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A Shareholder Agreement is a document between a corporation and its shareholders. In a Shareholder Agreement, the corporation and the shareholders agree to the bounds of the relationship between them. Within these agreements, the corporation lays out its expectations of the shareholders' behaviour and obligations and the shareholders establish the set up for the major players in the corporation - these major players include the shareholders themselves and the directors.
The shareholders are the individual entities who own "shares" in a corporation. Shares are representative of ownership, so the shareholders are the actual owners of the corporation. The directors are the individuals who help manage the broader structure of the corporation and act on behalf of the shareholders. Directors help ensure a corporation is sticking to its stated mission and also often are the people that select the officers.
Shareholder Agreements are very vital documents in the business structure of a corporation. Shareholder Agreements are used for large, multinational corporations (most, if not all, of these types of corporations, have Shareholder Agreements) and are also often in place for even small, closely-held corporations. This Agreement addresses not only issues that will come up in case something goes wrong, but good Shareholder Agreements cover the day-to-day activities of the corporation.
A Shareholder Agreement will protect all parties and, for that reason, it is preferable that it is put together for any corporation.
How to use this document
This Shareholder Agreement may be used when a corporation is incorporated and before it starts to take on normal daily business activities - or, conversely, if this corporation has never had a Shareholder Agreement in place and needs to better establish the structure of 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 should decisions may be taken by the directors.
It 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 set up the responsibilities of the directors and the shareholders - and overall, the important business elements of the corporation. This Shareholder Agreement will help set up a structure for this 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 shareholders parties to the Agreement should sign the document and keep a copy of the Agreement.
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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