24 February 2021

The importance of a shareholders’ agreement

By KSA group

The majority of entrepreneurs know how important a shareholders’ agreement is. But the writing of such a document is too often pushed back. However, this agreement could very well avoid problems that a layperson could not have anticipated, but that your lawyer knew about.

In the event of the death of your partner, without a shareholders’ agreement, you could have to manage your corporation with your former partner’s successors. While they could be nice and polite, they could also refuse to sell you their shares and decide to manage the corporation with you, without having the necessary knowledge. A shareholders’ agreement could state that the shares of the deceased are to be transferred to the other partner, usually in exchange of a cash value (stated in the agreement) received by the successors, through a life insurance policy paid by either the deceased or the corporation.

Furthermore, if your partner becomes incapable, without a shareholders’ agreement, you will not only have to deal with their representative (if they had appointed one through a Protection mandate), but you could also be required to deal with the Public Curator or Tutorship Council if such a Protection mandate was not signed. Imagine the frustration and the loss of time to negotiate the value of your corporation, or even to petition the court, to determine the amount payable for your incapable partner’s shares! A shareholders’ agreement could have a disposition automatically giving you the right to buy the shares of your partner should they be declared incapable, as well as stating how to determine the value of these shares. These are some of the potentially crucial situations that should be taken into account during the creation of a corporation.

For many business owners, their corporation is often their reason to get out of bed each morning, and they are often the soul of said corporation. It is important to manage the latter with partners you fully trust, but it is just as crucial that the partners have a plan should the adventure not go as smoothly as they would have wished. This is why a shareholders’ agreement will also state that if a partner wants to sell, they will first have to offer their shares to their partner, at a price determined in the agreement. There is nothing more important than having the option to become the sole shareholder of the corporation if your partner no longer shares your dream! Please know that, without such a disposition in the shareholders’ agreement, the shares of your partner could be sold to anyone, whether you know the buyer or not, at a price whose amount could be debated in court.

You work so hard to ensure the financial health of your corporation that a few hours of your precious time would be well spent consulting your law expert to draft a shareholders’ agreement well suited to your situation and desires.

For the best advice regarding a shareholders’ agreement, contact one of our professionals in the Business Law sector.