Can I be forced into a buyout I did not initiate?

Whether you can be forced out depends on the corporate statute that governs the company, any agreement you signed and the facts. Corporate law is set by the federal Canada Business Corporations Act for federal corporations and by each province for provincial ones, and the rules differ. This page uses the federal Act as the example and does not describe your situation.

Compulsory acquisition after a take-over bid

Under section 206 of the federal Act, if within 120 days after the date of a take-over bid the bid is accepted by holders of the proportion of a class of shares that the section sets, not counting shares held by or on behalf of the offeror or its affiliates or associates, the offeror is entitled, on complying with the section, to acquire the shares held by dissenting offerees. A dissenting offeree may elect to demand payment of the fair value of the shares, and the section then provides for a court to fix that fair value.

Rights if the company changes course

A shareholder may have a right to dissent and be paid fair value for their shares. Section 190 of the federal Act, which is subject to sections 191 and 241, lets a holder of shares dissent if the corporation is subject to certain court orders or resolves to take specified steps, such as selling all or substantially all its property. A shareholder who complies with the section’s procedure is entitled to be paid the fair value of the shares, but s.190(26) bars payment where there are reasonable grounds for believing the corporation is or would be unable to pay its liabilities as they become due, among other tests. Provincial statutes have their own versions, so check the Act that governs your company.

The oppression remedy

Under section 241 of the federal Act, a complainant may apply to a court for an order. If the court is satisfied that an act or omission of the corporation or an affiliate effects a result, or that its business or affairs are or have been conducted, or the directors’ powers exercised, in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of. Ontario’s Business Corporations Act contains similar wording.

Check what you signed

• Does your shareholder agreement contain a drag-along, shotgun or buy-sell clause?
• What triggers it, and who sets the price?
• Is there a notice period or a dispute process you must follow?

These terms bind you only as written, so a lawyer should read them before you respond. If a sale to a manager is on the table, see what a management buyout is.