9 Important Questions About Unanimous Shareholder Agreements

Private corporations, especially if they are owner-managed, exist in a dynamic business environment. In periods of economic contraction, corporate activity in consolidations increase as companies look for ways to reduce costs and increase competitiveness. In periods of economic expansion some owners look for good opportunities to exit the business, while financial and strategic investors look for good opportunities to invest their liquid capital. As the economy shifts and different opportunities arise, the ownership (shareholder) team of a corporation will face unexpected stresses. To avoid these stresses and reduce the risks associated with each new opportunity, it is critical for the shareholders to have a clear set of rules that apply to them. The agreement used for these rules is called a Unanimous Shareholder Agreement (“USA”).

What is a Unanimous Shareholder Agreement?

A unanimous shareholder agreement (“USA”) is a written agreement among all the shareholders of a company that may completely or partially restrict the powers of the directors to manage, or supervise the management of, the business and affairs of the company. In addition to restricting the power of a company’s directors, a USA will often address other important issues. For example:

• Issuance of shares.
• Repayment of shareholder loans.
• Transfer of shares resulting from the death, incapacity, insolvency or the marital breakdown of a shareholder.
• Purchase and/or sale of shares (e.g. right of first offer, right of first refusal, piggy-back rights and drag-along rights).
• Process for resolving disputes among shareholders.
• Shareholder’s right to compete with the company or solicit employees and/or clients away from the company.

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