Shareholder Agreement Lawyer in Toronto

The Four Provisions We Will Not Draft Without

Most of this document is negotiable. Four things are not, and they are the skeleton Giuliana Oliva builds every one of these around. First, a clear exit mechanism: a shotgun clause, put and call options, or at minimum a defined valuation process, because the worst disputes happen when someone wants out and there is no roadmap. Second, restrictions on share transfers, including a right of first refusal, so you never wake up in business with a stranger or with a former spouse.

Third, deadlock resolution, because a 50/50 company needs a tiebreaker long before it needs a judge. Fourth, provisions dealing with the death, disability, or marriage breakdown of a shareholder, ideally paired with insurance funding for the buyout.

If you are still deciding what else to include, read what a shareholder agreement is and what it covers. If you are setting the company up now, we can put one in place alongside your business incorporation. Where another lawyer drafted the document and you need it reviewed, we also provide independent legal advice for business contracts, or you can book a free consult call to talk it through.

Everything beyond those four is shaped around your business. The point of drafting early is that the terms get agreed while the shareholders still want the same things, and the agreement then holds as the business evolves.

Angrove Law drafts these virtually for corporations across Ontario, at a flat fee, with no retainers.

What a Handshake Costs: One File We Worked On

Giuliana acted on a share purchase where two partners had built a profitable business on a handshake and a bare bones incorporation. When one wanted to sell his interest, there was no agreed valuation method, no right of first refusal process, and no timeline for closing.

What should have been a straightforward buyout turned into months of negotiation over price, and then a closing that nearly collapsed when the financing fell through, with nothing in place setting out what happens in that scenario. A ten page agreement signed at incorporation would have answered every one of those questions in advance.

Without an Agreement, the OBCA Decides for You

Where shareholders have not agreed otherwise in writing, the Ontario Business Corporations Act (OBCA) supplies the answers instead, and they are rarely the answers a small corporation would have chosen. Section 115(1) is explicit that the directors manage or supervise the management of the business and affairs of the corporation, subject to any unanimous agreement among the shareholders. Whoever controls the board controls the company unless something in writing says otherwise.

The Act does not supply an exit either. It offers no valuation method, no buyout trigger, and no right of first refusal unless the articles restrict transfers, as the articles of a private Ontario corporation commonly do, with the restriction noted on the share certificates where section 56(8) requires it.

What is left when a relationship breaks down is litigation: the oppression remedy under section 248, which lets a court intervene where the affairs of the corporation are conducted in a manner that is oppressive or unfairly prejudicial to a shareholder, or an application to wind the company up under section 207(1). Both are expensive, slow, and public.

Putting it in writing is what lets you decide these questions in advance, calmly, instead of leaving them to a judge later. Whether yours should be a unanimous shareholder agreement under section 108(2), which can restrict the powers of the directors in whole or in part, depends on how the corporation is actually run. That is one of the first things we work out with you.