We are often retained by clients who are at the start of their business journey. The analogy that is most apt is that new business owners are similar to newlyweds. They go through a honeymoon phase when they are optimistic and looking towards the future.
However, our clients then talk to us, being the cynical lawyers we are, and we try to explain the storm clouds which may be just over the horizon. These problems can be addressed using Unanimous Shareholder Agreements, which is a document set out in the Alberta (and Canadian) Business Corporations Act.
Shareholders have to think about how to exit the company. There is not a large market for closely held companies, so the natural purchasers are the other parties. However, if the honeymoon period is over, unless you have binding mechanisms to sell shares, you may not be able to. Shareholder agreements often set out how the shares will be sold.
It is common to have 50% shareholders. What people don't think about is how are deadlocks going to be broken?
How do you value the shares in the event of a sale? Does the company set the value of the shares? Is a Chartered business valuator involved?
Who is entitled to what money? Are there dividends? Is there any salary? How do shareholders get their funds out? Are there loans? Do the loans have to be guaranteed? How are the guarantees released?
There are a number of other issues that can come up in shareholder agreements ranging from bankruptcies to divorces. Please contact us if you need help with a shareholders agreement.
The information contained in this article is not legal advice. No solicitor client relationship is formed through this article. The reader is encouraged to retain counsel for advice in these matters.