, divorce, bankruptcy or retirement of one of the shareholders.
Why does one need an lawyer for a shareholder agreement?
A shareholder agreement is very similar to a prenuptial agreement but for a business setting. Im my opinion, individuals are unlikely to use an online service for a prenuptial agreement. A shareholder agreement can create a larger liability than a prenuptial agreement. For this reason, a lawyer should be used.
It is important to consult closely with each relevant shareholder interest, to ensure that the provisions of the agreement that is put into place are fully consistent with their aims and objectives. Shareholder Agreements are usually complicated. Since we focus on corporate law, Pawlina Law can assist you with drafting, negotiating and reviewing a Shareholder Agreement. Please do not hesitate to contact us.