Unanimous Shareholder Agreement by Paljinder Mahaar
Unanimous Shareholder Agreements
If a business corporation has two or more shareholders, the corporation and shareholders should have a Unanimous Shareholder Agreement to ensure a smooth business relationship between the shareholders and the corporation. A Unanimous Shareholder Agreement is an agreement between the shareholders and the corporation to specify shareholders’ rights, responsibilities, and regulation of shareholders in a corporation.
A Unanimous Shareholder Agreement includes the framework within which the business relationships of the shareholders are governed. The agreement provides shareholder details, management decisions, voting and quorum, financing, going public, transferability of shares, share valuation and information, dispute resolution, removal of shareholders and more.
During the operation of a business, conflicts may arise among the shareholders. The shareholder agreement provides a mechanism to resolve disputes. A variety of provisions may deal with these scenarios, for example,
• Shotgun Provision works best among two shareholders but may be used with more shareholders as well. Under this provision, one shareholder offers to purchase all of the shares of another shareholder at a specified price, leaving the other shareholder with two options;
1. Sell all of his shares at the specified price.
2. Buy all of the shares of the offering shareholder at the specified price.
• A put option allows an offering shareholder to request that the other shareholder(s) purchase his shares. If the other shareholder(s) refuse to buy offering shareholders’ shares, the offering shareholder has the option to buy other shareholders’ shares or cause the sale of 100% shares of the business.
• Under a Private Auction Provision, one shareholder can require to put all shares to be placed on an auction. A private auction may avoid exploiting weaker shareholders and obtaining a fair market value of the shares.
A Unanimous Shareholders Agreement is an essential document for a corporation as it deals with various provisions that govern the relationship among the shareholders and other business transactions.
This article is intended for summary information and should not be considered legal advice. Each situation is unique and needs a specific legal solution. For detailed information about preparing an effective Unanimous Shareholder Agreement suitable to your needs, please get in touch with Gahir & Associates at 905 789-0585.
Barrister & Solicitor