Corporate & commercial · Shareholder agreements
A shareholder agreement is the contract that governs how multiple owners of a BC company relate to each other — what happens when one wants out, when one dies, when there is a dispute, when the company is sold. It is one of the highest-value documents a corporation can have, and one of the most expensive ones to draft retroactively after a falling-out.
Why it matters
A BC corporation's articles cover the basic mechanics: who can call meetings, how directors are elected, how shares can be issued. They do not, by themselves, answer most of the questions that arise when the people behind the corporation start disagreeing.
Without a shareholder agreement, those questions get litigated. The corporation's articles plus the BC Business Corporations Act provide a default framework, but the framework is generic and rarely matches what the founders actually wanted. Common situations that go badly without an agreement:
Each of these is solvable with the right shareholder agreement language at the start.
What we draft into every agreement
Right of first refusal (existing shareholders get to match an offer before the seller can sell to a third party); tag-along rights (minority shareholders can join a sale by the majority); drag-along rights (majority can force minority to sell). Together, these define who can become a shareholder.
What happens on death, disability, retirement, termination, divorce, bankruptcy, or a fundamental disagreement. Includes the mandatory or optional buyout trigger, the valuation method (formula, appraisal, agreed price), and the funding mechanism (cash, instalment, life insurance proceeds, vendor takeback note).
What decisions need unanimous shareholder approval (selling the company, taking on major debt, changing the share structure), what needs board approval, and what the management can do unilaterally. Most agreements include a list of "fundamental matters" that always go to shareholders.
Mediation, arbitration, or court. Deadlock-breaking mechanisms — shotgun clauses, casting votes, mandatory buyouts — that prevent a corporate stalemate from becoming a multi-year court fight.
How profits get distributed: pro rata to shareholders, on a defined formula, in priority by share class, or at the directors' discretion. Important on files with multiple share classes or when shareholders have different cash needs.
Restrictions on departing shareholders competing with the corporation, and obligations to keep confidential information confidential during and after shareholding. Most enforceable when narrowly drafted to a defined period and geographic scope.
Frequently asked
A shareholder agreement is a contract between the shareholders of a corporation (and usually the corporation itself) that governs how the shareholders relate to each other and to the company. It sets the rules on share transfer, what happens when a shareholder dies or wants out, how decisions are made, how profits are distributed, and how disputes are resolved. It complements the corporation's articles — the articles are public and follow a standard form; the shareholder agreement is private and tailored to the specific deal.
Ideally, at the same time as the incorporation. Drafting it later — after years of operating without one — is harder because the shareholders have already developed expectations, sometimes conflicting ones. The cost of drafting an agreement when relationships are good is much lower than negotiating one when they are not.
No. A shareholder agreement governs the relationship between two or more shareholders, so a sole owner does not need one. The moment you bring in a second shareholder — including a spouse on a small percentage for tax planning — an agreement becomes worth drafting.
On most files, four: (1) share transfer restrictions — first refusal, drag-along, tag-along — that control who the shareholders end up sharing the company with; (2) buyout mechanisms on death, disability, retirement, or a falling-out, including how the buyout is valued and funded; (3) decision-making rules — what requires unanimous shareholder approval versus board approval versus management discretion; (4) dispute resolution — mediation, arbitration, deadlock-breaking provisions.
A shotgun clause is a deadlock-breaking mechanism: one shareholder offers to buy the other out at a stated price; the other shareholder must either accept the offer (and sell at that price) or buy the offering shareholder out at the same price. The clause is meant to ensure that neither party will lowball — because if they do, they will lose their own shares at the lowball price. Shotguns work well when shareholders are roughly equal in resources; they can produce unfair outcomes when one shareholder has substantially more capital.
Most agreements provide that the deceased shareholder's shares must be sold (or are deemed sold) to the surviving shareholders or the corporation, at a value determined by a formula or by an agreed valuation method. The estate of the deceased receives the value rather than the shares. Many agreements pair this with a corporate-owned life insurance policy that funds the buyout. Without these provisions, the shares pass to the deceased's estate and (eventually) to whoever the will names — which may not be a person the surviving shareholders want as a partner.
Our flat fee for a basic shareholders' agreement (two or three shareholders, standard share class, voting / dividends / transfer restrictions / basic exit) is published on our corporate fee schedule. More complex agreements — multi-class structures, drag-along / tag-along, vesting and performance criteria, financing covenants — are quoted on the file at intake.
Tell us how many shareholders, the share structure, and the key concerns (control, exit, family-member protection, dispute mechanisms). We'll come back with a quote and a draft outline.