Shareholder Agreements & Disputes

Protect your investment as a shareholder
A shareholder agreement outlines your rights, responsibilities, and relationship as a shareholder. Disputes occur when the agreement is violated or does not cover the issue of conflict.  Learn more.
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What is a shareholder agreement?

A shareholder agreement is a document that outlines your rights and responsibilities as a shareholder within a company. It sets out the terms and conditions which govern the relationship between the shareholders and the company and can regulate the operation of the company. This agreement will generally detail how decisions are made, the rights prescribed to different classes of shares, how those shares can be transferred, and how disputes are resolved, among other things​​​​​​. As a shareholder, some of your duties may include your:

  • election of directors
  • approval of fundamental changes to the company
  • reviewing the financial statements
  • right to appoint auditors

Why do you need a shareholder agreement?

Having a shareholder agreement is critical because it provides you with a clear framework for governing the relationship between shareholders and the company, reduces potential conflicts by setting expectations upfront regarding the rights and obligations tied to shares in the company, and protects both majority and minority shareholders' interests. If you are a minority shareholder, it can offer safeguards that require more than a simple majority for significant decisions, protection against unwanted third-party shareholder investment, or the right to participate in the sale of shares (tag-along rights). As a majority shareholder, you benefit from provisions that can facilitate a strategic exit where opportunities for a merger or acquisition arise, such as drag-along rights, which can allow you to exit the investment under favourable conditions.

What should your basic shareholder agreement contain?

Key components of a typical shareholder agreement include:

  • Rights and Obligations of Shareholders: This includes your voting rights, dividend policies, and your responsibilities towards the company and each other.
  • Sale and Transfer of Shares: The agreement outlines the process for how and to whom you can sell or transfer your shares.
  • Company Management and Governance: Details regarding your board’s composition, decision-making processes, and meeting frequencies.
  • Protection of Minority Interests: Provisions outlining which decisions need to be agreed to by more than a simple majority of shareholders.
  • Resolution of Disputes: Provides you with different methods for resolving internal disputes, including through alternative dispute resolution (ADR) or shareholder exit provisions, which can help to avoid lengthy and costly legal battles between yourself and the company.
  • Competition and Confidentiality: Restrictions on you as a shareholder that prevent you from competing with the company or disclosing confidential information about the company.
  • Exit Strategies: Including tag-along and drag-along rights to ensure fair treatment during major share transactions​​​​​​.
Why do you need a shareholder agreement (1)When should you create a shareholder agreementImage
When do you stop being a shareholder?
When should you create a shareholder agreement?
You can enter into a shareholder agreement at any time after incorporation. Creating a shareholder agreement early in the company's life cycle can help to ensure shareholders have clarity on their rights and obligations with respect to other shareholders and the company. Ideally, a shareholder agreement is created when you form the company or when you issue the first shares for the company.  This helps prevent misunderstandings and disputes between you, other shareholders, and the company.
When do you stop being a shareholder?
You stop being a shareholder once you no longer hold any shares in the company. This occurs when you sell your shares to a third party or back to the company, or when the company is dissolved.
Why do shareholder disputes occur?
Why do shareholder disputes occur?

Shareholder disputes often emerge when you have:

  • a difference of opinion on how the business should be run
  • financial concerns or distress within the company
  • issues on distribution of profits
  • concerns on selling or transferring of shares, including to outside parties
  • concerns about your rights as a shareholder
  • conduct by directors, officers, or other shareholders that is seen as unfair, harsh, or prejudicial to a particular shareholder or group of shareholders within the company
  • concerns that the terms of a shareholder agreement are being violated
  • a shareholder exit from the company or strategic exit opportunity, such as a merger or acquisition by a third party

Exit disputes often stem from disagreements about the terms of your exit, the entitlement and/or valuation of your shares or the impact your leaving has on company operations and ownership structure. The terms of the shareholder agreement can be critical to ensuring your rights and investment are properly protected and valued.

How can Whitten & Lublin help empower you?

Whether you have questions about your shareholder agreement, want or need to leave your current company that you hold shares in or are facing a shareholder dispute, Whitten & Lublin can help. After listening to your situation and concerns, we will explain your rights.  If you are planning to sell your shares, retire or leave the company, we can help create an exit plan. If you are navigating a shareholder conflict, we can help with negotiations, mediation, other alternative dispute resolution, or if necessary, litigation.  Whitten & Lublin has handled numerous types of workplace disputes. Our skills, experience, and reputation are widely recognized by both clients and peers, making us one of the most recommended employment law firms.

Let Whitten & Lublin help put the power back in your hands.

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