ShareholderKs

Now that you have incorporated, have you considered all of the issues that can arise between the owners of
your corporation, i.e. the shareholders? While we all hope that the internal workings of our business will run
smoothly, that is not always the case. Therefore, it is essential to put into writing an agreement that will
govern the relationship between the parties. A shareholder's agreement covers a wide variety of issues. It
helps you focus on how the day to day operations will be run as well as on solutions to problems that may
arise.

Things may seem bright and rosy at the start of a new venture. However, they can turn sour and at these
times it is crucial to have a shareholders’ agreement to guide you.

Although you should consider hiring a lawyer to draft the agreement, you can start to think about the various
items that you may want to include. This exercise can prove tricky since many of the provisions are meant to
deal with problems that may or may not occur at some point in the future. In fact you may find it easiest to
work backwards, in other words consider the potential problems and then fashion solutions to deal with
them.

The following is a checklist of questions to help get you thinking about what you should consider including
in your shareholder agreement. The list is not exhaustive but it provides a good starting point.

How will the business be controlled and managed?
How many directors will there be and how will they be elected?
How will vacancies on the board of directors be filled?
Will the directors be compensated and how?
Who and how will the officers be appointed? Will they be compensated and how?
What compensation should the shareholders who are also employees receive?
Where shareholders are also employees, should provisions be made for death, disability or
retirement?
How will security be issued, redeemed and repurchased?
Can the corporation be obliged to incur debt over the objections of some of the shareholders?
When will dividends be declared?
How will business decisions, during the ordinary course of business, be made?
What about business decisions, outside the ordinary course of business?
How will shareholder deadlocks be resolved?
How will you ensure the business's future requirements for capital are met?
What circumstances will require additional capital?
How will the capital be raised?
If capital is to be raised through shareholder contributions, how much will each contribute?
What happens if one of the shareholders does not contribute?
What will be the corporation’s fiscal year?
Who will the accountants/auditors be?
Who will have cheque signing authority?
Will there be an absolute prohibition on share transfers outside the original group?
How can shares be transferred to people outside the original shareholders group?
When will a mandatory transfer of shares, within the shareholder group, take place?
How will an optional transfer of shares, within the shareholder group, take place?
Can the shareholders be obliged to sell their shares within "piggy back" situations or situations of
first rights of refusal?
How will the relationship be terminated? What sort of divorce provisions will be included?, e.g. a
shotgun provision, right to invoke dissolution proceedings . . .
What should be included in the non-competition clause in the event one or more of the shareholders
leaves the business?
Do you want to include a provision specifying that shareholders provide the others with notice of any
proceeding regarding the division of net family property in Ontario, either by the shareholder or the
shareholder's spouse?
Do you want to include a provision indicating that a spouse involved in a division of net family
property will endeavour to cause his or her spouse to keep all business information confidential?
Should the shareholders be required to enter a marriage contract whereby the non-shareholder
spouse would agree not to satisfy an equalization of net family property from the corporation and/or
keep all business information confidential?