Entering into a new business venture is an exciting time for any entrepreneur but, with that excitement, comes a certain level of risk. As a lawyer practicing business law, it is my role to advise my clients of the risks involved in any potential business endeavor.
One of the most valuable tools for protecting yourself in any business venture is to have the correct agreements in place. Whether you are starting a new company, or have bought shares in an existing one, there is one agreement which is often involved – a Shareholders’ Agreement.
The first question which many clients ask when it comes to a Shareholders’ Agreement is: What is it? Simply put, a Shareholders’ Agreement is a contract between two or more parties in regards to the management and operation of a company. Moreover, this agreement clearly sets out the expectations of the shareholders with respect to a number of issues, including but not limited to: shareholder control, management of the company, buying and selling shares, death of a shareholder, dispute resolution and many more!
While there is no specific law in Ontario that requires shareholders to absolutely enter into such an agreement, it is strongly recommended by most corporate lawyers. While the reasoning behind these recommendations may vary, most lawyers will agree that it’s always best to ensure that all involved parties have a clear understanding of the intentions for the business and that there is a clear path to follow when addressing any potential issues which could arise over the lifetime of the business.
It is important for the negotiation of this type of agreement, or any similar agreements, pertaining to the future management of a business be done at the inception of the company, instead of waiting until there is a dispute among the shareholders. Planning ahead for if, or when, certain contentious issues might arise, and having potential solutions decided upon, can result in a smooth resolution among the parties. In most cases, this planning can limit any negative impact such disputes could have on the business and, in turn, on the future success of the company.
Given the complex nature of many business transactions, I strongly encourage that you seek out proper legal advice to assist and guide you in making business decisions. If you have any questions about Shareholders’ Agreements or any general questions about a new or existing company, feel free to contact me directly.
Associate with Corporate/ Commercial Department
Disclaimer: This article is provided as an information resource. This article should not be relied upon to make decisions and is not intended to replace advice from a qualified legal professional. In all cases, contact a legal professional for advice on any matter referenced in this document before making any decisions. Any use of this document does not constitute a lawyer-client relationship. Please note that this information is current only to the date of posting. The law is constantly changing and always evolving.