When several people hold the shares of the same company, it is essential to ensure predictability in shareholder relations. A shareholders' agreement provides a framework for internal relations between shareholders, aimed at preventing conflicts and uncertainty by dealing with governance, control, succession and the prevention and resolution of disputes.

Rights, obligations and decision-making mechanisms
A shareholders “agreement is a contract between the shareholders
of a society. It sets out rights, obligations and decision-making mechanisms
applicable within the shareholding, in addition to the legal regime provided for by the
Constituting Act. The shareholders” agreement generally covers:

  • The terms and conditions for the transfer or sale of the shares;
  • The rules governing the making of important decisions;
  • Dispute resolution mechanisms;
  • The distribution of the board of directors and access to information.

By establishing these rules, the agreement helps to maintain stability and avoid conflictual situations, particularly in the event of unforeseen circumstances, such as the departure, death or disability of a shareholder.

How does a shareholders' agreement protect majority and minority shareholders ?

In any corporation with multiple shareholders, disagreements or unexpected events may arise. The shareholders’ agreement acts as a safety net by providing:
• Mechanisms for the transfer of shares (right of first refusal, restrictions on transfers to third parties);
• Methods of valuing shares and financing terms for their repurchase;
• Buy-out clauses such as shotgun clauses or put or call options.
These provisions help avoid hasty decisions or costly legal conflicts. For example, if a shareholder wishes to withdraw, the agreement provides for an orderly and consensual process.
The agreement also protects minority shareholders, who might otherwise be limited to the protections provided by the law alone. It may grant them:
• Increased voting rights;
• Expanded access to information;
• A role in dividend distribution policies.

What happens in the absence of such an agreement?

Without a shareholders’ agreement, the company’s internal relations are governed
only by incorporation statutes – such as the Companies Act, by
or the Canada Business Corporations Act. These laws provide a framework for
but they do not take into account the particular wishes of the
Shareholders.
This can lead to:

  • Disputes over the transfer of shares or control of the business;
  • Uncertainty in the event of the departure, death or incapacity of a shareholder;
  • Long and costly litigation.

In the absence of pre-planned mechanisms, the survival of the company can be
even be threatened.

Adapting the agreement to your legal form

Although this text is focused on joint-stock companies, limited liability companies (such as LLPs) can derive similar benefits through an operating agreement or a buy-sell agreement between partners.

Conclusion

The shareholders' agreement is not a simple formality: it is an essential governance tool. It makes it possible to anticipate conflicts, ensure transparency and preserve the stability of the company. By setting the rules from the outset, it protects not only individual interests, but also the long-term viability of the company. If you are founding or managing a company with several shareholders, having a custom agreement drafted by a legal professional is one of the most strategic decisions you can make.

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