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22 March 20218 minute read

Shareholder agreements: Key considerations when putting an agreement in place

This article highlights six key considerations a corporation and its shareholders should contemplate when planning to put a shareholder agreement in place. This article is not intended to address all matters these parties may want to consider and include in such agreement.


A general shareholder agreement is an agreement between two or more shareholders which sets out additional rights and protections for the shareholders, including voting rights, restrictions on the transfer of shares and protection for minority shareholders.

Pursuant to applicable corporate legislation, such as the Canada Business Corporations Act, a unanimous shareholder agreement, commonly known as a USA, must also satisfy the following conditions:‎1

  • Be among all of the shareholders of a corporation; and
  • Restrict, in whole or in part, the powers of the directors to manage or supervise the management of the business and affairs of the corporation.

To the extent that the powers of the directors are restricted, the shareholders then inherit the rights, powers, duties and liabilities of the directors in respect of the powers so restricted. Another benefit of a USA is that a subsequent purchaser or transferee of shares will be deemed to be bound, regardless of whether such purchaser or transferee had actual knowledge of said agreement (though there is a period of time where a contract may be rescinded in such circumstances).

Key considerations

1.‎ Involvement of principals and founders

Are founders and/or principals involved in the business and affairs of the corporation? If so, consider ‎whether additional provisions specific to such founders and principals should be included. These ‎provisions could include mandatory sales events whereby a shareholder is obligated to sell its shares to ‎the other shareholder(s) upon the occurrence of such events, such as the death, disability or termination ‎of a founder or principal. ‎

Another consideration is whether it would be appropriate to include a covenant whereby the founder ‎and/or principal agrees to devote a certain amount, or all, of their time and attention to the business and ‎affairs of the corporation. ‎

Some corporations will choose to include these additional provisions in a USA, however others will put in ‎place a separate founders’ shareholder agreement addressing these provisions. A separate founders’ ‎shareholder agreement will typically be shorter in length, and may only include the key terms being ‎agreed to between the founders, excluding the standard ancillary language typically found in a USA with ‎third party investors. If looking to include these provisions in a USA, shareholders should be mindful ‎that, unless otherwise specified, these provisions will apply to the founders and/or principals of all ‎shareholders. ‎

2.‎ Shareholder approval of certain matters

A key aspect of a USA is that it restricts the powers of directors to manage or supervise the ‎management of the business and affairs of the corporation. Accordingly, a USA typically delineates a ‎number of matters which require shareholder approval, and the percentage of shareholders, usually a ‎simple or two-thirds majority, from whom approval is needed. Subject to corporate legislation, these ‎matters could include, among others: ‎

  • Amending the constating documents, including amendments to the authorized share capital, of ‎the corporation; ‎
  • Approving any changes in the number of directors and/or auditors of the corporation; ‎
  • Declaring or paying dividends or other distributions in respect of the corporation’s securities; ‎
  • Approving any material change to the business and affairs of the corporation; ‎
  • Entering into any borrowing arrangements, joint-venture or partnership agreements and purchase ‎or sale agreements for assets or shares other than in the ordinary course of business; ‎
  • Authorizing any transfer or issuance of securities, the acquisition of securities or purchase of all ‎or substantially all of the assets of any other entity; and ‎
  • Approving any dissolution, liquidation or winding-up of the corporation. ‎

The above list is by no means exhaustive. When determining which matters to include in the agreement, ‎one should keep in mind the anticipated number of future shareholders, as the mechanisms for obtaining ‎proper shareholder approval, such as obtaining the written resolution of all shareholders or holding a ‎shareholder meeting, will have to be followed. ‎

3.‎ Voting and quorum

Voting and quorum thresholds for director and shareholder meetings are standard provisions typically ‎found in a shareholder agreement. When determining the appropriate thresholds, it is important to keep ‎in mind certain practical considerations. For example, should all directors be required to be in attendance ‎at a directors’ meeting for quorum to be properly constituted? A simple majority of directors may be ‎preferable if directors are located in different jurisdictions geographically or if there are other challenges ‎which may prevent attendance by all directors on a regular basis. ‎

Another consideration is whether the shareholder agreement should specify that founder director(s) ‎and/or founder shareholder(s) are required to either vote in favour of a resolution or be in attendance at a ‎meeting in order for such resolution to be passed or quorum be properly constituted, respectively. ‎

4.‎ Future financings

What are the corporation’s anticipated future financing plans? Are shareholders obligated to provide ‎further capital by purchasing additional shares or loaning money to the corporation? If so, the ‎shareholder agreement can set out these obligations and the processes by which additional capital can ‎be raised. ‎

Should existing shareholders have the right to participate in future financings? If so, a pre-emptive right ‎might be included in the shareholder agreement, which entitles existing shareholders to purchase ‎additional shares in proportion to their existing holdings. In addition, some shareholder agreements will ‎also provide for an over-allotment right, whereby a shareholder can acquire further additional shares in ‎excess of their pro rata portion, to the extent that such shares are not taken up by the other ‎shareholders.  ‎

It may be desirable for the shareholder agreement to contain a non-competition clause, whereby ‎shareholders and their principals are prohibited, while they remain a shareholder and/or principal of the ‎corporation and for a period of time afterwards, from participating in a competitive business to the ‎corporation. If the corporation anticipates or expects to have venture capitalist shareholders, a carve-out ‎for passive investments not exceeding a certain threshold might also be contemplated.  ‎

Shareholders and their principals, in particular venture capitalists, will typically also expect to receive ‎certain information and inspection rights. These rights could include delivery of certain financial ‎statements, business plans and minutes of directors’ meetings, among others. It is worth considering ‎whether these rights will apply to all shareholders or only to certain shareholders, such as any ‎shareholder holding a particular percentage of shares. ‎

5.‎ Going public

Does the corporation plan to go public in the future? If so, it is worth considering and setting out in the ‎shareholder agreement what will happen upon the occurrence of a go-public event. Typically a ‎shareholder agreement will contain a termination provision whereby the agreement will automatically ‎terminate upon the completion of a defined go-public event.‎

6.‎ Transferability of shares

A shareholder agreement may also include certain provisions which outline the rights and processes to ‎be followed in the event shareholder(s) holding a certain percentage of shares, typically at least a ‎majority, wish to sell their shares to a third party. For instance, should the remaining shareholders be ‎entitled to the right to sell their shares to such third party as well? Alternatively, should the remaining ‎shareholders be required to sell their shares? A few of the standard provisions are discussed below. ‎

  • A right of first refusal (ROFR) requires that the selling shareholder(s) first offer the subject ‎shares to the remaining shareholders on terms no less favourable than those being offered to ‎the third party. In accordance with the ROFR provision, if the remaining shareholders refuse the ‎offer, the subject shares can then be sold to the third party.‎
  • A tag along right requires that the selling shareholder(s) allow any remaining shareholders to ‎participate in a sale of shares to the third party.  ‎
  • A drag along right provides the selling shareholder(s) with the right to require any remaining ‎shareholders to participate in a sale of shares to the third party. ‎

As with other standard provisions, the shareholder agreement can provide that these restrictions on ‎transfer are available to all shareholders of the corporation, or are limited to a certain subset of ‎shareholders.  ‎


Overall, there are numerous matters a corporation and its shareholders might consider when putting a shareholder agreement in place. This article highlights only a few key points and corresponding provisions above.

This article is intended as a summary only and should not be regarded or relied upon as an opinion or ‎‎advice to any specific client or regarding any specific situation. ‎

If you have any questions about this article or would like further information about this guidance, please ‎‎contact the author.‎

This article provides only general information about legal issues and developments, and is not intended to provide specific legal advice. Please see our disclaimer for more details.


[1] ‎Specific requirements may differ depending on the corporate legislation applicable in other Canadian jurisdictions.