Can a minority shareholder be forced to sell at a low price?

A minority shareholder can be bought out against their wishes in some situations, but the price is not left to the majority. The federal Canada Business Corporations Act (CBCA) sets out several routes, each with its own procedure and its own protection. Which one applies depends on the transaction, on the corporation’s articles and on any shareholder agreement. Corporations formed under provincial Acts have their own versions, so confirm which statute governs.

Dissent and fair value

Under CBCA s.190(1), a shareholder may dissent if the corporation resolves to take certain steps, including selling all or substantially all its property under s.189(3). A shareholder who complies with s.190 is entitled to be paid the fair value of their shares. Compliance includes a written objection at or before the meeting, unless the corporation did not give notice of the meeting’s purpose and of the right to dissent (s.190(5)), and a later written demand for payment, so deadlines matter. If no offer is made or the shareholder does not accept it, the corporation may apply to a court to fix a fair value under s.190(15), and if it does not, the shareholder may apply under s.190(16). Under s.190(21) the court may appoint appraisers. Under s.190(26) the corporation shall not pay if there are reasonable grounds for believing it is or would be unable to pay its liabilities as they become due, or that its assets’ realizable value would be less than its liabilities.

Compulsory acquisition after a take-over bid

Part XVII of the CBCA deals with compulsory acquisitions. Under s.206(2), if holders of a high enough proportion of a class accept a take-over bid within the time the Act allows, the offeror is entitled, after complying with the section, to acquire the remaining shares of that class. Under s.206(5.1), a holder who does not respond to the offeror’s notice in the way the section requires is deemed to have elected to transfer on the same terms on which the offeror acquired the accepting holders’ shares. The other choice the offeror’s notice must offer under s.206(5)(b) is to demand payment of the fair value of the shares, which a court can fix on an application under s.206(9) and the subsections that follow.

Court orders and agreements

A court asked to rectify oppressive conduct under s.241(3) may direct the corporation or another person to purchase a security holder’s securities, subject to the payment limit in s.241(6). Separately, Corporations Canada notes that minority shareholders in a small corporation can negotiate a shareholder agreement for better protection. If an agreement already contains a forced-sale or buy-sell clause, read its price formula alongside the statutory routes above. The shareholder agreement glossary entry explains what such agreements cover.