What belongs in a shareholder agreement before I buy into a business?

When you buy into a business through shares, the shareholder agreement comes with them. Corporations Canada describes it as an agreement among some, and usually all, of the shareholders of a corporation. It is voluntary and specific to each corporation, so no list is complete. Ask for a copy before you sign anything, and ask whether any other agreement binds the existing owners.

Find out whether the agreement binds you

Under the Canada Business Corporations Act (CBCA), a purchaser or transferee of shares subject to a unanimous shareholder agreement is deemed to be a party to it (s.146(3)). If nobody gave you notice of the agreement, s.146(4) lets you rescind the share purchase no later than 30 days after you become aware of it. Ontario’s Business Corporations Act also deems a transferee a party (s.108(4) and (8)), and s.108(9) lets a purchaser for value without notice of the agreement object, on the conditions it sets. Other provinces and territories have their own corporate statutes, so confirm which one governs this corporation.

Terms Corporations Canada lists

Corporations Canada notes that minority shareholders in a small corporation may want an agreement that better protects their investment. It lists these among the provisions an agreement may contain:

• The right of every shareholder to sit on the board, or to nominate someone who does.
• A higher level of shareholder approval for significant decisions than the CBCA sets.
• A right of first refusal, so a shareholder who wants to sell must first offer the shares to the other shareholders.
• Rules for the shares on a shareholder’s death, resignation, dismissal, personal bankruptcy or divorce.
• Non-competition and confidentiality clauses, dispute resolution, and how the agreement is amended or ended.

What the statute adds if the agreement is silent

Where a corporation has only one class of shares, the holders’ rights are equal in all respects (CBCA s.24(3)). A complainant, including a registered or beneficial owner of a security, may apply to a court under s.241, which may make an order if it is satisfied that the conduct of the corporation, an affiliate or the directors is oppressive or unfairly prejudicial to, or unfairly disregards, the interests of a security holder, creditor, director or officer. Subject to the exceptions in s.190 itself, including s.190(26), that section gives a shareholder who follows its procedure the right to be paid fair value after dissenting from listed resolutions. Ask a lawyer how the agreement you are given interacts with these rights.