A shareholders' agreement is strongly recommended for
privately held companies where there is more than one
shareholder. The following sets out certain issues to consider
when determining whether a shareholders' agreement is needed.
The issues set out below are in no way exhaustive as there is no
"model" shareholders' agreement which is appropriate
in all circumstances, as each group of shareholders will have
unique concerns and priorities. That being said, there are a few
basic considerations that most shareholders' agreements
A shareholders' agreement will generally outline the
a means of dispute resolution — A common dispute
resolution mechanism is a "shotgun clause", which is a
clause that permits a shareholder to offer to sell his or her
shares to the other shareholders but requires that he or she be
prepared to buy the shares at that same price if the other
shareholders refuse to buy his or her shares. Other dispute
resolution mechanisms include arbitration or mediation;
the protection of minority shareholders and the minimization of
the inequality of positions caused by differing shareholdings
— A common protection for a minority shareholder is a
"tag-along" right, which permits a minority shareholder
to participate in a proposed sale of shares by a majority
shareholder to a third party. The converse of this is a
"drag-along" right, which enables a majority shareholder
to force a minority shareholder to participate in the sale of
shares by the majority shareholder to a third party. Requiring
unanimous approval also serves to protect the minority
the agreement of the parties, in advance, on how particular
matters will be voted on when a particular resolution or set of
circumstances is presented — On important issues, unanimous
approval of all of the shareholders can be required. Typical topics
that require unanimous approval include: loan agreements, election
of directors and cash contributions;
controls on who will be the other shareholders of the Company,
both present and future — General corporate law allows for a
shareholder to freely transfer his or her shares. This can be an
unwelcome surprise for the other shareholders who would prefer to
choose who they have as fellow shareholders. As a result, most
shareholders' agreements impose restrictions on the transfer of
shares. Restrictions usually require unanimous shareholder approval
before a sale is permitted. A right of first refusal is also a
common restriction which requires that a shareholder proposing to
sell his or her shares must first offer them to the other
what happens when one or more of the shareholders dies,
divorces, becomes disabled, becomes uninterested in the business,
or becomes in some other way unable or unwilling to contribute to
the business — Oftentimes, the shares are bought by the
Company, or the remaining shareholders, at some predetermined value
which is set out in the shareholders' agreement; and
what happens when, for whatever reason, the other shareholders
no longer want a particular person to remain as a shareholder of
the Company — In these circumstances the parties could
exercise the "shotgun clause" referenced above, but this
could lead to the possibility that the shareholders seeking to buy
out the unwanted shareholder are themselves bought out.
Having a well-drafted shareholders' agreement in place has
many advantages including, but not limited to:
having a road map to follow when unexpected changes
preserving the value of the business;
allowing for tax planning;
protecting the remaining shareholders in the event of the
death, departure or disability of a shareholder;
minimizing or eliminating miscommunications and discord between
the shareholders as a predetermined method is already established
to deal with issues which may arise; and
allowing the flexibility to deal with any unique issues which
may arise such as financing provisions, share vesting provisions,
non-compete clauses, valuations and dividends.
One of the best reasons to put a shareholders' agreement in
place is that it forces the parties to discuss the issues which
could arise prior to them facing those issues. Once the agreement
is in place, then the parties can carry on with the comfort of
knowing that if an issue arises, they will know what to do.
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.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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