Shareholder agreements, why?

A shareholder agreement is a contract that is signed between the shareholders of a corporation. As legislation does not provide rules for every little detail of the operations of a corporation, the shareholder agreement allows shareholders to complete the structure established by law by contractually determining the methods of functioning of the corporation, the responsibilities of each shareholder toward each other and toward the corporation as well as the ways to deal with problematic situations.

While it is possible to sign a shareholder’s agreement at any point in time, the ideal moment to establish this agreement is during the initial creation of the corporation when all the shareholders get along. The preparation of the agreement allows the shareholders to reflect on their expectations for the corporation and confirm that their visions are compatible.

To maximize the use of a shareholder’s agreement, it is important that the agreement be adapted to the specific needs and objectives of the corporation. A well thought-out and adapted agreement prevents most conflicts that typically arise between shareholders. Furthermore, a shareholder agreement may include clauses to facilitate the resolution of conflicts as well provide ways to force the end of an association without needing to go to court.

For example, the shareholders may include a clause in their agreement to force a shareholder to sell his shares if a predetermined situation occurs, such as: the breach of a non-compete clause, the violation of a clause obligating shareholders to invest financially in equal amounts, an impossibility or refusal to fulfill one’s duties, a bankruptcy, an absence, etc. A shotgun clause may also be included to allow a shareholder to offer to sell his shares to the other shareholders. If the shareholders refuse to buy these shares, they would then be forced to offer to sell their own shares for the same price. In some cases, it may also be appropriate to provide that if the offers are both rejected, the corporation will be liquidated.

As corporations evolve over time, it is recommended to revise the shareholder agreement regularly to that it remains relevant, especially when a shareholder arrives or departs.

When there is no shareholder agreement, or when your shareholder agreement does not provide a solution to your conflict, a legal recourse in court may be necessary to resolve the situation. For more information on shareholder agreements or about the possible legal recourses, we invite you to communicate with us.

Text written by Me Jennyfer Pelletier