Understanding Unanimous Shareholders Agreements: Why Every Alberta Business Should Have One
Written by: Roshan Kalra
When starting or running a business with multiple shareholders, it’s crucial to ensure that every shareholder’s rights, obligations, and expectations are clearly defined. This is where a Unanimous Shareholders Agreement (“USA”) becomes essential. A USA is a binding agreement between all shareholders of a corporation, outlining the rules and procedures for how the business will be run and how disputes will be managed.
In Alberta, where the corporate landscape is highly diverse, having a USA in place can provide your business with the stability and governance it needs to thrive.
What is a Unanimous Shareholders Agreement?
A USA is a legal document that binds all shareholders of a corporation to a set of agreed-upon terms. It effectively sets out how the business should operate and can include provisions regarding decision-making, shareholder rights, and responsibilities. For certain agreed upon actions, a USA requires the consent of every single shareholder, making it a highly collaborative and enforceable document.
By having all shareholders sign the agreement, the document ensures that everyone is on the same page, reducing the likelihood of future conflicts.
Why is it Important for Businesses?
Clear Decision-Making Framework: Without a USA, day-to-day business decisions may lead to disagreements or deadlocks, especially when multiple shareholders have equal say in the company’s operations. A USA creates a clear governance structure that determines how decisions are made, from routine matters to significant corporate actions like mergers, acquisitions, or changes to the board.
Prevention of Disputes: Disagreements between shareholders can derail a company’s progress. A well-drafted USA includes dispute resolution mechanisms to address conflicts before they escalate, providing for arbitration, mediation, or other methods of resolution that avoid lengthy court battles.
Share Transfer Rules: A USA can protect shareholders by controlling how shares are transferred. For example, it can restrict the ability of a shareholder to sell their shares to an outside party without offering them first to the other shareholders (also known as a “right of first refusal”). This ensures that existing shareholders maintain control of the company.
Protection of Minority Shareholders: Minority shareholders often face challenges when they do not have the power to influence major decisions. A USA can include provisions that protect their interests, giving them certain veto rights on critical issues and ensuring they are not marginalized by larger shareholders.
Succession Planning: The unexpected departure, death, or incapacitation of a key shareholder can create chaos in a business. A USA allows companies to plan for such contingencies, outlining procedures for share buyouts, director appointments, and transition strategies to keep the business running smoothly.
Key Provisions in a Unanimous Shareholders Agreement
A Unanimous Shareholders Agreement should be tailored to meet the specific needs of your business. However, some common provisions include:
Voting Rights and Decision-Making: Specifies which decisions require a unanimous vote, majority vote, or other voting thresholds. This may include appointing or removing directors, approving budgets, or entering into major transactions.
Share Transfers: Defines how shares can be sold, gifted, or otherwise transferred. It can establish rules for voluntary and involuntary transfers (e.g., in the event of death or insolvency).
Non-Compete Clauses: Protects the business by preventing shareholders from engaging in competing activities during or after their involvement in the company.
Dispute Resolution: Outlines mechanisms for resolving disputes between shareholders, such as through negotiation, mediation, or arbitration.
Exit Strategies: Provides guidelines for what happens when a shareholder wants to exit the business, whether through retirement, selling their shares, or other reasons. This might include a valuation method for shares and a buy-out plan, or “shotgun provisions” in the event of an involuntary buyout.
Confidentiality and Non-Disclosure: Ensures that sensitive business information remains protected, even if a shareholder leaves the company.
Conclusion
In the dynamic world of business, especially in Alberta’s competitive market, a Unanimous Shareholders Agreement offers the clarity and protection needed for sustainable growth. Whether you’re just starting your business or have been operating for years, having a USA in place can prevent costly disputes, ensure proper governance, and safeguard your business’s future.
At SB LLP, we specialize in drafting custom-tailored USAs that reflect your business’s unique needs. Contact us today to discuss how we can help protect your company and its shareholders with a well-crafted USA.