Shareholders’ agreements, also known as “unanimous shareholders’ agreements”, are tools for shareholders of private corporations to govern different aspects of the management of their businesses. These agreements are commonly used by the owners of small and medium-sized companies, as they provide steady ground upon which to build successful businesses.
Beyond the mandatory governance requirements prescribed by the Ontario Business Corporations Act (for provincially-incorporated corporations) or the Canada Business Corporations Act (for federally-incorporated corporations), the shareholders of private corporations have ample margin to determine among themselves:
- how to limit the powers of the directors or managers who are not shareholders;
- how dividends are declared and distributed;
- what happens to a shareholder’s shares in case of their death or disability;
- how shares are voted in certain circumstances;
- what decisions must be taken with the consent of all, or an enhanced majority, of the shareholders;
- how shares are to be transferred among shareholders, or to third parties;
- if, and under which conditions, a shareholder may buy out one of their business partners;
- how to insulate the business from the effects of the divorce of one of the shareholders;
- what happens when a shareholder wishes to exit the business;
- how to resolve disputes that may arise among shareholders; and
- many other aspects of the corporation’s management and overall governance.
Shareholders’ agreements are also commonly used in estate planning and the succession planning of family-held businesses. You may use a shareholders’ agreement to keep control over your corporation once you have transferred corporation’s assets in the form of common shares to your offspring, and to reduce your tax liability at death.
You may be asking by now – where do I find the right shareholders’ agreement for my corporation?
As easy as it may be to find shareholders’ agreements online or to borrow one from your best friend’s business, no off-the-shelf shareholders’ agreement will meet your specific needs because they were not drafted taking your unique situation into consideration – be it the family dynamics of your family-owned business, your wealth management goals, or the decision-making mechanisms that you require to implement the vision you have for your business.
The best and most effective shareholders’ agreements are carefully crafted by your trusted lawyer, in a team effort led by you and your business partners that often includes, in case of family-held businesses, your trusted financial planner.
More information? We’re here to help – [email protected] This WARDS LAWYERS PC publication is for general information only. It is not legal advice, nor is it intended to be. Specific or more information may be necessary before advice could be provided for your particular circumstances.
