Any company with more than one shareholder should strongly consider having a unanimous shareholders’ agreement in place. At the time of incorporation, this is often far from the shareholders’ minds and may be viewed as an unnecessary start-up expense. Shareholders are often friends or family members who have a close relationship and so don’t see the need for a shareholders’ agreement. This is understandable, however, time and time again, business lawyers like us, are asked to help corporations address issues that could have been avoided by a well-drafted shareholders’ agreement. It is often the case that the legal fees incurred to address the unexpected issue that arises far exceed the cost of preparing a shareholders’ agreement.
Much like a prenuptial agreement or a will, we often don’t want to think ahead to death, disability, or the breakdown of a business relationship. However, careful planning with a skilled business lawyer can make these already stressful life events much more affordable and manageable.
Ultimately, a well-drafted shareholders’ agreement can save you money and uncertainty and will ensure that your company can run smoothly and profitably. An experienced business lawyer can help you tailor the terms of your shareholders’ agreement to address the specific nature of your business and your relationship with other shareholders.
SOME OF THE IMPORTANT ISSUES THAT A UNANIMOUS SHAREHOLDERS’ AGREEMENT CAN COVER:
- WHAT HAPPENS WHEN A SHAREHOLDER DIES, DIVORCES, GOES INTO BANKRUPTCY, OR BECOMES DISABLED?
For example, although you may love working with your business partner and fellow shareholder, you may not feel the same about working with his or her spouse should your partner die and leave all their assets (including shares) to their spouse. A shareholders’ agreement can address this by allowing the shares to be purchased by the corporation or another shareholder upon a death.
- WHAT HAPPENS WHEN, FOR WHATEVER REASON, THE RELATIONSHIP BETWEEN SHAREHOLDERS BREAKS DOWN AND IT IS NECESSARY TO PART WAYS TO PRESERVE THE BUSINESS?
A shareholders’ agreement can provide a clear road map for fair exit strategies.
- HOW CAN THE EXISTING SHAREHOLDERS CONTROL WHO MIGHT BECOME A NEW SHAREHOLDER IN THE FUTURE?
A shareholders’ agreement will provide restrictions on when additional shares can be issued.
- HOW CAN SHARES BE SOLD IF A SHAREHOLDER WISHES TO LEAVE THE COMPANY AND HOW WILL THE SHARES BE VALUED?
- WHAT ARE THE EXPECTATIONS PUT ON SHAREHOLDERS IN TERMS OF THEIR CONTRIBUTION TO THE BUSINESS OR OTHER OPERATIONAL MATTERS?
- HOW WILL SHARE ISSUANCES TO EMPLOYEES BE MANAGED?
For example, a shareholders’ agreement can advise what will happen if an employee shareholder leaves their employment with the corporation.
- WHAT IMPORTANT DECISIONS MUST BE UNANIMOUSLY AGREED UPON BY THE SHAREHOLDERS?
This is a key consideration if you are a minority shareholder and/or not a director of the corporation. Without provisions like this in the shareholders’ agreement you will have almost no say in how the company is run and managed.
- HOW WILL A FUTURE SALE OF THE COMPANY TO A THIRD PARTY BE MANAGED AND FACILITATED?
- HOW CAN THE BUSINESS BE PROTECTED IF A SHAREHOLDER LEAVES THE BUSINESS AND SELLS THEIR SHARES?
Provisions can be included in the Shareholders’ Agreement protecting the intellectual property of the corporation and preventing departing shareholders from competing with the corporation or soliciting its clients or employees.
HOW CAN LIFT LEGAL HELP?
If you are interested in learning more about how unanimous shareholders’ agreement might benefit your corporation, contact Lift Legal’s business law team. Our business lawyers work with all files and types of St. Albert, Edmonton and surrounding areas. We will take the time to get to know you and your business and will provide you with a tailor-made agreement that you can understand.