A shareholder agreement is not about trust. It is about what happens the day one of you wants out, dies, stops working, or wants to sell to someone the others cannot stand. Written early it costs a fixed fee. Written during the argument, it usually cannot be written at all.
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The <a href="https://www.ontario.ca/laws/statute/90b16">Business Corporations Act</a> supplies a default structure for every Ontario corporation, but it is built to keep companies functioning, not to be fair between owners. Directors manage the business. Whoever controls the votes elects the directors. A holder of 51 per cent can therefore set salaries, decide whether dividends are ever paid, and hire and fire — entirely lawfully.
The minority's statutory remedies are real but expensive. The oppression remedy in section 248 lets a court intervene where conduct is oppressive, unfairly prejudicial, or unfairly disregards a shareholder's interests, and the court has wide powers to fix it. Section 246 allows a derivative action on the company's behalf. Both are litigation. Both cost more than the agreement that would have prevented them.
The deeper problem is that the statute does not price anybody out. It gives no formula for what a departing shareholder's shares are worth, no obligation on anyone to buy them, and no route out of deadlock in a fifty-fifty company that does not involve a court application. Two equal shareholders who stop speaking have a corporation that cannot elect directors or pass resolutions.
A shareholder agreement replaces all of that with a mechanism. Its job is not to record goodwill. It is to answer, in advance and in writing, the questions nobody can answer calmly once the relationship has broken down: who buys, at what price, on what terms, and by when.
Transfer controls come first. Shares in a private Ontario corporation are freely transferable unless the articles or an agreement restrict them, which means without restrictions a co-owner can sell to a competitor, an ex-spouse or a stranger. A right of first refusal gives the others a chance to buy on the same terms. Pre-emptive rights stop a majority diluting a minority through a new share issue.
Then the forced-exit clauses. A shotgun lets one shareholder name a price at which they will either buy the other out or sell out themselves, which produces honest pricing but heavily favours the shareholder with cash. Tag-along rights let a minority sell alongside a departing majority on the same terms. Drag-along rights let a majority compel a minority into a third-party sale so a buyer can acquire the whole company.
Valuation is where agreements most often fail. A fixed price nobody revisits is wrong within two years. A formula multiple can be gamed or overtaken by events. An independent valuator is accurate but slow and costly. The workable answer is usually a stated method, an annual opportunity for the shareholders to agree a value, and a named fallback for when they do not bother.
Death, disability and departure need separate triggers and separate funding. Life insurance, owned appropriately, can fund a buyout on death so the survivors are not forced to sell the business to pay the estate. Disability and voluntary exit usually need staged payments instead. Add restrictive covenants, employment terms for shareholders who work in the business, and what happens if one stops working but keeps the shares.
A unanimous shareholder agreement is a distinct creature. Under section 108(2), a written agreement among all the shareholders — or among all the shareholders and one or more non-shareholders — may restrict the powers of the directors to manage or supervise the management of the business, in whole or in part. Section 108(3) treats a written declaration by a sole shareholder doing the same thing as a unanimous shareholder agreement.
The consequence is in section 108(5). To the extent the agreement restricts the directors' discretion, the shareholders who are party to it acquire all the rights, powers, duties and liabilities of a director — including liabilities such as the personal liability directors carry for unpaid employee wages — and the directors are relieved to the same extent. Taking the directors' powers means taking their exposure with them.
The agreement also binds people who never signed it. Under section 108(4) a transferee of shares subject to a unanimous shareholder agreement is deemed a party. Under section 108(7) a person issued shares while one is in effect is deemed a party whether or not they knew about it — though a purchaser for value without notice may rescind within 60 days of actually receiving a complete copy. Disclose the agreement before anyone buys in.
Most owner-managed companies do not need to restrict directors' powers at all, and an ordinary shareholder agreement does everything they want. Use a unanimous shareholder agreement deliberately and for a reason, not because the precedent happened to be labelled that way. We draft both for Ontario corporations — see <a href="/pricing">our fees</a>, and our <a href="/business-succession-lawyer-ontario">succession planning page</a> if the exit is a family one.
Fifty-fifty is the structure that needs one most. Neither owner can pass a resolution or elect a board over the other's objection, so a single disagreement can paralyse the company. Without an agreed tie-breaker — a shotgun clause, a casting vote on defined matters, mediation then arbitration, or a buy-sell formula — every way out runs through a court application: an order under section 106 of the Business Corporations Act calling a meeting and varying the quorum, an oppression application under section 248, which can include an order that one shareholder buy the other out, or a winding up under section 207.
One shareholder serves notice naming a price per share. The other must then either sell their shares at that price or buy the offering shareholder's shares at the same price. It forces honest pricing, because the person naming the number may end up on either side of it. It also strongly favours whichever shareholder has readier access to funding.
An ordinary shareholder agreement is a contract among some or all shareholders about how they will vote and deal with their shares. A unanimous shareholder agreement, under section 108 of the Business Corporations Act, is signed by all shareholders and restricts the directors' powers to manage the company. It also shifts the corresponding directors' duties and liabilities onto the shareholders.
Without an agreement they pass under the deceased's will to their beneficiaries, who become your new co-owners. A shareholder agreement can require the estate to sell and the survivors or the company to buy, at a price set by an agreed method. Life insurance is commonly used to fund that purchase so the business does not have to be sold to pay for it.
Yes. A right of first refusal requires a shareholder holding a genuine third-party offer to offer the shares to the others on the same terms first. Agreements often add outright consent requirements, permitted-transferee exceptions for family trusts and holding companies, and a rule that no transfer is registered unless the incoming buyer signs on to the agreement.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.