Canada: Shareholders’ Agreement and Bye-laws: Canada: International Joint Ventures

Last Updated: December 31 2010
Article by Philip Mohtadi and Sue-Anne Fox

Originally published in Practical Law Company, 2010.

1. What are the main documents that regulate the constitutional arrangements and day-to-day operation of a joint venture company incorporated in your jurisdiction? (Please answer this and other questions in respect of the corporate vehicle that is most likely to be used for a private joint venture with two or more corporate shareholders.)

The main documents required to establish and maintain a company are:

  • Articles of incorporation. Incorporation under Canadian federal and provincial business corporations legislation is accomplished by delivering articles of incorporation in the form prescribed by regulation to the appropriate government department, together with the required supporting materials and fees. The articles of a company incorporated under the Canada Business Corporations Act must include:
    • the name of the company;
    • the address of the company's registered office in Canada;
    • any restrictions on the businesses that the company may carry on;
    • a description of the share capital structure, including the classes and maximum number of shares that the company is authorised to issue (the authorised capital is often unlimited) and the rights, privileges, restrictions and conditions attached to each class (which may include subdivision into separate series);
    • any restrictions on the issue, transfer or ownership of shares; and
    • the number of directors or the minimum and maximum number of directors.
  • Bye-laws. The bye-laws of a company are general regulations that constitute the rules that regulate the manner in which the business affairs of the company are conducted. At or around the date of incorporation, a company typically prepares a general bye-law that deals with matters such as:
    • the execution of documents;
    • the company's financial year end;
    • the procedures to be used in connection with meetings of directors and shareholders;
    • the provision for committees of directors; and
    • the duties of the officers of the company.
  • Unanimous shareholders' agreement. A unanimous shareholders' agreement is a written agreement between all the shareholders of a company that governs the manner in which the company should operate, and may include:
    • restrictions on its business;
    • restrictions on share transfers;
    • minority shareholder protections; and
    • restrictions on the powers of the directors to manage the business and affairs of the company.

2. Is it possible to amend the constitutional documents of a company? If so, what are the relevant voting requirements?

Subject to any unanimous shareholders' agreement, the articles of a company can be amended only by way of a special resolution of the shareholders, which requires the approval of at least 66 2/3% of the votes cast by the shareholders entitled to vote on the resolution.

The bye-laws of a company can be amended by the directors, subject to ratification by ordinary resolution of the shareholders (approval by at least 50% of the votes cast by the shareholders entitled to vote on the resolution) and subject to any unanimous shareholders' agreement.

3. Is every shareholder automatically bound by a company's constitutional documents?

Yes.

4. Is it necessary for a company's constitutional documents to be registered and open to public inspection?

Yes. Under Canadian federal law, the articles of incorporation are public documents. In addition, the company's articles, bye-laws, a copy of any unanimous shareholders' agreement, the minutes of meetings and resolutions of shareholders must be maintained at the company's registered office. Any shareholder or creditor of the company and the director appointed to carry out the duties and exercise the powers of the "director" under section 260 of the Canada Business Corporations Act can examine the company's documents during usual business hours. Similar requirements apply under provincial business corporations legislation.

5. Is it necessary for a shareholders' agreement to be registered and open to public inspection?

No. There is no requirement under Canadian federal or provincial business corporations legislation to register a unanimous shareholders' agreement given that it is a private contractual agreement between the shareholders. The unanimous shareholders' agreement may, however, be subject to examination by any creditor of the company and the director appointed under the Canada Business Corporations Act.

6. Is a company bound by its constitutional documents?

Yes, a company's articles and bye-laws bind the company, its directors and shareholders. However, if a unanimous shareholders' agreement exists, it may supersede the specific provisions set out in the company's articles and bye-laws.

7. Is it common practice for a joint venture company to be a party to a shareholders' agreement relating to the joint venture?

Yes. A company is typically a party to the unanimous shareholders' agreement given that the agreement usually imposes obligations on both the shareholders and on the company itself. The terms and conditions of a unanimous shareholders' agreement apply, in priority, to the provisions of the company's articles of incorporation (see Question 11).

8. What are the remedies for breach of a shareholders' agreement?

The remedies available for a breach of a unanimous shareholders' agreement are similar to the remedies available for breach of contracts generally. Such remedies include damages, specific performance, an injunction or a declaration as to the rights of the parties. In addition, if a company is not in compliance with the unanimous shareholders' agreement, a shareholder may apply to a court for an order directing the company to comply with, or restraining the company from acting in breach of, any provisions of the agreement. The court may also make any further order it considers appropriate.

9. What are the remedies for breach of a company's constitutional documents?

If a company is not in compliance with its constating documents (articles and bye-laws), a shareholder can apply to a court for an order directing the company to comply with, or restraining the company from acting in breach of, any provisions of its constating documents. The court may also make any further order it considers appropriate.

10. In which document would you commonly insert the following provisions:

The following list sets out in which document a particular provision would be found:

(a) Object and scope of the venture. Articles of incorporation or unanimous shareholders' agreement or both.

(b) Capitalisation and funding. Articles of incorporation or unanimous shareholders' agreement or both.

(c) Board composition and management arrangements. Unanimous shareholders' agreement.

(d) Distribution of profits (including dividend policy). Unanimous shareholders' agreement.

(e) Provisions for dealing with deadlock. Unanimous shareholders' agreement.

(f) Termination provisions. Unanimous shareholders' agreement.

(g) Restrictive covenants. Articles of incorporation or unanimous shareholders' agreement or both.

(h) Rights to appoint and remove directors. Unanimous shareholders' agreement.

(i) Quorum for board and shareholder meetings. Unanimous shareholders' agreement.

(j) Procedures for shareholders' meetings. Unanimous shareholders' agreement.

(k) Division of shares into classes. Articles of incorporation.

(l) Chairman's casting vote. Unanimous shareholders' agreement.

(m) Notice provisions. Unanimous shareholders' agreement.

(n) Share transfer provisions. Unanimous shareholders' agreement.

(o) Minority protection (veto rights and so on). Unanimous shareholders' agreement.

11. In the event of a conflict between a shareholders' agreement and a company's constitutional documents, which document is likely to prevail?

In the event of a conflict between the articles of incorporation and a unanimous shareholders' agreement, the terms and conditions of the unanimous shareholders' agreement prevail.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions