Shareholder Disputes and Shareholder Agreements

Having two or more people come together to run a business can be very beneficial to the business when all their skills and experience combine. On the other hand, sometimes people cannot get along. Shareholder disputes can be detrimental to the business of the corporation as time and energy is spent on the dispute instead of being focused on the business. Sometimes, the problems can be mediated to an acceptable resolution, but other times the dispute may lead to failure of the business. Having experienced legal counsel can be invaluable in these situations.

A Shareholders Agreement is a special agreement that helps govern the relationship between the shareholders. Even though there is no legal requirement to have a formal shareholders agreement, we would recommend that every corporation have one in place. To reduce the potential for conflict between shareholders the Shareholder Agreement can set out in writing the agreement between the shareholders respecting the running of the corporation and the responsibilities of the shareholders. However, if a dispute does arise and it does not appear that the shareholders can continue together in the corporation, then the Shareholders agreement can deal with a forced buy/sell of the shares.

As well, a Shareholders Agreement can also deal with restricting who the shareholders of a corporation can be by limiting or restricting the right of a shareholder to transfer their shares. In some circumstances, such as for example the death of a shareholder, the Shareholders Agreement will create the obligation for the surviving shareholders to purchase the shares of the deceased shareholder. This way, the ownership will be restricted to the surviving shareholders and the deceased’s estate will be able to realize the value of the shares.

The above is just a small summary of the issues that can be addressed in a Shareholders Agreement. In many of these situations, co-operation between the shareholders is not expected during times of dispute, and accordingly, a Shareholders Agreement needs to be very detailed and complex in order to sufficiently address that issue. Dimitry Beluli brings over 20 years of experience in helping companies with preparing a shareholders agreement amongst its shareholders. Do not wait for a shareholders’ dispute to develop. You should obtain a Shareholders Agreement at the start of the business relationship.