A shareholders’ agreement often includes the framework within which the business relationship will be governed. It can also provide mechanisms to address the dissolution of that relationship. This entry complements our previous blog on provisions by which shareholders or the corporation, can force a share transfer.
Disability, Death, or Insolvency of a Shareholder
An individual shareholder’s demise, insolvency or general inability to carry out his or her duties can be challenging for the remaining business partners. A shareholders’ agreement can provide that the remaining shareholders, or the corporation itself, are obliged to purchase the shares previously held by the affected shareholder or by his or her estate, and can set out the payment terms for the transaction. It can also include life insurance provisions, pursuant to which the insurance proceeds can be applied to payment of the purchase price.
Valuation Mechanism
Shareholders’ agreements will typically provide a mechanism by which to determine the fair market value of the shares at a given point in time. Provisions of this type can help avoid disputes as to value and as such are particularly helpful should the business relationship become less than amicable.
Transfer Restrictions
The shareholders’ agreement can restrict individuals or legal persons to whom or to which a shareholder may transfer his, her, or its shares. Provisions of this nature help ensure that the remaining shareholders have a means by which to control those with whom or with which they are business partners.
There are a variety of provisions that can be used in shareholder agreements to govern shareholder buyouts or provide for the sale of a company in the event of unforeseen circumstances that end the relationship between shareholders. To further discuss these provisions or other aspects of shareholder agreements, please contact Elisabeth Colson, senior corporate lawyer at Devry Smith Frank LLP. You can reach her directly at (416) 446-5048 or by email at lisabeth.colson@devrylaw.ca.
