SHAREHOLDERS' AGREEMENT

WHAT IS A SHAREHOLDERS' AGREEMENT?

A shareholders' agreement is a written and executed contract that regulates the relationship of the shareholders of a corporation by setting out their rights, restrictions and obligations.

Let's say you and four other friends went out for a drink. Water mixed with wine, wine mixed with water, somewhere along the line, a business idea developed. The five of you agree to incorporate the business and name the corporation Corporate Inc.

Corporate Inc. got set up. Directors and officers were appointed, and a minute book was set up in line with the regulations of the Ontario Business Corporations Act and the Canada Business Corporations Act. Shares were also issued. The business looks all set up. Right?

Wrong.

The missing item is a shareholder agreement.

Think Of It Like A Prenup

Just like a prenup. At the outset of a business relationship, it could be difficult to foresee a situation where shareholders or business partners would encounter a fallout. However, down the line, disagreements do occur among business partners. It is easier right at the outset of the business relationship, to formalize and document in a shareholder agreement, the approach that would be taken if the relationship turns sour.

Key Takeaways

You should consider preparing a shareholder agreement if you have more than one shareholder in your corporation.

A well-prepared shareholder agreement should provide exit strategies for shareholders who want to exit the business. It should also spell out how shareholders should proceed in the event of one shareholder’s death, incapacity or disability.

- Jumi Odepe, LL.B., LL.M., B.L., Lawyer and Principal

Jumi Odepe is the Principal lawyer at Jode Law. She represents clients in Corporate, Commercial and Business Law Transactions including mergers and acquisitions, corporate restructuring, and corporate financing. Jumi also represents clients in Immigration Law and Estate Law matters.

The articles published by Jode Law are intended as general information only and do not serve as legal advice. By reading, the reader understands there is no solicitor-client relationship established. If you have a legal question, consult a lawyer.

At the heart of every well-drafted shareholder agreement is an experienced legal professional. If you are considering preparing a shareholder agreement, call the business lawyers at Jode Law on 6472557503 or email us here.

The articles published by Jode Law are intended as general information only and do not serve as legal advice. By reading, the reader understands there is no solicitor-client relationship established. If you have a legal question, consult a lawyer.