What should a shareholders' agreement cover for a small Ontario corporation?

A shareholders' agreement is a private contract among the shareholders of a corporation that governs their relationship, rights, and obligations. For a small Ontario corporation, it addresses what the corporate constitution and Ontario's Business Corporations Act leave to the parties to determine.

Key provisions typically include: how directors are elected and decisions are made (voting thresholds, veto rights for minority shareholders), restrictions on the transfer of shares (right of first refusal, tag-along rights, drag-along rights), what happens when a shareholder wants to exit or dies (buy-sell mechanisms), how disputes are resolved, non-competition and non-solicitation obligations of shareholders, and how dividends and distributions are determined.

Without a shareholders' agreement, minority shareholders in a closely held corporation may have limited legal protection against decisions made by the majority. The Business Corporations Act provides some oppression remedies, but litigation is expensive and uncertain.

For any corporation with more than one shareholder, a shareholders' agreement is worth investing in early, before a disagreement arises. The cost of drafting one at the start of the relationship is a fraction of the cost of resolving a shareholder dispute without one.