Should share transfer restrictions go in the articles or the shareholder agreement?

Share transfer restrictions can appear in the articles of incorporation, in a shareholder agreement, or in both — and each location has different legal consequences.

Restrictions in the articles are part of the corporation's public constitutional document. They bind all present and future shareholders automatically, because anyone acquiring shares is deemed to have notice of the articles. This is their key advantage: they apply to everyone without any additional contractual mechanism.

Restrictions in a shareholder agreement bind only the shareholders who are party to that agreement. A new shareholder who has not signed the agreement (or a joinder to it) is not bound by the contractual restrictions — unless they are also reflected in the articles. However, a shareholder agreement can contain much more detailed and flexible terms than the articles, since the articles are filed publicly and changing them requires a formal amendment process.

For most Ontario private corporations, the best practice is to include a general restriction on share transfers in the articles (putting the world on notice that shares cannot be freely transferred) and to put the detailed mechanics of how transfers work — right of first refusal, consent requirements, pricing — in the shareholder agreement. The two documents should be reviewed together to ensure they are consistent.