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Unanimous Shareholder Agreements — Corporate Law

Posted by wjadmin — filed in Contract Law

Unanimous Shareholder’s Agreements

By Gary Courtney, Barrister & Solicitor

A typical unanimous shareholders agreement (USA) is an agreement signed by some or all (usually all) shareholders of a private corporation to deal with certain issues that may come up in the life of a corporation in the manner agreed to.

To back up a bit, in a corporation with no USA, it’s day to day affairs are run by a board of directors, who are elected annually by voting shareholders. The power of the shareholders to manage the corporation is basically limited to being able to vote in or out a director, and having to approve by a 2/3rds vote, fundamental changes to the Articles of Incorporation of the corporation (see the Alberta Business Corporations Act).

A typical USA will take some powers away from the board of directors and give them instead to the shareholders to approve. A ‘shareholders agreement’ can set out that certain action requires unanimous consent or less than unanimity of shareholders is needed red  (for example 67%).

Issues to be voted on by shareholders often include ones such as going into debt, spending money above a certain amount, issuing new shares, bringing in new shareholders, moving business locations, etc… Shareholders agreements also typically may deal with long term major issues, like;
         How personal guarantees by shareholders of corporate debt will be handled, and that risk shared;
         Provide remaining shareholders with a right of first refusal to buy a departing shareholders shares;
         Provide for a trigger to force a buy out of a shareholder where it is necessary for him/her to be bought out, called a ‘shotgun’ clause;
         Provide for buyouts on death, disability, or personal crisis in the lives of shareholders;
         Set out a valuation formula for shares in any of the above situations;
         A non-competition clause, confidential clause, and/or non-solicitation clause in the event of a shareholder leaving;
         A dispute resolution mechanism for handling shareholder’s disputes.

Obviously USA’s are a key mechanism to deal with the longer term serious issues that are certain to come up in the life of a corporation where there is more than one shareholder. For example, unless all shareholders agree to wind up/ sell the business at the same time, there will be a future scenario where a shareholder leaves, and the remaining shareholders want to continue on. The USAallows this to occur without major disruption.

Another reason to consider having a USA deals with minority shareholders protection. If there are 3 shareholders owning 60%, 20%, and 20% of voting shares for example, the bottom line is without an agreement the 60% shareholders largely controls the corporation (there are a few restrictions on what a majority shareholder can do under the Business Corporations Act). A USAagreement requiring say an 80% or 100% vote for certain important issues will protect the minority shareholder.

So when is an agreement needed? At Courtney Aarbo Barristers & Solicitors we recommend one be considered anytime there is more than one shareholder. The more shareholders there are, the more important having a USAbecomes.

If you have questions about unanimous shareholders agreements, or in fact any issue facing your corporation, the lawyers at Courtney Aarbo would be happy to discuss the issue with you.

For more information contact Aarbo Fuldauer LLP at www.aflawyers.caor at or phone 403-571-5120. We are located at 3rd Floor, 1131 Kensington Road N.W., Calgary, Alberta T2N 3P4.

Gary C. Courtney
Aarbo Fuldauer LLP
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