However, such purchasers will now enjoy a right of rescission, thanks to recent amendments to Ontario’s business corporations statute
On January 1, 2007, amendments to the unanimous shareholder agreement (USA) provisions of Ontario’s Business Corporations Act (OBCA) came into force. The amendments mark a shift in the approach taken to the difficult question of how and when USAs bind new shareholders.
Prior to the amendments, transferees of shares were deemed to be parties to an existing USA so long as the agreement was noted on the share certificates. Now, anyone who acquires shares, whether as a transferee or through a new issue of shares, will be deemed a party to any USA that is in place at the time of acquisition, whether or not they had notice of its existence.
There is a significant quid pro quo, however. While acquirors without notice are now deemed to be parties to any existing USA, they have the right to rescind their purchase after learning that the agreement exists. The precise procedure and rights depend on whether the shareholder acquired its shares directly from the corporation or as a transferee.
Shareholders who acquired their shares directly from the corporation may rescind the contract under which the shares were acquired within 60 days of receiving a complete copy of the USA, by notice to the corporation.
A shareholder that acquired its shares as transferee can proceed in either of two ways:
It may rescind its contract if, within 60 days of receiving a complete copy of the USA, it (i) sends a notice of objection to both the corporation and the transferor and (ii) gives notice to both the corporation and the transferor that it is rescinding the contract; or
It can demand that the transferor pay it the fair value of the shares (or the value of the original consideration paid, if greater), provided that it sends a notice of objection as described above within 60 days of receiving a complete copy of the USA. "Fair value" is calculated as of the date the notice of objection is delivered to the corporation.
One way for a purchaser to have notice of a USA is for the share certificate (if any) to contain a reference to the agreement. Accordingly, although the requirement to note a USA on the share certificate has been repealed, it is highly advisable to continue this practice in order to satisfy the notice requirement.
From a practical perspective, it will be important to ensure that new shareholders and those who otherwise acquire shares have actual notice of any USA that exists either by noting the agreement on the share certificates or by giving actual notice in some other way. While rescission rights flow from receipt of a complete copy of the agreement, it does not appear to be necessary to provide a complete copy of the agreement in order for actual notice to be effective.
The requirement to have actual notice and the new rescission rights will also have implications for documentation in minute books as well as any legal opinions that may need to be given in connection with the issuance and transfer of shares when there is a USA in place.
In adopting the approach of deeming acquirors without notice to be parties to any existing USA, balanced by a subsequent right of rescission, the Province of Ontario has followed a precedent set by the Canada Business Corporations Act and the Business Corporations Act of Alberta – although the corresponding provisions in those statutes differ significantly from Ontario’s, and from each other, with respect to the details of the rights and procedures they create. Business corporations legislation in a number of other provinces continues to take the previous approach, under which acquirors are not deemed parties in the absence of notice.
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