Is a minority shareholder’s stake valued as a straight fraction of the company?

Owning one fifth of the shares does not by itself mean owning one fifth of the business’s value. What a stake is worth depends on what the shares carry and what the other documents say. This page sets out what the Canada Business Corporations Act (CBCA) and Corporations Canada’s guidance say about those features. It does not offer a number or say what a stake in your company is worth.

Votes follow share count

Corporations Canada explains that, generally speaking and unless the articles provide otherwise, each share carries one vote, so a larger holding exercises more votes. Decisions are made by ordinary resolution, which needs a simple majority of votes cast, by special resolution, which needs two thirds of the votes cast, or by unanimous resolution. A minority holder may therefore be unable to carry a resolution alone. The articles can also allow for more than one class of shares, with rights attached to each class, so check which class a stake is in and what rights it carries.

What a shareholder agreement can change

Corporations Canada says minority shareholders who do not feel protected by a board elected by a majority holder might negotiate a shareholder agreement. Such an agreement can require a higher level of approval for significant decisions and can set rules for the transfer of shares when certain events occur. Because those terms bear on what a holder can do with a stake, read the agreement and the articles, and give them to any valuator, before relying on a percentage.

When the statute sets a price

The CBCA gives a shareholder who dissents under s.190 from one of the actions it lists, and who complies with that section, the right to be paid the fair value of the shares, subject to the payment limit in s.190(26). That value is determined as of the close of business on the day before the resolution was adopted or the order was made. Separately, s.241 lets a complainant ask a court for an order where conduct is oppressive or unfairly prejudicial to, or unfairly disregards, the interests of any security holder, creditor, director or officer, and the court may, among other orders, direct a purchase of securities. A provincially incorporated company is governed by its own province’s statute, which differs.