Shareholders Agreement

A Shareholders Agreement is a document between the shareholders of a corporation. These agreements lay out the expectations of the shareholders and their obligations. The shareholders establish the rules and the set up for the major players in the corporation.

Legally speaking, an individual does not own a corporation, given that a corporation is considered a legal person in the eyes of the law. Rather, individuals own shares in a corporation, which represent an interest the individuals have (corporations may also be shareholders). Shares have been legally defined as a bundle of rights. Hence, a person owns rights in a corporation through shares. Once an individual has shares in a corporation, they become shareholders.

The directors are individuals who help manage the broader structure of the corporation and act in the best interest of the shareholders. Directors help ensure a corporation maintains their stated mission and are also the people that appoint the officers.

Shareholder Agreements are very vital documents for a corporation. They dictate the rules of the game, such as shareholders' rights to sell their shares, the rights concerning divorces, estate planning matters, and more. Shareholder Agreements are used for large or small corporations.

This Agreement addresses not only potential shareholder issues, but also the day-to-day activities of the corporation.

How to use this document

This Shareholders Agreement may be used when a corporation is incorporated and before it starts to take on normal daily business activities. Or, conversely, an older corporation may use this Shareholders Agreement to better establish the management of the corporation.

It may also be used in the event of an amalgamation between two companies (when two or more corporations merge and carry on as one corporation) or a continuance (when a corporation moves to another jurisdiction).

• This Shareholder Agreement outlines the basic responsibilities of the corporation towards the shareholders: things such as when the corporation should submit a budget, when its directors should meet and how decisions may be taken by the directors.
• The agreement also outlines the basic responsibilities of the shareholders toward the corporation: things such as how the shareholders should handle business opportunities that come their way, restrictions on selling shares, and what will happen if the corporation needs more money.

Within this Shareholder Agreement, the person filling out the form will be able to establish the responsibilities of the directors and the shareholders, and the important business elements of the corporation.

This Shareholder Agreement will help outline the expectations of all decision-making parties in a corporation, and it will be a critical document throughout the life of the corporation.

After filling out the document, the parties to the Agreement should sign the document and keep a copy of the Agreement.

Applicable law

Corporate law is governed by federal law, each Province's or Territory's legislation, and case law. In other words, the law applicable to a corporation depends on where it has been incorporated. If a corporation is incorporated under federal law, the applicable statute is the Canada Business Corporations Act. For corporations incorporated under provincial or territorial law, the law in effect in that province or territory applies.

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