Can our shareholder agreement prevent shares from being transferred without approval?

Yes. Restricting share transfers is one of the most common and important features of an Ontario private corporation's shareholder agreement (and may also appear in the articles of incorporation). The most common restriction is a consent clause: a shareholder who wants to transfer their shares must first obtain the consent of the other shareholders, the board, or some combination.

The advantage of this provision is control: it ensures that no outsider can become a shareholder without the agreement of the existing owners. The risk is that it can make the shares illiquid if existing shareholders refuse to consent unreasonably. For this reason, many agreements pair the consent requirement with a right of first refusal — if consent is withheld, the company or the other shareholders must offer to purchase the shares at a fair price.

Under the Ontario Business Corporations Act, private corporations are permitted to restrict share transfers in both their articles and their shareholder agreements. These restrictions are enforceable against third parties who have notice of them. If your corporation doesn't currently restrict share transfers, it may be worth adding this protection, particularly if you want to control who your future business partners are.