By: Josh Sud | Queen’s Venture Law Society | December 2021
Editors: Nicolas Guevara-Mann, Mikela Page, Jakob Wildman-Sisk
Thinking of incorporating a business? To avoid messy control issues down the road, one of the most important things you can do for your corporation is to create a shareholder agreement (SHA). A SHA is an agreement that summarizes the rights of shareholders, as well as the relationship they have to one another and to the business. Importantly, it can help resolve future disputes. This is because SHAs typically outline how to resolve common issues that arise within the context of a company. In sum, the purpose of a SHA is to ensure shareholders are treated fairly and that their rights are protected. The following provides some essential content an aspiring business owner should consider including in their company’s SHA.
What Should Be Included?
There are no formal requirements for a SHA other that it be in writing and be signed by those shareholders that are party to it. However, SHAs generally cover certain areas, such as the following:
Clauses regarding treatment of shares are some of the most important clauses in a SHA. A share provides a bundle of legal rights to each shareholder which enables a shareholder to derive value from their shares in multiple ways. For example, shareholders can be eligible for dividend payouts. They can also sell their shares, which is called a “share transfer”. Share transfer clauses in a SHA are essential to protecting the business and shareholders from unlawful or disadvantageous share transfers. Below are a few important share transfer clauses to consider adding to your SHA:
How a company structures its SHAs should reflect the unique qualities of each business. Each company should work closely with a legal advisor to develop an agreement that works best for its unique structure. A well-drafted agreement will protect the business from future disputes and establish clear rights and responsibilities of its individual shareholders.
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 BDO Canada LLP, Does Your Business Need a Shareholder Agreement? (27 July 2016), online: BDO Canada LLP < www.bdo.ca/en-ca/insights/tax/tax-articles/does-your-business-need-a-sh…;.