Looking for shareholder agreements in Ontario?

A shareholder agreement is a legal contract that lays out the respective rights and obligations of the shareholders in a company. It establishes how the business will be managed and operated, as well as how decisions will be made by the shareholders. Although it’s not legally required, having a shareholder agreement in place is strongly recommended for Ontario businesses. Here’s why…

A shareholder agreement provides clarity on the roles and responsibilities of each shareholder in the company. It defines what each individual’s responsibilities are in managing the business, reducing the likelihood of disputes among shareholders, and ensuring that everyone is on the same page regarding the company’s operations.

Framework for conflict resolution

The agreement protects the company in case of disagreements among shareholders. If any disagreements arise, the agreement can provide a framework for conflict resolution, including dispute resolution methods such as arbitration or mediation. It can also establish how decisions will be made if shareholders are unable to agree, safeguarding the company’s operations and interests.

It outlines the process for the transfer of ownership in the company, ensuring that the transition of ownership is seamless and efficient. This way, the business can continue to operate effectively even after the transfer of ownership.

A shareholder agreement safeguards the investments of shareholders by specifying what happens if a shareholder dies or becomes incapacitated, or if a shareholder decides to sell their shares. Such safeguards ensure that the company can continue to operate smoothly and effectively in the face of any changes.

Shareholder roles and responsibilities

A shareholder agreement is a crucial document that every Ontario business should have. It offers clarity on shareholder roles and responsibilities, safeguards the company in the event of disagreements, facilitates the smooth transition of ownership, and protects shareholders’ investments. To ensure that your shareholder agreement is comprehensive and legally sound, it’s best to seek the guidance of a qualified business lawyer.

Business law in Ontario can be complicated. Sometimes it gets tricky when you’re establishing a new business. One of the things you need to make sure you get right is to draft a shareholder agreement. This should be done before you start your business.

What is a shareholder agreement? Why is it important? And how do I draft one properly? Find out in the next sections.

Our lawyers can do shareholder agreements for anyone in Ontario. It doesn’t matter which city you live in. Also, if things have gone wrong with your shareholders, we have business lawsuit lawyers who can help you. They can try and resolve the issues without going to court. However, if need be, they can also go to civil court.

The Purpose of Shareholder Agreements

Shareholder agreements are required if you are starting a company with more than two shareholders. If there are only two shareholders, you can learn more about partnerships in Ontario.

If you didn’t get the shareholder agreement done properly, one of our lawyers can help you with dispute resolution.

Sometimes the existing shareholders will become unhappy with the management of the corporation. They might want to explore ways to get their money back. If you want to sell the shares, first ask the management if they will buy back your shares.

If not, you will have to hire an affordable business lawyer to review the shareholder agreement. The business lawyer will look for clauses that allow you to sell the shares.

You can see the main reasons to create a shareholder agreement below:

General shareholder agreement vs unanimous shareholder agreement

A general shareholder agreement sets the obligations of shareholders between themselves.

A unanimous shareholder agreement is a specific type of shareholder agreement, wherein:

All shareholders sign upon initial completion of the agreement
All future shareholders are bound by the agreement, whether they agree to it or not
Powers of directors are removed fully or partially

Shareholder agreements are boring but are super important. Let’s say you partner with three other people to start a gym chain. Each of you put in $100K. The first thing you do is open your first gym and hire employees. You will need to hire a business lawyer to do your employment agreements.

You then work hard to grow your business. One of the owners wants to move away. The other three shareholders are upset because they are doing all the work.

Where is the shareholder agreement? What are the terms? If you don’t have one, you would hire a business lawyer to send demand letters. If that doesn’t work, you will have a challenging and expensive court battle ahead of you.

What should be included in a shareholders agreement in Ontario?

A shareholder agreement is a legally binding contract that delineates the rights, obligations, and responsibilities of shareholders in a company. This agreement is vital to safeguard the interests of shareholders and ensure the smooth functioning of the business. Several key components should be included in a shareholder agreement for Ontario businesses.

One critical element is defining the role and responsibilities of each shareholder. This includes the allocation of voting rights and decision-making powers, clarifying each shareholder’s involvement in the business’s operations.

Shareholder exit strategy

Another important aspect is the shareholder exit strategy. The agreement should clearly define the process for buying or selling shares when a shareholder chooses to leave the company, including the valuation method and payment terms.

Share transfer restrictions are also essential. The agreement should outline any restrictions on the transfer of shares to outside parties, including the rights of first refusal and transfer approval by existing shareholders.

Dividend distribution is another crucial component. The agreement should specify how dividends will be distributed among shareholders, including any conditions or requirements for distribution.

Resolving disputes between shareholders

Dispute resolution is another critical element to be included in a shareholder agreement. The agreement should establish a mechanism for resolving disputes between shareholders, such as mediation, arbitration, or litigation.

Confidentiality and non-competition clauses should also be included to safeguard the business’s proprietary information and intellectual property.

Governance is another important component. The agreement should establish the governance structure of the company, including the composition of the board of directors and the procedure for shareholder meetings.

Succession planning should be addressed in the agreement, including the procedure for selecting new shareholders and directors in the event of a vacancy.

Shareholder agreements in Ontario

According to Statistics Canada, there were 1,221,225 registered corporations in Canada in 2019, with Ontario accounting for the highest number at 502,594. This highlights the significance of shareholder agreements in Ontario, as they ensure the smooth functioning of the numerous registered corporations in the province.

A shareholder agreement is an essential document that outlines the rights, obligations, and responsibilities of shareholders in a company. To ensure that the agreement is comprehensive and legally sound, it’s advisable to seek the guidance of a qualified business lawyer who can tailor the agreement to the specific needs of your Ontario-based company.

Drafting a shareholder agreement in Ontario

The shareholder agreements set out the rules for appointing directors or officers for the company.

It also makes sure that you are complying with Ontario law.

The usual provisions present in a shareholder agreement are:

Share prices and valuation
Terms and conditions for share issuance
Rules on share transfers
Buy/sell guidelines
Dispute resolution
Special approvals
Pre-emptive rights
Right of first refusal

Always have a lawyer assist you in drafting a shareholder agreement. Consult with one from ClearWay law today.

Get a lawyer to draft your shareholder agreement in Ontario

Find a lawyer with experience in Ontario’s business law. Lawyers often charge a flat fee for shareholder agreements. Lawyers charge an hourly rate for business lawsuits.

The role of the lawyer is to counsel you regarding your rights and obligations. For a small business, a business lawyer helps owners create bylaws, articles of incorporation, NDAs, and partnership agreements. Take care of the legal documents needed in establishing a new business.

The Business Corporations Act is the set of rules that govern businesses in Ontario. There are different classes of shares, so business law can get complicated.

Without a shareholder agreement, you will have to go through emails and texts to find the terms. If you never discussed it, you are in big trouble. Shareholder agreements are long documents that cover many different situations.

Consult with a business lawyer

Use the online contact form on our website.

Find a Local Lawyer

Contact us

Why Every Ontario Business Needs a Shareholder Agreement