Shareholders' Agreement
Lawyer Toronto.
Drafting, reviewing, and negotiating shareholders' agreements for Ontario corporations. Protect your investment, your rights, and your exit before a dispute arises.
· Reviewed by Jonathan Kleiman, J.D.
Ontario Bar
250+ reviews
consultation
Start with the conversation
Use the free Ontario shareholders’ agreement term sheet builder to work through ownership, vesting, major decisions, and exits. Download a non-binding discussion term sheet, then send it over for a formal draft. Flat fee quoted before work.
Why every multi-shareholder corporation needs this agreement
A shareholders' agreement is a private contract between the shareholders of a corporation. It governs the issues that the Ontario Business Corporations Act doesn't adequately address: decision-making, profit distribution, share transfers, and what happens when a shareholder wants out.
The law doesn't require one, and a corporation is valid without it. But if your corporation has more than one shareholder (a co-founder, investor, family member, or key employee), treat it as essential. Without one, the OBCA's default rules decide questions you'd almost always want to control yourself, and they rarely reflect what the owners actually intended.
The conversations a shareholders' agreement forces
The people who most often tell me they don't need an agreement are relatives and old friends going into business together. They trust each other, so writing things down feels unnecessary, even a little insulting. They're the ones who need it most. When shareholder relationships break down, it's rarely over a clause. It's over an expectation nobody said out loud. Drafting the agreement forces those conversations while everyone is still on good terms. These are the ones that matter most:
What owners say"We're family. We'll work it out."
The question to askIf one of you dies, do you want their spouse as your new business partner?
What owners say"We're splitting it 50/50."
The question to askThen who breaks a tie when you disagree about something that matters?
What owners say"We're both all in on this."
The question to askAnd if one of you steps back in three years, do they keep the same shares?
What owners say"We'll pay ourselves when there's money."
The question to askWho decides whether profits get paid out or reinvested?
What a shareholders' agreement covers
The following provisions are standard in most shareholders' agreements. For a comprehensive walkthrough of each clause, see our guide on what to include in a shareholders' agreement.
Share transfer restrictions
Controls who can own shares. Includes right of first refusal (existing shareholders get the first opportunity to buy), tag-along rights (minority shareholders can join a sale on the same terms), and drag-along rights (majority shareholders can compel minority shareholders to sell).
Buy-sell provisions
Defines how shares are valued and transferred when a shareholder dies, becomes disabled, retires, or wants to exit. Common mechanisms include shotgun clauses (one shareholder names a price; the other must buy or sell at that price) and put/call options.
For an ownership change already under discussion, our business partner buyout guide explains how those provisions connect to the price, payment terms and closing documents.
Decision-making and governance
Specifies how decisions are made: board composition, voting thresholds, and reserved matters that need unanimous or special approval (such as taking on debt, issuing new shares, or selling the business).
Dividend and distribution policy
Sets out when and how profits are distributed to shareholders, preventing disputes about whether to reinvest or pay dividends.
Confidentiality, non-solicitation and non-competition
Protects the business from a shareholder disclosing confidential information, poaching clients or staff, or competing during and after their involvement. If a shareholder is also an employee, Ontario's ban on employee non-compete agreements may limit what you can enforce, so these clauses need careful drafting.
Dispute resolution
Sets out how disagreements get resolved, often negotiation, then mediation, then arbitration, so a dispute doesn't have to end up in court.
Death, disability, and departure
Addresses what happens to shares when a shareholder can no longer participate. Often paired with life and disability insurance to fund the buyout.
Decisions to make before drafting
A good agreement is mostly decisions, not drafting. Talk these through with your co-owners before the first draft, and the drafting goes much faster.
- Ownership and vesting. Who owns what today, and do founders' shares vest over time?
- Money in. What each shareholder contributes, and what happens if the company needs more cash.
- The board and tie-breaks. Who sits on the board, and how a 50/50 deadlock gets resolved.
- Reserved matters. Which decisions need everyone's consent, or a special majority.
- Pay and profits. Salaries, dividends, and who decides what gets reinvested.
- Exit triggers. Death, disability, divorce, retirement, termination, or simply wanting out.
- Valuation. A formula, an annually agreed value, or an independent valuator.
- Funding the buyout. Insurance, instalments, or a vendor take-back.
- Who owns the IP. Whether everything each founder builds belongs to the company.
- How disputes get resolved. Mediation first, then arbitration or court.
Ordinary or unanimous shareholder agreement?
An ordinary shareholders' agreement is a contract among some or all of the shareholders. It can govern how they vote their shares, but the directors still manage the company.
A unanimous shareholder agreement (USA) goes further. Under section 108 of the Business Corporations Act, an agreement among all the shareholders can restrict the directors' powers to manage the business. Three consequences follow:
- Power moves with liability. To the extent the agreement takes powers away from the directors, the shareholders get the directors' rights, duties and liabilities, and the directors are relieved of them.
- It binds future shareholders. Anyone who later acquires shares is generally deemed to be a party to it.
- It can set its own rules. A USA can specify how it gets amended and send disagreements to arbitration.
In small, owner-managed companies where the shareholders are also the decision-makers, a USA is often the right fit. Where an investor wants protection without running the business, an ordinary agreement may be better. It's one of the first decisions to get right.
Need a shareholders' agreement drafted or reviewed?
Free 30-minute consultation. No fee, no obligation.
When you need a shareholders' agreement
- Starting a business with a co-founder: define the rules before money and ego complicate the relationship
- Bringing in an investor: protect both the investor's capital and the founder's control
- Adding a key employee as a shareholder: structure the equity incentive with proper vesting and exit terms
- Running a family business: separate family dynamics from business governance
- Buying into an existing business: understand your rights and restrictions before you invest
- Heading off a disagreement: if tension is building but the relationship still works, putting an agreement in place now can stop it from becoming a dispute
What happens without a shareholders' agreement
Without a shareholders' agreement, the OBCA's default rules and your articles apply. Those defaults may not match what you expect:
- Share transfers are controlled only by whatever restrictions your articles contain
- There's no buyout mechanism when a shareholder wants out, dies, or stops contributing
- Deadlock has no built-in resolution beyond negotiation or going to court
- A minority shareholder's main protection is the oppression remedy, a court application, rather than agreed rights
- There are no contractual confidentiality, non-solicitation or non-compete protections
Shareholder disputes are among the most expensive and disruptive problems a business can face, and a well-drafted agreement prevents many of them or makes them far easier to resolve. For a fuller look at whether you need one and what these OBCA defaults mean in practice, see do you actually need a shareholders' agreement in Ontario.
The best time to negotiate a shareholders' agreement is when everyone is getting along. The worst time is when they're not.
Can one lawyer act for all the shareholders?
Co-founders often ask this, and it's a fair question. The answer depends on the situation. Under the Law Society of Ontario's rules, a lawyer who acts for more than one client on the same matter must first tell each of them that:
- the lawyer has been asked to act for all of them;
- nothing one of them says about the matter can be kept confidential from the others; and
- if a conflict develops that can't be resolved, the lawyer can't keep acting for all of them and may have to withdraw completely.
Where the owners' interests are closely aligned, a joint retainer can work. Where they aren't (an investor and a founder, say, or one shareholder with far less bargaining power), the usual setup is for Jonathan to act for the company or for one shareholder, and to recommend that each of the others get independent legal advice before signing. He'll tell you at the first meeting which approach fits.
Already signed, and now there's a dispute?
If you have an agreement and the relationship is breaking down, the question is no longer drafting. It's enforcement and exit: whether a buy-sell or shotgun clause applies, what the valuation clause says, and whether disputes have to go to mediation or arbitration first. That's covered on the shareholder dispute lawyer page, including how a negotiated buyout works.
How Jonathan helps: what's included and what's not
Jonathan drafts, reviews, and negotiates shareholders' agreements for Ontario corporations of every size, from two-person startups to multi-shareholder family businesses. The work is done on a flat fee, quoted before anything starts.
Included
- Free 30-minute consultation
- A working session on the decisions above, or a review of your term sheet
- Drafting a custom shareholders' agreement or unanimous shareholder agreement
- Review of a draft prepared by another shareholder's or investor's lawyer
- Negotiating terms with the other parties or their lawyers
- Amendments when the business or the ownership changes
- The corporate paperwork that goes with it: share issuances, resolutions, and minute book updates
Not included
- Tax planning, such as tax-driven share structures or an estate freeze, which your accountant should advise on
- Insurance to fund a buyout, which comes through your insurance advisor
- Business valuations, which come from an independent valuator
- Disputes under an existing agreement, a separate engagement covered on the dispute page
Call 416-554-1639 or book a free consultation. For a detailed overview of key provisions, see our complete shareholders' agreement checklist.
FAQs.
Common questions about shareholders' agreements in Ontario.
What is a shareholders' agreement?
A shareholders' agreement is a private contract between the shareholders of a corporation that governs their relationship, rights, and obligations. It covers decision-making, dividends, share transfers, buy-sell terms, dispute resolution, and what happens when a shareholder wants to leave.
Do I need a shareholders' agreement?
Ontario law doesn't require one, and a corporation is valid without it. But if your corporation has more than one shareholder, you should have one. Without it, the Business Corporations Act's default rules decide questions about control, profits and exits, and those defaults rarely match what the owners intended.
What's the difference between a shareholders' agreement and a unanimous shareholder agreement?
An ordinary shareholders' agreement is a contract among some or all of the shareholders. A unanimous shareholder agreement is signed by all of them and restricts the directors' powers under section 108 of the Business Corporations Act. The shareholders take on the directors' rights, duties and liabilities to that extent, and anyone who later acquires shares is generally deemed to be a party.
Can one lawyer act for all the shareholders?
Sometimes. Under the Law Society's rules, a lawyer acting for more than one client on the same matter must tell each of them that nothing one says can be kept confidential from the others, and that if a conflict develops the lawyer may have to stop acting for all of them. Often the cleaner setup is for the lawyer to act for the company or one shareholder and for the others to get independent legal advice.
What should a shareholders' agreement include?
Key provisions include share transfer restrictions, buy-sell mechanisms and a valuation method, decision-making rules and reserved matters, dividend policy, confidentiality and non-solicitation terms, dispute resolution, and what happens on a shareholder's death, disability, or departure.
How much does a shareholders' agreement cost?
It depends on how many shareholders there are and how complex the business is. Jonathan quotes a flat fee before any work begins, and the initial 30-minute consultation is free.
Can a shareholders' agreement be changed after it is signed?
Yes, with the consent of all the shareholders or whatever majority the agreement allows. Amendments should be in writing and signed by the required parties.
Protect your investment.
A shareholders' agreement is one of the most important documents your business will sign. Free 30-minute consultation with a Toronto business lawyer.