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Protecting Your Business | Shareholder Agreements 101

The importance of a Shareholder Agreement can’t be overlooked when you are starting a business. In many cases, business owners consider their teams an integral part of their success. It’s important to protect a business so that in the event of a death or disability of a Shareholder, the business can continue.

Of the businesses currently operating in Canada, 97.9 percent of them are small businesses with 1-99 paid employees. That’s approximately 1.2 million business according to Statistics Canada that should likely address what would occur in the event of a death or disability of a shareholder.

The purpose of a shareholder agreement is to protect the company and to establish the relationship between the shareholders and govern how the company is run.

Some important aspects of a Shareholder Agreement would be the following:

  1. Rights, if any to sell shares

  2. Restriction on issuing shares

  3. Restriction on encumbering shares

  4. Capital requirements and borrowings

  5. Rights to access books and records

  6. Ability to vote, call meetings

  7. Power of officers and directors

  8. Valuation of shares

  9. What happens when a shareholder dies or becomes disabled?

It is important to review agreements every 3 years or when there has been a change in the corporate structure. When conducting a review of an existing agreement, questions to ask include the following:

  1. Are my goals and objectives reflected in the existing agreement?

  2. Is the agreement able to deliver the solutions required in a tax efficient manner?

  3. Is insurance funding required as part of the agreement?

When working with business owners, our team can assist with reviewing existing shareholders agreements and possibly recommend some ideas to take back to your legal and accounting teams.


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