Drafting and negotiation of a shareholders' agreement

Document that governs the purchase and sale of shares and the internal management of the corporation.

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The agreement between shareholders is an agreement between the holders of shares in a corporation that governs the disposition (to third parties or in the event of death) of their shares as well as the administration of the corporation.

Its purpose is to prevent potential conflicts among shareholders and to provide mechanisms for resolving any that may arise. It is advisable to sign a shareholders' agreement at the time of the incorporation of the corporation, when relations are harmonious among the partners; just like at the beginning of a marriage... Any corporation with more than one shareholder should have such a tool.

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The shareholders' agreement also aims to ensure the proportion of shares held by each of the partners. Clauses restrict the acquisition of shares by third parties. The rights of minority shareholders are also provided for, if applicable, ensuring that they cannot be harmed by the decisions of majority shareholders. The death of a shareholder is also a significant provision.

The other aspect of the agreement provides for the nature and extent of the shareholders' participation in the administration, operation and financing of the corporation.

When the agreement restricts or removes powers from the directors, it must be signed by all shareholders, voting and non-voting (unanimous agreement) to be legally valid. Such clauses can assign powers (and the corresponding responsibilities) usually exercised by directors, to shareholders. The effect of a "unanimous agreement" is that new shareholders joining the corporation will automatically be bound by it. A copy of the unanimous agreement must be included in the minutes book and any shareholder can obtain a copy. Creditors of the corporation may also have access to this agreement. When a unanimous agreement is signed, a declaration to that effect must be filed with the Quebec Enterprise Register.

Therefore, it may be advisable to separate the shareholders' agreement into two distinct agreements. The "share purchase-sale" and internal governance aspect, and the second aspect of "unanimous agreement" removing powers from directors. This second aspect must be legally accessible to the corporation's creditors.

If you have already signed such an agreement, it may be necessary to revise it? Especially since the new Quebec Business Corporations Act, which came into effect on February 14, 2011, introduces new provisions regarding unanimous agreements. An agreement, even one that was the most suitable for your needs at the time of its signature, needs to keep up with the evolution of the business. Additionally, a partner may have left since then, another has joined, etc.

The tax aspect should also be analyzed before signing an agreement, especially in the presence of partners who own other corporations. Certain tax advantages may be lost if corporations are considered "associated".

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Required documents

  • the name of a corporation in which the shares are held by the shareholders;
  • the name and contact information of each shareholder;
  • the number and class of shares held and the percentage of voting shares held by each shareholder;
  • the description of the duties of each shareholder within a corporation, if applicable.
If you need more information on this service, please contact us
514 374-4303
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