Under the Canada Business Corporations Act (CBCA), a unanimous shareholder agreement (USA) is an agreement among all of the corporation’s shareholders. A unanimous shareholder agreement restricts the powers of the directors to manage, or supervise the management of, the business and affairs of the Corporation (s.146).
Boiled down to its essential components, a unanimous shareholder agreement is a contract made among all the shareholders that restricts the actions of the directors. If it does not restrict the actions of the directors, it is not a unanimous shareholder agreement, even if it is a unanimous agreement made by all of the shareholders. Confusing? Probably, but the thing to remember is that unanimous shareholder agreement is a term of art that is used to specifically refer to agreements which are created under section 146 of the Canada Business Corporations Act, and nothing else.
Why Does My Corporation Need a Unanimous Shareholder Agreement?
Prior to the introduction of the Canada Business Corporations Act and at common law, shareholders had limited rights to restrict the control of the directors, even when the shareholders were acting unanimously. The introduction of the Canada Business Corporations Act in 1975 overruled the common law and allowed shareholders to unanimously relieve the directors of some or all of their managerial powers as desired by the shareholders.
Typical provisions of a unanimous shareholder agreement include governance and management, financing, pre-emptive rights, shotgun provisions, non-competition provisions and many other powers that the shareholders wish to take control of. Unanimous shareholder agreements often function to help resolve and settle disagreements between shareholders by laying out the procedures which will govern in the event of a dispute.
In the event the provisions of a unanimous shareholder agreement are not being adhered to, there are several ways to enforce it including through contract law, through application to court for an order directing compliance with the unanimous shareholder agreement, through the “oppression remedy”, or through applying to the court for an order to dissolve the corporation.
A unanimous shareholder agreement will allow you to focus more on running and growing your company rather than events that arise to put your business at stake.
When Should I Get a Unanimous Shareholder Agreement for My Corporation?
Unanimous shareholder agreements for your corporation can be created as the need for one occurs. It is a good idea to construct a list of conditions you would like to be covered in your shareholder agreement before having your lawyer draft the unanimous shareholder agreement. It is important to get input from all the corporation’s shareholders because they will need to sign the unanimous shareholder agreement.
Do you think your corporation may need to implement a unanimous shareholder agreement?
Are you starting a new corporation and need some advice on how to best protect your interests?
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