Shareholder Agreements are important contracts which protect both the corporate entity and its shareholders.
A Shareholder Agreement is an arrangement among a company’s shareholders describing how the company should be operated and the shareholders’ rights and obligations. It also includes information on the regulation of the shareholders’ relationship, the management of the company, ownership of shares and privileges and protection of shareholders.
Any business that is operated through a corporation with more than one individual who owns an interest in the business should have a shareholder agreement. The Shareholder Agreement is intended to ensure that shareholders are treated fairly and that their rights are protected. The agreement includes sections outlining the fair and legitimate pricing of shares (particularly when sold). It also allows shareholders to make decisions about what outside parties may become future shareholders and provides safeguards for minority positions.
A shareholder agreement is a contract between two or more shareholders and constitutes a commercial contract. It is subject to the corporate by-laws and Articles of Incorporation and relevant sections of the applicable corporate legislation.
Under Section 146(1) of the Canada Business Corporations Act (R.S.C., 1985, c. C-44), a unanimous shareholder agreement 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”. Pursuant to Section 108(2) of the Business Corporations Act, R.S.O. 1990, c. B.16, the legal status of a unanimous shareholder agreement is that of “a corporate law hybrid, part contractual and part constitutional in nature”. Unanimous shareholder agreements are contemplated by legislation in all provinces except British Columbia, Nova Scotia and P.E.I.
What does a Shareholder Agreement look like? Click here to view a sample template of a Shareholder Agreement and Unanimous Shareholder Agreement. Please note that these samples are for illustrative purposes only and should not be used as a substitute for proper legal advice. If you require a shareholder agreement or unanimous shareholder agreement for your business, you can book a consultation with a lawyer at KPA.