What can a unanimous shareholder agreement take away from a company’s directors?

Under the Canada Business Corporations Act (CBCA), the directors manage, or supervise the management of, a corporation’s business and affairs, subject to any unanimous shareholder agreement. Under Ontario’s Business Corporations Act (OBCA), the directors manage or supervise the management of the business and affairs of a corporation, also subject to any unanimous shareholder agreement. This page covers the federal and Ontario corporate statutes only.

What the agreement can restrict

Corporations Canada says the CBCA allows shareholders to enter into written agreements that restrict the directors’ powers to manage the corporation in whole or in part. The CBCA validates an otherwise lawful written agreement among all the shareholders, or among all the shareholders and one or more people who are not shareholders, that restricts those powers in whole or in part. Ontario’s OBCA says such a written agreement among all the shareholders, or among all of them and one or more non-shareholders, may restrict those powers in whole or in part.

When it counts as a unanimous shareholder agreement

The CBCA defines a unanimous shareholder agreement as an agreement described in subsection 146(1) or a declaration of a shareholder described in subsection 146(2). Ontario’s OBCA defines it as an agreement described in subsection 108(2) or a declaration of a shareholder described in subsection 108(3).

A sole shareholder’s declaration

Under the CBCA, where a person is the beneficial owner of all the issued shares and makes a written declaration that restricts the directors’ powers, in whole or in part, the declaration is deemed to be a unanimous shareholder agreement. Under Ontario’s OBCA, the same applies where a person is the registered holder of all the issued shares and makes such a written declaration.

Who takes on the directors’ duties

Under the CBCA, to the extent a unanimous shareholder agreement restricts the directors’ powers, the parties who are given that power have all the rights, powers, duties and liabilities of a director, and the directors are relieved of theirs to the same extent. Under Ontario’s OBCA, a shareholder who is a party to a unanimous shareholder agreement has those rights, powers, duties and liabilities of a director to the extent the agreement restricts the directors’ discretion or powers, and the directors are relieved to the same extent. Corporations Canada says shareholders who assume directors’ rights, powers and duties by agreement should be aware they also assume the directors’ liabilities to an equal degree. CBCA s. 146(6) says nothing in that section prevents shareholders from fettering their discretion when they exercise directors’ powers under a unanimous shareholder agreement.

Whether a particular agreement meets these tests is a question for a corporate lawyer who has read it. For how partners part ways, see how a shareholder buyout works when business partners split up.