Do you want your other shareholders to be able to sell their shares to people you don’t know? What happens when one of you wants out of the business? What if one of your business partners is getting a divorce? Do you want their former spouse to be involved in your business?
Unanimous Shareholder Agreements (the “USAs”) are essential agreements where more than one shareholder is involved in a business. Clearly setting out your rights and obligations is key to your business' long-term success.
So, what exactly is a USA, and is it right for you?
What is a Unanimous Shareholder Agreement?
A Unanimous Shareholder Agreement (USA) is a legally binding contract among all shareholders of a company that outlines the rules and procedures for corporate governance.
The Canada Business Corporations Act (Canada) (the “Act”) (as well as the provincial variants, such as the Business Corporations Act (Alberta) and the Business Corporations Act (Ontario)) defines a USA as a written agreement among all shareholders (and possibly others) that restricts the powers of directors to manage the company's affairs. The Act outlines three primary purposes for a USA:
To empower shareholders to govern and manage the business by restricting director's powers;
to specify means of dispute resolutions; and
to dictate how shareholders can join or exit the company.
Who Needs a Unanimous Shareholder Agreement?
USAs are essential for any corporation with multiple shareholders who want to ensure that all major decisions are made collectively. Essentially, any company looking to establish a clear and structured governance framework can benefit from a USA. However, they are typically used by companies with a small number of shareholders.
They can be particularly valuable for:
Start-ups: Founders and early investors should clearly define roles and responsibilities to prevent future conflicts.
Family-Owned Businesses: Maintaining control within the family and preventing external influence are paramount.
Closely Held Corporations: These are small groups of shareholders that hold significant stakes and must coordinate effectively.
Why are Unanimous Shareholder Agreements Important?
A Unanimous Shareholder Agreement (USA) minimizes risks and conflicts within a company, allowing shareholders to focus on growth rather than defending decisions. For Start-ups, USAs are especially valuable, enabling internal dispute resolution and setting clear expectations from the start.
USAs help avoid deadlocks with decision-making provisions and manage unexpected ownership changes with share transfer rules. They provide stability, protect minority shareholders, and prevent costly litigation. Often overlooked, USAs are like insurance—essential when needed.
Where Can You Find Unanimous Shareholder Agreements?
USAs are not one-size-fits-all documents; they are custom-crafted to suit the unique needs of each company. Typically, USAs are drafted with the help of experienced corporate lawyers who ensure that the agreement complies with relevant legal requirements and addresses the specific concerns of the shareholders.
When Should You Consider a Unanimous Shareholder Agreement?
Timing can be crucial when it comes to implementing a USA. Ideally, a USA should be drafted and agreed upon when more than one shareholder is involved in the business, ensuring a solid foundation for governance. However, it's never too late to consider a USA—whether you're forming a new company, facing conflicts among shareholders, or simply seeking to enhance your corporate governance, a USA can provide the clarity and structure you need.
Conclusion
A Unanimous Shareholder Agreement is a powerful tool for minimizing conflicts and fostering a cooperative environment among shareholders. It provides a clear framework for decision-making and dispute resolution, ensuring that all shareholders' interests are protected. Establishing a USA early on sets the foundation for a stable and successful business.
At Outsiders Law, we are committed to protecting your business's future. Contact our expert team of lawyers for guidance and assistance in drafting a tailored Unanimous Shareholder Agreement that is best for you. We can help review your existing agreements to ensure your company operates smoothly and efficiently. Let us secure the future of your business!
Disclaimer
The information provided in this article is for educational purposes only. Nothing contained herein should be considered as legal, professional, or tax advice. Please contact us directly if you require legal assistance.
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