When starting a business with partners, it is crucial to have a shareholders` agreement in place, and the Canada Business Corporations Act (CBCA) outlines the requirements for such an agreement. This article will discuss what a shareholders` agreement is, why it is important, and how the CBCA affects the creation of a shareholders` agreement.
What is a shareholders` agreement?
A shareholders` agreement is a legal document that outlines the rights and obligations of the shareholders in a corporation. It is an agreement between the shareholders, and it sets out the rules for how the corporation will be run. The agreement covers a wide range of issues, such as how decisions will be made, how shares will be transferred, and how profits will be distributed.
Why is a shareholders` agreement important?
A shareholders` agreement is important because it provides clarity and certainty to the shareholders. Without an agreement in place, there may be disputes or disagreements between the shareholders, which can lead to a breakdown in the relationship and potentially damage the business. A shareholders` agreement can help prevent this by setting out the rules and expectations from the beginning.
Additionally, a shareholders` agreement can provide protection for minority shareholders. In a situation where the majority shareholders want to make a decision that is not in the best interests of the minority shareholders, the agreement can provide safeguards to ensure that their rights are protected.
How does the CBCA affect the creation of a shareholders` agreement?
Under the CBCA, a shareholders` agreement can be created at any time after the corporation is incorporated. However, there are certain requirements that must be met for the agreement to be valid. For example, the agreement must be in writing and signed by all of the shareholders. It must also be consistent with the articles of the corporation.
The CBCA also sets out some provisions that must be included in the shareholders` agreement. For example, the agreement must include provisions for the transfer of shares and the right of first refusal in the event that a shareholder wants to sell their shares.
It is important to note that the CBCA is a federal law, but each province and territory may have its own laws and regulations that affect the creation of a shareholders` agreement. It is important to consult with a lawyer who is familiar with the laws in your jurisdiction to ensure that the agreement complies with all legal requirements.
In conclusion, a shareholders` agreement is a vital document for any corporation with multiple shareholders. It provides clarity and certainty and can prevent disputes or disagreements from arising. The CBCA sets out the requirements for creating a valid shareholders` agreement, but it is essential to seek legal advice to ensure that the agreement complies with all legal requirements.