What buy-sell provisions belong in a shareholder agreement?

A good buy-sell section leaves nothing for the owners, or their heirs, to argue about later. Treat the points below as a checklist of decisions to make, not a template to copy. How a buy-sell clause works explains the mechanics. Each one should be written so that someone who was not in the room, such as an executor or a new shareholder, can apply it without guessing what the owners meant.

Events, price and payment

List every event that starts a sale, and say whether each one gives a right to buy or a duty to buy. Then fix the valuation method and who chooses the appraiser. Set the payment terms: how much is due at closing, how any balance is paid, and what security backs it. If the corporation is the buyer, remember that CBCA s.34(2) bars a payment where there are reasonable grounds for believing the corporation is, or would after the payment be, unable to pay its liabilities as they become due, or would fail the asset test in that subsection, subject to the exceptions in ss.35–36.

Restrictions on selling to outsiders

Decide whether an owner may sell to an outsider at all, and whether the others get a first chance to match any offer. Decide what happens to shares when an owner dies or divorces. If the agreement is a unanimous shareholder agreement, the CBCA says a purchaser or transferee of shares subject to a unanimous shareholder agreement is deemed to be a party to it, so the agreement should be handed to every new holder.

Notice to a new holder

If a transferee was not told that a unanimous shareholder agreement exists, CBCA s.146(4) lets them rescind the purchase within 30 days after they become aware of it. Build a notice step into the share transfer process and keep proof that it was given.

Funding and review

• Say how a buyout will be funded, for example from company cash, owner financing, a lender or insurance, and who pays for any policy.
• State what the estate must do, including signing the sale documents.
• Set a date to revisit the valuation method and the list of events.
• Keep the signed agreement with the corporate records, since BDC lists shareholder agreements among the corporate documents a buyer reviews.