What is a Unanimous Shareholder Agreement?
A Unanimous Shareholders Agreement, or “USA” as it is commonly referred to, is a formal written agreement between all of the shareholders of a corporation. All of the shareholders must unanimously agree to restrict the authority of the directors of the corporation and create a different set of rules from the baseline rules established by The Business Corporations Act (Saskatchewan) or the Business Corporations Act (Canada).
Is it advantageous to have a USA?
Whether that corporation is a closely held Saskatchewan corporation or federally registered corporation a USA restricts the rights of the directors to manage the corporation and may move those rights to the shareholders of the corporation. In corporations whereby there are two or more shareholders with equal or similar shareholdings a USA can provide a mechanism for decision making where there is a deadlock between the parties, when important or material decisions need to be made, how the corporation will be funded and any shareholder rights of first refusal or any other buy/sell considerations. A USA may also provide for formulas to set out the method of valuing the corporation in situations where a shareholder needs to exit the corporation or new shareholders wish to join the corporation.
Are there any reasons not to have a USA?
In instances where the shareholders are the same people as the directors in a corporation there are not many drawbacks to having a USA. However, in situations where the directors and the shareholder differ, shareholders may become subject to some of the liabilities normally assigned to directors to the extent that a USA moves those responsibilities from the directors to the shareholders.
To USA or not to USA – is that still the question?
Clarifying the expectations between shareholders at the initial stages of organizing the corporation or before a dispute arises can be the best way for the corporation to avoid drawn out and expensive disputes or litigation down the road.
If your still not sure a USA is right for your corporation, please contact Matthew Park of our business law team to discuss the ins and outs of Unanimous Shareholders Agreements and the various terms and conditions which can be found therein.