A shareholders’ agreement is the most important document a multi-shareholder corporation will sign. Here is every provision it should contain — and what happens when you leave one out.
By Jonathan Kleiman, Barrister & Solicitor · Published May 2026
A shareholders’ agreement is a private contract between the shareholders of a corporation. It governs how the business is run, how decisions are made, how shares can be transferred, and what happens when a shareholder wants to leave or is forced out. Without one, the shareholders are left with the default rules under the Ontario Business Corporations Act — defaults that rarely reflect what the parties actually intended.
The best time to negotiate a shareholders’ agreement is at incorporation, when everyone is aligned, optimistic, and motivated to be fair. Negotiating the terms of a business divorce while the relationship is healthy is far easier and cheaper than doing it after a dispute has started.
Below is a complete checklist of the provisions your shareholders’ agreement should address. Not every corporation needs every clause, but every shareholder should at least consider each one before signing.
Start with the basics: who owns what. The agreement should document each shareholder’s name, the number and class of shares they hold, and the percentage of total equity each position represents. If the corporation has multiple share classes — common shares, preferred shares, voting shares, non-voting shares — the agreement should describe the rights, privileges, and restrictions attached to each class.
Clarity here prevents arguments later. If one shareholder contributed capital and another contributed labour, different share classes can reflect those different contributions and entitlements.
Unrestricted share transfers can bring unwanted third parties into the business. A good shareholders’ agreement includes several protective mechanisms:
The buy-sell provision is the single most important clause in a shareholders’ agreement. It defines how a shareholder exits the corporation and at what price. The shotgun clause is one common mechanism: one shareholder names a price per share, and the other shareholders must either buy at that price or sell at that price. The beauty of the shotgun is that it forces the offeror to name a fair price — because the other side can flip the transaction.
Buy-sell provisions should specify the triggering events: voluntary exit, involuntary removal for cause, death, disability, bankruptcy, or a shareholder dispute that cannot be resolved.
How do you determine what the shares are worth? The agreement should prescribe the valuation method — or at least a framework for arriving at one. Common approaches include an agreed formula (multiple of EBITDA, book value, revenue-based), annual valuations by the shareholders, or appointment of an independent business valuator to determine fair market value at the relevant time. Without an agreed method, valuation disputes can become expensive litigation.
The shareholders’ agreement should define how the corporation is governed. Key provisions include:
These provisions prevent any single shareholder from making unilateral decisions that affect everyone. They are particularly important in a partnership-style arrangement where two or more equal shareholders share control.
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When and how are profits distributed? A majority shareholder who controls the board could choose to reinvest all profits indefinitely, leaving minority shareholders without any return on their investment. The agreement should address minimum distribution requirements, the timing and frequency of dividends, and whether distributions are proportional to shareholding or follow a different formula.
Shareholders who are active in the business have access to customers, suppliers, trade secrets, and proprietary information. The agreement should restrict shareholders from competing with the corporation during their involvement and for a reasonable period after they exit. Non-solicitation clauses prevent departing shareholders from poaching employees or customers.
These restrictive covenants must be reasonable in scope, geography, and duration to be enforceable under Ontario law. Overly broad restrictions will not survive judicial scrutiny.
Every shareholder has access to sensitive business information. The agreement should include robust confidentiality obligations that survive the shareholder’s departure. This is closely related to the protections in a standalone non-disclosure agreement, but embedding confidentiality directly in the shareholders’ agreement ensures it is part of the core governance document.
How will the shareholders resolve disagreements? Litigation is expensive, public, and slow. Most well-drafted agreements prescribe a staged process: negotiation between the parties first, then mediation with a neutral third party, and finally arbitration or court proceedings if all else fails. The agreement should specify the forum (Ontario), the rules that apply, and how costs are allocated.
What happens to a shareholder’s shares if they die or become permanently disabled? Without a plan, shares may pass to a spouse, estate, or beneficiary who has no interest in or ability to run the business. The agreement should require a mandatory buyout of the deceased or disabled shareholder’s shares, specify the price (often tied to the valuation methodology), set a timeline for payment, and — critically — require the buyout to be funded by life and disability insurance so the corporation or remaining shareholders can actually afford to pay.
In a 50/50 corporation, deadlock is a real risk. If the two shareholders cannot agree on a fundamental decision, the business stalls. Common deadlock-breaking mechanisms include a casting vote for one shareholder on specific issues, referral to an external mediator, the shotgun clause, or as a last resort, dissolution and wind-up of the corporation. The agreement should define what constitutes deadlock and prescribe a clear process for resolving it.
If a shareholder is also a key employee — earning their equity through ongoing involvement rather than a capital investment — the agreement should include vesting provisions. Vesting ties equity to continued service: shares vest over time (typically three to four years), and unvested shares are forfeited if the shareholder-employee leaves before the vesting period is complete. This protects the corporation from a co-founder who departs early but retains a full equity position.
After drafting and reviewing hundreds of shareholders’ agreements, these are the mistakes I see most often:
The cost of getting the agreement right at the outset is a fraction of the cost of litigating a shareholder dispute later. If you are buying into a business or starting one with partners, this document deserves serious attention.
The buy-sell provision. It determines what happens when a shareholder wants or needs to exit the corporation. Without a buy-sell clause, there is no clear mechanism for a shareholder to leave, which can trap shareholders in a business relationship they no longer want or create deadlock that paralyzes the company.
Templates are dangerous for shareholders’ agreements because every corporation’s circumstances are different. The provisions must be tailored to the specific shareholders, their respective investments, the nature of the business, and the exit scenarios that are most likely. A generic template will miss critical issues and may create more problems than it solves.
The Ontario Business Corporations Act default rules apply. Those defaults may allow unwanted share transfers to third parties, provide no mandatory buyout mechanism when a shareholder wants to leave, and offer limited dispute resolution options beyond going to court. A shareholders’ agreement replaces these defaults with rules the shareholders choose for themselves.
Before or at the time of incorporation, when all shareholders are aligned and motivated to be fair. The best time to negotiate the terms of a separation is when everyone is getting along. Negotiating after a dispute has already started is significantly more difficult and expensive.
Jonathan Kleiman offers flat-fee drafting and review of shareholders’ agreements. The fee depends on the number of shareholders and the complexity of the arrangement. The initial 30-minute consultation is free — call 416-554-1639 or book online to discuss your situation.
A shareholders’ agreement protects every person who holds shares in the corporation. Whether you are incorporating a new company, bringing in a new partner, or realizing that your existing corporation never put a shareholders’ agreement in place, Jonathan Kleiman can help.
Call 416-554-1639 or book a free consultation.
Jonathan Kleiman drafts shareholders' agreements tailored to your business. Flat-fee pricing. Free 30-minute consultation.