Should I resolve a partner dispute before putting the business up for sale?

Signing a listing does not by itself settle who can sell. Who may sell, and with whose approval, is set by the corporation’s governing statute, its articles and any shareholder agreement. A partner who disagrees may have legal tools of their own. This page covers incorporated businesses. A general or limited partnership is governed by provincial partnership law, which is not covered here.

Who has to approve the sale

Under the Canada Business Corporations Act, s.189(3), and Ontario’s Business Corporations Act, s.184(3), a sale, lease or exchange of all or substantially all of a corporation’s property, other than in the ordinary course of its business, requires the approval of the shareholders. Alberta’s Business Corporations Act, s.190(1), has its own version of the rule. A sale of shares is a different transaction, so check the shareholder agreement for transfer restrictions and consent rights.

A dissenting shareholder can claim fair value

A shareholder who objects to that kind of sale may have dissent rights. Subject to the sections they name, CBCA s.190(1)(e) and OBCA s.185(1)(e) let a holder dissent when the corporation resolves to sell all or substantially all its property. A dissenting holder who follows the procedure is entitled to be paid the fair value of the shares. Under CBCA s.190(7), the demand for payment must be sent within twenty days after receiving the corporation’s notice that the resolution was adopted or, if no notice arrives, after learning of it. The written objection comes earlier, at or before the meeting.

What a court can order

CBCA s.241 and OBCA s.248 let a complainant apply to a court where an act or omission of the corporation, the way its business or affairs are carried on, or the way the directors use their powers is oppressive or unfairly prejudicial to, or that unfairly disregards, the interests of a security holder, creditor, director or officer. The court may make any interim or final order it thinks fit, including an order restraining the conduct complained of, or varying or setting aside a transaction or contract to which the corporation is a party. A pending dispute may therefore reach the sale itself.

What to settle before you list

Be ready to show a buyer that the required approvals are in place. Ask your lawyer who must sign, whether the shareholder agreement gives anyone a veto or a right of first refusal, and whether the dispute should be settled, bought out or documented first. That choice can carry tax and legal consequences, and it is yours to make with advisers.