DANGERS WITHOUT A SHAREHOLDERS AGREEMENT

LEGAL COUNSEL FOR SHAREHOLDERS AGREEMENTS

Shareholders agreements are absolutely essential to the long term success of any corporate enterprise that is owned by more than one individual. Yet, it is highly unfortunate that far too many companies either fail to have a unanimous shareholders agreement or have an agreement that is inadequate its ability to carry-out the shareholders' true intent. For a shareholders agreement needs to properly reflect the shareholders' current collective intention for the company's operations and exit strategies. Without such coherence in this legal document, the corporation will find itself facing significant legal turmoil in the future as most attempt to overcome the agreement's deficiencies, will creating unnecessary tension and animosity amongst the shareholders, in an often futile and costly effort to achieve some form of resolution, with which no one is almost ever happy with.

As such, it makes sense to retain experienced legal counsel and properly negotiated and execute your company's shareholders' agreement such that it conforms to your requirements, or is otherwise acceptable in light of what has been bargained for with your fellow shareholders and other parties having a stake in your business enterprise. 

At Neufeld Legal P.C., we assist corporate shareholders in making the appropriate decisions with respect to the drafting and implementation of unanimous shareholders agreements. Contact us at by telephone at 416-887-9702 (Toronto area) / 403-400-4092 (Calgary) or via email at Chris@NeufeldLegal.com.

Agreement between shareholders cont. (O.B.C.A.)
Matter that a unanimous shareholder agreement may provide
(6) A unanimous shareholder agreement may, without restricting the generality of subsection (2), provide that,
(a) any amendment of the unanimous shareholder agreement may be effected in the manner specified therein; and
(b) in the event that shareholders who are parties to the unanimous shareholder agreement are unable to agree on or resolve any matter pertaining to the agreement, the matter may be referred to arbitration under such procedures and conditions as are specified in the unanimous shareholder agreement.
Issuance or shares subject to unanimous shareholder agreement
(7) If a unanimous shareholder agreement is in effect at the time a share is issued by a corporation to a person other than an existing shareholder,
(a) that person shall be deemed to be a party to the agreement whether or not that person had actual knowledge of it when the share was issued;
(b) the issue of the share does not operate to terminate the agreement; and
(c) if that person is a purchaser for value without notice of the agreement, that person may rescind the contract under which the shares were acquired by giving notice to that effect to the corporation within 60 days after the person actually receives a complete copy of the agreement.
Transfer of shares subject to unanimous shareholder agreement
(8) If a unanimous shareholder agreement is in effect when a person who was not otherwise a party to the agreement acquires a share of the corporation, other than under subsection (1),
(a) the person who acquired the share shall be deemed to be a party to the agreement whether or not that person had actual knowledge of it when he or she acquired the share; and
(b) neither the acquisition of the share nor the registration of that person as a shareholder operates to terminate the agreement.
Notice of objection
(9) If a person referred to in subsection (8) is a purchaser for value without notice of the unanimous shareholder agreement and the transferor’s share certificate, if any, did not contain a reference to the unanimous shareholder agreement, the transferee may, within 60 days after he or she actually receives a complete copy of the agreement, send to the corporation and the transferor a notice of objection.
Rights of transferee
(10) If a person sends a notice of objection under subsection (9), that person is entitled to,
(a) rescind the contract under which the shares were acquired by giving notice to that effect to the corporation and the transferor within 60 days after the transferee actually receives a complete copy of the unanimous shareholder agreement; or
(b) demand that the transferor pay the transferee the fair value of the shares held by the transferee, determined as of the close of business on the day on which the transferor delivers the notice of objection to the corporation, in which case subsections 185 (4), (18) and (19) apply, with the necessary modifications, as if the transferor were the corporation.
Note: On a day to be named by proclamation of the Lieutenant Governor, clause (b) is amended by striking out “the transferor delivers the notice of objection” and substituting “the transferee delivers the notice of objection”.
Deficiency
(11) A transferee who is entitled to be paid the fair value of the transferee’s shares under clause (10) (b) also has the right to recover from the transferor the amount by which the value of the consideration paid for those shares exceeds their fair value.

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