Unanimous Shareholders Agreements

Shareholder agreements, reduce the potential for disputes between shareholders.

The main purpose of shareholder agreements often referred to as unanimous shareholder agreements, is to reduce the potential for disputes between shareholders. It is best to negotiate terms prior to entering a joint ownership relationship and while relationships are still good.

Key triggering events must be addressed. These are death, and often life insurance would be used to fund a portion of the buyout amount. It must be defined whether the buyout is automatic or at the option of both parties on death.

Disability, often mental capacity would cause a buyout of shares of the disabled shareholder. Departure allows a shareholder to obtain liquidity for their shares if they desire to leave. Often the remaining shareholders or the company are required to buyout shares of the shareholder who has the triggering event.

Other important terms to address are:

• How is the value of shares being bought out determined? (Often by a valuation process.)
• What is the tax structure of the buyout?
• What are the payment terms and interest rate for the buyout amount?

Defined decisions that require unanimous agreement between the shareholders. These would be major decisions, whether there is a requirement for shareholders to be employees of the company. 

At Covenant we are experienced in helping shareholders define the key terms of their shareholders agreement. If you want to learn more, feel free to email me at rob@covenant.ca.