A unanimous shareholder agreement ("USA") is an agreement between all the shareholders of a corporation. USA's typically contain provisions in two main areas: decision making and share transfers. Without a USA in place, the provisions of the legislation govern.
In the areas of decision making for example, under the legislation:
directors are elected by majority vote of the voting shareholders;
directors control the corporation;
director decisions are made by a simple majority vote;
certain fundamental decisions, such as the sale of all of a corporations assets, require a 2/3 majority of the shareholders.
A USA can alter one or more of these matters. For example, a USA can provide who the directors are. In this way a minority shareholder can be assured of a director position. A USA can limit the powers of the directors and can require unanimity for certain decisions. In the area of decision making, a USA generally enhances the rights of minority shareholders and limits the rights of the majority.
The issue of share transfers can arise in a number of different circumstances including: voluntary transfer; death of a shareholder; bankruptcy of a shareholder; and buyout by other shareholders. Without a USA voluntary transfers may be unrestricted. In a closely held corporation this may not be desirable. Shareholders may be particular about who the other shareholders are.
Conversely, sometimes voluntary share transfers in a closely held corporation are restricted by the corporation's articles. This may prevent a shareholder from transferring his or her shares.
A USA can provide for the circumstances where a voluntary transfer will be permitted. A USA can also provide for what happens to the shares of a shareholder upon death, bankruptcy or other events where, but for the USA, the shares will transfer by operation of law.
USA's generally provide a mechanism whereby shareholders who are not getting along can part ways. "Shot-gun" provisions are one such mechanism.
USA's can provided for many other important matters pertaining to the financing of the corporation; key man insurance and so on.
Where there are two or more shareholders in a closely held corporation, we generally recommend that a USA be entered into.
For more information regarding Unanimous Shareholders Agreements, contact us.