Do I need a shareholder agreement for my Ontario corporation?
If you are the sole shareholder, a shareholder agreement is less urgent — though even then, a unanimous shareholder agreement (USA) can be used to restrict director powers or set rules for bringing in future investors. The real need arises as soon as there is more than one shareholder.
A shareholder agreement governs the relationship between co-owners and typically covers: what happens if one shareholder wants to sell (right of first refusal, shotgun clauses); how the corporation is funded if it needs more capital; what votes require unanimous approval vs. a majority; restrictions on transferring shares; what happens if a co-founder dies or is incapacitated; and non-compete obligations after a shareholder leaves.
Without a written agreement, the Business Corporations Act defaults apply, which are not written with your specific situation in mind. Disputes between co-founders without a shareholder agreement are among the most expensive and disruptive business problems a lawyer sees. The cost of a well-drafted agreement at the start is small compared with the cost of resolving a deadlock later.
If you are bringing on co-founders, investors, or family shareholders, have a lawyer prepare a shareholder agreement tailored to your structure before you issue shares.
Key takeaways
- A shareholder agreement is highly recommended any time there is more than one shareholder.
- Key provisions: share transfer restrictions, dispute resolution, funding obligations, and exit mechanics.
- Without one, default OBCA rules apply and may not suit your situation.
- Deadlocks between shareholders without a written agreement can be costly to resolve.