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When starting a new business, individuals are often focused on the concept of the business, target demographics and the product or services that will be provided by the business. The legal framework that will govern such business is however often overlooked and not dealt with. Businesses often have multiple shareholders and the purpose of a shareholders’ agreement is to set out the relationship between the parties in relation to the business. The shareholders’ agreement can also set out the responsibilities of the individual shareholders within the business and what requires unanimous or majority approval.

Here are some situations to consider: what happens when a shareholder wants to leave the business? What happens when a shareholder dies? What happens when a shareholder becomes bankrupt, disabled or goes through a divorce? A shareholders’ agreement can plan for these situations so that all shareholders within the business know what will happen in each given situation. In the case of a shareholder wanting to leave the business (or is fired), do you want them to continue to be a shareholder or do they have to sell their shares to the other shareholders that remain with the business? A shareholders’ agreement will give you peace of mind as a shareholder that every situation is dealt with and everyone knows their role within the business.

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Spencer S. Duggan is an Associate with Kormans LLP. His practice areas include employment issues, the purchase and sale of businesses, mergers, joint venture agreements, organizing business structures, shareholder agreements, re-organizing existing businesses and corporate structures, leasing, commercial real estate, debt finance and dispute resolution. You can reach Spencer at sduggan@kormans.ca.

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