Shareholders Agreement Template Ontario.

Please keep in mind that this is not legal advice. The information provided herein is for educational purposes only.

This is the first blog Michael Carabash will be making about unanimous shareholder agreements. For the purpose of this blog post, he'll be discussing unanimous shareholder agreements in the context of the Canada Business Corporations Act.

What is a Unanimous Shareholder Agreement?
A unanimous Shareholder Agreement is defined under the Act (s. 146) as a lawful written agreement among the shareholder of a corporation (some or all of them) that restricts, in whole or in part, the powers of the directors to manage or supervise the management of, the business and affairs of the corporation. So a shareholder agreement is usually an agreement that allows the shareholders to usurp and override the powers of the directors (e.g. the shareholders become the directors or they agree to each appoint 1 director on the board of directors, etc.).

Violation of the agreement on the part of a shareholder can result in a breach of contract claim. If and when shareholders take over the power of the directors to manage the corporation, the Act gives them the same rights, power, duties, and liabilities as a director of the corporation. This is substantial because generally shareholders' liability is limited under the Act (in other words, unless a party can pierce the corporate veil, shareholder's personal liability and personal assets cannot be exposed to having to pay for damages of the corporation, its representatives, agents, employees, directors, etc.).

Unanimous shareholder agreements are extremely important to possess early on in the corporation's life because it explains the rights and obligations of each shareholder, including management issues and share transfer provisions. It puts expectations on the table early on. Unanimous shareholder agreements are much harder to enter into between shareholders later on when progress (which carries with it political jealousies and potential infighting) has been made.

Beyond any doubt worth mentioning is that the Act makes certain corporate requirements and powers subject to a unanimous shareholder agreement, including:

* Special majorities for director or shareholder votes (s. 6(3));
* The power to borrow and give security (s. 189);
* Issuance of shares (s. 25(1));
* Directors' ability to manage, or supervise the management of the business and affairs of the corporation (s. 102);
* The making, amending or repealing of by-laws (s. 103);
* The appointing of officers (s. 121);
* Directors and officers compliance with a unanimous shareholders agreement (s. 122(2)); and
* Directors and officers remuneration (s. 125).

A copy of the unanimous shareholder agreement must be kept at the corporate head office (along with the other documents in the minute book).

What is the cost?
Shareholder agreements vary in cost (e.g. from $2500 to $10,000), depending on the complexity of the provisions in the unanimous shareholder agreement. For example:

* What will be the business of the corporation? Will this be restricted?
* Who are the parties (e.g. voting and non-voting shareholders)?
* What mechanism will be used by the shareholders to elect or appoint board members?
* What mechanism will be used by the shareholders to vote their shares?
* What mechanisms will exist for shareholders to sell or transfer their shares (e.g. shotgun, put/call, consent sales, auctions, piggy back, drag a long, etc.)?
* What about compensation for shareholders who become working shareholders/directors?
* What about working shareholders who become inactive? How will their shares be treated upon inactive?
* What about confidentiality, non-solicitation, and proprietary information provisions? Are these needed?
* How will the agreement be terminated? Can dissolution result from a shareholder complaining about a breach of the agreement?
* General provisions such as notice, entire agreement, currency, assignment, severability, waiver, independent legal advice, etc.

Shareholder Agreement Template

Please keep in mind that this is not legal advice. The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a shareholders agreement or unanimous shareholder agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers). there have Ontario lawyers who can assist you in this regard . If you want to get in touch with Michael Carabash directly, feel free to email him directly to discuss all your shareholder agreements needs!



In this blog , Michael will be talking about some of the nuances of a typical shareholders agreement.

Shares, Shareholders, and Shareholders Agreements
Corporations are separate legal persons. They are separate from their owners (called shareholders) and managers (typically, the officers, directors, and employees). They have their own rights, duties, etc.

Now, whoever owns the shares of the corporation owns the corporation. These persons - who can be individuals, corporations, partnerships, etc. - are called shareholders. There may be different kinds of shareholders, depending on how the corporation was firstly structured. For example, if the corporation wanted SOME people to control it, then those people would have VOTING shares. Other people who owned part of the corporation but did not have control over it would have NON-VOTING shares. The VOTING shares are used at shareholder meetings to vote in a board of directors (who appoint the officers) to manage the corporation. Those with NON-VOTING shares don't get to vote anyone in. If you want to know more about the rights, privileges, conditions, etc. of shares, you can skim through my other blogs about corporate shares here and classes and series of shares here.

Now, upon dissolution, the assets of the corporation will be liquidated and paid out to creditors and shareholders. Certain shareholders may have priority over other shareholders.

There may also be restrictions on a shareholder's ability to transfer the shares. For example, the consent of the board of directors or the shareholders may be required to do so. There may be other kinds of restrictions or obligations you want to attach to the shares. These things (among other things) can be taken care of through a SHAREHOLDERS AGREEMENT.

When are they used?
Shareholders Agreements are typically used when parties are either first starting a company and want to outline their respective rights, privileges, duties, etc. or when parties are admitting new shareholders to the corporation. The latter is typically the case when venture capitalists (financiers) want to help get the corporation's business up and running. The purpose of the shareholders' agreement is to govern the relationship between the shareholders. Without one, there can be many disputes that arise and which get resolved in a costly and time consuming manner: namely, court! So having certainty over many of the important issues found in a shareholders agreement CAN actually help to avoid or mitigate future disputes since everyone will (or at least "should") know what they're getting into.

They are private and comprehensive
Remember: a shareholders agreement is generally a private agreement which is not in the public realm (unless it is disclosed as part of a lawsuit). This can be contrasted with the articles of incorporation (the document which creates the corporation) which is available to the public and which may also deal with certain things that the shareholders agreement deals with (e.g. restrictions on share transfer) but which is not as comprehensive. Therefore, for the sake of confidentiality and comprehensiveness, it is recommended to have a shareholders agreement and not simply rely on articles of incorporation!

Shareholders Agreement Typical Structure
So what can a typical shareholders agreement deal with? Well, a typical shareholders agreement can deal with things like:

1. Control and Management
2. Transferring Shares
3. Valuing Shares
4. Non-Compete and Non-Solicitation
5. Confidentiality
6. Resolving Disputes
7. General Terms

Additional Resources to Learn About Shareholders:

1. Online School - Learn about shareholders and corporations in legal and business classes.
2. Shareholders - Definition

Please keep in mind that this is not legal advice whatsoever. The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a shareholder agreement or unanimous shareholder agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers). They have Ontario lawyers who can assist you in this regard . If you'd like, you can contact Michael Carabash directly at dynamiclawyers.com

This is follow up to some previous blogs Toronto Lawyer Michael Carabash had written a few months ago about unanimous shareholder agreements (an introduction and a basic template). Now, he is discussing some of the nuances involved in drafting one of these agreements. Specifically, I'll be talking about non-competition clauses, dispute resolution clauses, and the common terms that are typically found in a unanimous shareholders agreement.

Non-Compete Clauses
Michael has previously discussed non-compete clauses and agreements generally (an introduction, the justification test in Ontario,and being too vague to enforce). With respect to shareholder agreements, it's typical to find a non-compete clause which provides that each shareholder agrees with the other shareholders and the corporation not to compete (directly, indirectly, alone, in partnership, etc.) for a set period of time - namely, during the term of the Shareholder Agreement (i.e. until it is terminated) or until the Shareholder ceases to be a Shareholder and for a number of months or years thereafter. "Competing" is mainly defined to include carrying on business that is competitive with the corporation's Business (a defined term in the Shareholder Agreement), soliciting the Corporation's stakeholders (e.g. employees, suppliers, customers, etc.), and doing anything that would negative impact and affect the Business of the Corporation.

Dispute Resolution Clauses
If you want to avoid the cost, time, headache, and uncertainty of litigating disputes in respect of the Shareholder Agreement, you might want to add a dispute resolution clause. These clauses can state something like: the parties agree that any and all disputes and questions that emerge between any of the parties in connection with the Shareholder Agreement (or construction or interpretation or application thereof), any section of the Shareholder Agreement, or any document, act, omission, etc. related to the Shareholder Agreement shall be resolved by mediation or arbitration (or perhaps mediation fist, and then arbitration). In either case, you should designate and decide how many mediator(s) and arbitrator(s) to appoint, who will pay for them, where the mediation or arbitration will be held, how the procedure will be determined (by the parties or by the mediator or arbitrator?) and whether an appeal is available from the decision of the arbitrator (mediator decisions are generally non-binding).

General Terms
Examples of general terms typically found in Shareholder Agreements (and other agreements for that matter):

* Notice (how do the parties give notice under the agreement for things like termination).
* Further Assurance (sometimes, you need the parties to the agreement to give additional representations and warranties such that they say they have all the requisite power and authority to do everything they've promised to do under the Agreement and that they will do those things as promised).
* Assignment (e.g. is this to be done by the parties having to consent in writing?).
* Survival of terms (i.e. if a term is found by a court to be void, should the rest of the agreement survive?).
* Governing Law (which jurisdiction governs the interpretation and enforcement of the agreement?).
* Amendment (how is this to be done?).
* Entire Agreement (i.e. this agreement supersedes all other agreements - whether oral or written - relating to the same subject matters in the agreement)
* Waiver (e.g. no failure or delay of a party to enforce or exercise its rights under the agreement constitutes a waiver, etc.).
* Interpretation (singular vs. plural; masculine vs. feminine, section headings, etc.)
* Power of Attorney (shareholders sometimes require that, if any shareholder neglects or refuses or is unable to execute or deliver any document required and demanded to be delivered, then they shall be deemed to have appointed the Corporation as his or her lawyer attorney and agent for such purposes).
* Independent Legal Advice (an recognition by the parties that they have been told to and have received independent legal advice concerning the nature and substance of the Shareholder Agreement).
* Severability (in case one provision is struck down and rendered invalid doesn't mean the rest of the agreement is).
* Currency (in which currency do dollar amounts referenced in the Shareholder Agreement pertain to?).

FREE Shareholder Agreement Legal Information

Please keep in mind that this is not legal advice.

Toronto Lawyer Michael Carabash is still trucking away on shareholder agreements in Ontario. In this blog, he is going to unload a lot of the good material. Please keep in mind that he'll be discussing these things from the perspective of an Ontario corporation; if you're dealing with a Federal corporation, things may be slightly different.

Definition of a shareholders agreement.
A "shareholders agreement" is a private written agreement between two or more shareholders that talks about how they can exercising their vote rights of shares held by them.

Definition of a unanimous shareholders agreement.
A Unanimous Shareholders Agreement is a written agreement among all of the shareholders which limit in whole or in part of the powers of the directors to manage or supervise the management of the business and affairs of the corporation. This agreement need not be made between multiple shareholders; if there's only one shareholder, and that shareholder makes a written declaration that restricts in whole or in part the powers of the directors to manage or supervise the management of the business and affairs of a corporation, then that declaration shall be deemed to be a unanimous shareholder agreement.

Role of shareholders .
They vote on fundamental changes influencing the corporation and are entitled to annual financial statements (which are typically audited unless the shareholders agree otherwise).

What can you do through a Shareholder's Agreement?
Through a Shareholder's Agreement, the shareholders can:

* assume the powers of the directors by making themselves (or their nominees) the directors;
* override the minimal voting requirements for a particular matter under the Ontario Business Corporations Act by requiring a greater number (e.g. super-majority or unanimity) of votes be cast by shareholders (section 5(4) of the Act);
* deal with the management and control of the business (so long as they don't interfere with how directors can vote on matters);
* create rights, restrictions, and obligations on parties with respect to the transfer of their shares (e.g. buy-sell shotgun, piggy back, consent sale, majority sale, etc.); and
* insert restrictive covenants (e.g. confidentiality provisions, non-competes and non-solicitations);
* discuss amendments to the agreement and / or resolve disputes through arbitration (this is even included in section 108(6))

There's a whole lot more you can put into a shareholders agreement, but everyone's situation is different (depending on their circumstances). Above all, you don't need a Shareholders Agreement to cover everything. If you don't need it to deal with management and control issues, then don't put it in there! You need an easy-to-digest agreement that looks after to your specific needs.

What can't you do?
Shareholders are not allowed to fetter the discretion of the directors through an agreement. So says section 108(5.1) of the Ontario Business Corporations Act.

Shareholders get BOUND!
Worth mentioning is that a shareholder's agreement binds new shareholders even if they didn't know of it - so says section 108(7) of the Ontario Business Corporations Act. That said, if the shareholder buys the shares for value without notice of the agreement, then they may rescind the agreement to purchase those shares within 60 days after they actually received a complete copy of the agreement (section 108(7)(c).

Shareholder Agreements as Constating Documents
A constating document essentially creates and organizes the corporation. It is part of the corporation's constitution. The corporation's actions (e.g. through the passing of director resolutions, by-laws, etc.) are subject to constating documents. For example, in the Ontario Business Corporations Act, you'll see lots of provisions saying that a corporation's ability to do something is subject to any shareholders agreement or unanimous shareholders agreement. The following are examples of matters which are subject to a unanimous shareholders agreement:

* Issuing Shares (section 23(1));
* Declaring Dividends (section 38(1));
* Determining the Place of Shareholder Meetings (section 93(1)); and
* Certain procedural matters affecting a Shareholder Meetings (section 97).

FREE Shareholder Agreement Legal Information
Toronto lawyers Michael Carabash regularly draft things for clients, and no two are the same. But there are many things you should consider when thinking about entering into or negotiating a shareholders agreement.

Introductory Clause
The Introductory Clause is the first part of the Agreement. It usually underlines the nature of the agreement being entered into (i.e. shareholder agreement or Unanimous Shareholders Agreement), the date of the agreement, and the parties.

Date
Depending on what the terms of the agreement say, then the date might or might not be relevant. For example, if the TERM (i.e. the duration of the agreement) starts from the date set out in the introductory clause, then that date is important! If the TERM is based on some other date or event occurring, then the date in the introductory clause is more for convenience only to show when the parties entered into the agreement. The date may also be important if, at the end of the agreement, the parties acknowledge that they are entering into the agreement on the date "stated in the introductory clause". If this is wrong, then you'll need to change the language.

The Parties
The parties to a shareholders agreement may involve some but not all of the shareholders. In this case, you've got a shareholders agreement, but not a unanimous shareholders agreement. The parties will generally also include the corporation - especially if the corporation has rights and obligations under the agreement.

Each party may need its own lawyer because it will help each party promote their interests and protect their rights. If there is a conflict of interest, then a lawyer representing multiple parties will usually have to withdraw their services (either entirely or for some but not all of the parties). The corporation, if it is part of the shareholders agreement (which it usually will be) should also have its own lawyer. That lawyer will take instructions from those individuals who are authorized to act on behalf of the corporation (e.g. directors, officers, etc.).

The parties should be described using their full legal names. Keep in mind: corporations should be using trade names in addition to their corporation names. Directors, officers, and others who are using trade names and not indicating that corporations are the ones actually entering into the agreement can get into trouble: PERSONAL LIABILITY!

You DON'T need to clutter up the introductory clause by including all the address and contact information of the parties. You can include this stuff in the Notice section at the end of the agreement. Otherwise, your first page is going to look muddled and busy.

On the First Part, On the Second Part
In many commercial agreement, you'll find the words "On the First Part" written after the first party or parties (e.g. the landlord) and "On the Second Part" written after the second party or parties (e.g. the Tenants). Michael Carabash doesn't find this language particularly useful. He says It's archaic legal jargon. You can omit it.

Remember: if you'd like to buy a text link on this blog to your website, you can contact Michael. Also, if you're looking for a Toronto Shareholder Agreement lawyer, you can contact him to get a quote.

In his last blog,Toronto Lawyer Michael Carabash tackled the introductory clause. Here he is going to talk about the recitals to a shareholders agreement or unanimous shareholders agreement. He strongly encourage you to contact me to have a customized shareholders agreement prepared for you for your specific,unique situation and requirements. THERE'S NO SUCH THING AS A STANDARD shareholders agreement.

Recitals | Background Information
This is where you include background information about the purpose and context for which the parties are entering into their agreement. It's not really a good idea to start putting definitions here. It is better to mention:

* what the corporation's share capital looks like (i.e. authorized and issued shares);
* who the shareholders are and what shares they own (number, class, series); and
* that the parties want to enter into this agreement to set out their respective rights and duties as shareholders and for managing the corporation.

Now it may be worthwhile to have the parties, in the first section of the Agreement, recognize the truthfulness and accuracy and completeness of the recitals.

Consideration
After the recitals comes the part where the parties say something like "NOW THEREFORE IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS, PLUS THE SUM OF ONE DOLLAR, AND VALUE AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED BY THE PARTIES, THE PARTIES HEREBY AGREE AS FOLLOWS". This statement is trying to reflect the judge-made rule that a contract is not enforceable unless something of value is given between the parties. There has to be a fundamental exchange which can be monetized somehow. Giving each other mutual promises is good. So too is giving each other $1. But the problem is that you don't need to write all of this stuff if the contract itself contains a fundamental exchange. That exchange can be detriment to one party (i.e. it's giving up something of value) and a benefit to the other party. Without this exchange, the shareholder agreement won't be enforceable. The bottom line is that you don't need to write all off this mumbo-jumbo. Michael simply writes "The Parties Therefore Agree as Follows" (or something to that effect). Straight to the point and neatly done.

Remember: if you'd like to buy a text link on this blog to your website, you can contact Michael. Also, if you're looking for a Toronto Shareholder Agreement lawyer, you can contact him to get a quote.

In the next series of blogs, Michael is just going to dive into specific areas of concern that you may find in a typical shareholders agreement. In this blog, He is discussing family law provisions. In other words, what happens if one of the shareholders of the corporation all of a sudden is in the process of getting divorced? Their shares may become part of the NET FAMILY PROPERTY! So you'll want to include provisions in your shareholders agreement that allows you to force that shareholder to sell / allow other shareholders to buy those shares before they fall into the hands of that shareholder's former spouse!

Some shareholders agreement basically say: if there is an ORDER from a judge under Ontario's Family Law Act that says a shareholder's shares must be transferred, sold, encumbered, attached, seized, or sold, THEN a TRIGGERING EVENT OCCURS. So what's a triggering event? Basically, it's an even that allows the other shareholders to purchase those shares before they end up in the hands of the former spouse! Now, when you're reading these family law provisions in a shareholder's agreement, Michael think it's wise that you not wait until an ORDER is made before a TRIGGERING EVENT OCCURS. Rather, it's better to have the commencement of an application or proceeding in the family law context that includes a determination of the shareholder's NET FAMILY PROPERTY (because this is where the value of the shares would fall under) be the TRIGGERING EVENT. When this happens, you might want to afford the shareholder the opportunity to settle the matter without affecting their shares; if they can't do this to the satisfaction of the other shareholders within a reasonable period of time (e.g. 30 days), then the other shareholders may have a right to purchase those shares.

You'll want to make sure that, regardless of how you set up these family law provisions in a shareholders agreement, you need to make sure that the transfer of shares to the other shareholders complies with the articles and other provisions of the shareholders agreement. For example, Michael typically includes language that says that any transfer of shares under the family law context is and will automatically be consented to by all shareholders at the appropriate time to avoid disputes later on.

Restrictive Covenants: Non-Solicit | Non Competition Clauses

Please keep in mind that this is not legal advice. The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a shareholder agreement or unanimous shareholder agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).

In his last blog,Toronto Lawyer Michael Carabash talked about how shareholders can force another shareholder to sell their shares if they could end up in their former spouse's hands as part of a divorce. In this blog he's going to talk about non-compete and non-solicitation clauses which are typically found in shareholder agreements. The bottom line is that the courts have laid down the same rules, but the application of those rules differ from case to case, depending on the context (e.g. share purchase agreement, shareholder agreement, asset purchase agreement, employment agreement, partnership agreement, independent contractor agreement, employee termination agreement, etc.).

Non-Compete: this clause means that a party will not in any way compete with the business of the corporation. Now, "business" is usually defined somewhere in the definitions section of the shareholders agreement. Also, the agreements usually go into great detail concerning the capacity in which a shareholder may compete (e.g. as an employee, joint merchant, partner, shareholder, directly or indirectly, in any manner whatsoever, etc.).

Non-Solicitation: this clause prevents a shareholder from soliciting the customers or employees of the corporation. It's a good idea to define "solicit" to include those types of communication that are basically commonplace for soliciting. It's also a good idea to define "customers". This could include historical and prospective customers (i.e. which the corporation has actively solicited for the past X months prior to the termination of the shareholders agreement).

Consideration
In order for an agreement to be valid, as with all commercial agreements, there has to be something of value passing between the parties( fundamental exchange). In this case, it's the mutual promises to restrain themselves. It could also be money.

Proprietary Interest worth protecting
The first step you should do (which most people don't) is identify the proprietary interests (commercial interests) that need protecting. Will the shareholders have access to sensitive and confidential information of the corporation which could be used against it by competitors? Will the shareholders have access to trade secrets, client lists, or develop relationships with key customers / suppliers? What is it that needs to be protected? If everyone can agree here, then it will be harder for them to challenge the restrictive covenants later on.

Reasonable in Time and Geography
Restrictive covenants like non-competes and non-solicits generally run throughout the term of the shareholders agreement and for a set period thereafter. If they don't end ever, then they may be unenforceable (e.g. severed and struck down from the agreement). They need to have reasonable time and geographic limitations. In terms of time, what is reasonable will depend on the context. The more important the proprietary interest, the more protection it needs, and the longer and larger those restrictive covenants can be. But don't get greedy here! You shouldn't be asking for 10 year non-competes within North America unless the corporation actually warrants that kind of protection (e.g. it's starting up a new business in a new industry, etc.).

Remember: if you'd like to buy a text link on this blog to your website, you can contact Michael. Also, if you're looking for a Toronto Shareholder Agreement lawyer, you can contact him to get a quote.

Confidentiality Clauses in a Shareholders Agreement

Please keep in mind that this is not legal advice.

In his last blog, Toronto Lawyer Michael Carabash talked about certain things you should be mindful of regarding non-compete and non-solicitation clauses in a shareholders agreement. In this blog, he's going to discuss another kind of restrictive covenant in a shareholders agreement: confidentiality clauses.

Confidentiality Clauses
Few things to keep in mind with respect to confidentiality provisions:
Definition of Confidential Information

You need to think about the kind of information passing from the corporation to the shareholders and then define it. What format is it going to take? What will its nature be (e.g. trade secrets, know-how, client lists, financial data, marketing plans, etc.)? Will it be assumed to be confidential or will it be stamped or otherwise marked as such? Will you just simply say that it's proprietary information of value to the corporation which, if it fell in the hands of third party competitors, would be detrimental to the corporation? You need to think about these things. Remember, there will be certain types of information that will not constitute confidential information (e.g. it was developed independently by the shareholders, it was already known to the public, it was ordered by a court to be disclosed, it was known to the shareholder prior to signing the agreement or receiving the confidential information, etc.).
Prohibitions on Use

So clearly, once you've defined the confidential information, you want to say what the shareholders can't do with it. This would likely contain things like: not disclosing it, keeping it confidential, not doing anything that would make it not confidential (i.e. so it loses its nature as confidential information), not share it with anyone unless they are authorized representatives, not use the confidential information to the detriment of the corporation, etc.

Compelled Disclosure
What if a shareholder is ordered by a court to disclose confidential information? For that, you might want to include provisions in the shareholders agreement saying that, before they do so, they must notify the corporation and work with the corporation to try to resist or limit such disclosure.
Loss or Improper Disclosure of Confidential Information

What happens if a shareholder loses or inappropriately discloses confidential information? Should they be liable to pay the corporation for damages which could result? Should they be liable to indemnify the corporation? Should they be required to immediately notify the Corporation of such loss or improper disclosure? These are all things to think about as you're negotiating the agreement.
Return of Confidential Information

Another important thing to think about is: returning / destroying the confidential information. Basically, if the corporation requests it, a shareholder should be required to do these things and give proof which is satisfactory to the corporation that those things were done. You definitely don't want things things lingering around.

Remember: if you'd like to buy a text link on this blog to your website, you can contact Michael. Also, if you're looking for a Toronto Shareholder Agreement lawyer, you can contact him to get a quote.

Managing the Business and Affairs of the Corporation

Please keep in mind that this is not legal advice. The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a shareholder agreement or unanimous shareholder agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).

In his last blog,Toronto Lawyer Michael Carabash talked about confidentiality clauses in a shareholders agreement. In this blog, he is discussing the business, organization, management, and governance of the corporation.
The Corporation's Business

You need to identify the Corporation's Business from the beginning because that definition will come back when you start to talk about restrictive covenants (e.g. non-compete, non-solicitation, etc.). The shareholders agreement will say something like "the Shareholder cannot compete in the Business of the Corporation". And since "Business" is a defined term found elsewhere in the agreement, you'll know the meaning. Another reason why defining the Corporation's "Business" is a great idea is because shareholder and / or board approval may be required to change (for example, expand) the "Business" of the Corporation.
Restricting the Discretion of the Board

Now, as Michael has previously blogged about, the Board of Directors of any corporation are the ones who make the decisions about running the corporation. They have been elected by the shareholders and they appoint officers to manage the corporation on a day-to-day basis.

Now enter the shareholders. They are not allowed to fetter the discretion of the directors through an agreement. So says section 108(5.1) of the Ontario Business Corporations Act. BUT, importantly, they can relieve the directors of their responsibilities and ASSUME those responsibilities themselves! Wow! This is done through a UNANIMOUS SHAREHOLDERS AGREEMENT. So the shareholders can restrict the powers of the directors (to exercise discretion and powers) and put themselves in their shoes. Doing so would make the shareholders' liable (and if the shareholder is a person, then personally liable) as directors though.
Nomination of Directors

So assuming the shareholders have entered into a unanimous shareholders agreement to usurp the powers of the directors for themselves, the next question becomes: how are they going to elect the directors? Will each shareholder be a director? Will each shareholder have a right to appoint someone else as a director? What about corporate shareholders? Will their principal (i.e. owner / operator / CEO) be a shareholder? Can a shareholder replace themselves? What is the requirement to establish a quorum? What is required for the shareholders to pass resolutions on matters (e.g. majority, 2/3rds, unanimity, etc.)? If there is a tie, who will be the tie-breaker with their deciding vote? How do you fill vacancies on the board? Will directors be elected in proportion to the shares held by a shareholder (e.g. a shareholder with 10% of the votes will elect 1 director of the 10 spots available).
Meetings

How will notice of meetings be effected? How much time must be given before the meeting can be held? Where will it take place? Can the meeting be delayed by a director notifying the other parties that they can't make it? Can notice of the meeting be waived if all of the directors consent in writing? Can meetings be done by proxy or electronically or over the phone, or must they be in person? All questions arise, but, generally, to avoid disputes, you want to be flexible . You may not want to have stringent conditions as to what must be included in the notice, where it takes place, how it is to be conducted because this may lead to one party claiming that the shareholders agreement was not followed to the letter.

Basically, you'll need to think about these and other issues concerning the governance of the corporation. Remember, shareholders have a lot of flexibility in composing their own regulations of procedure and governance requirements respecting the Corporation. Not only is a shareholders agreement a private contract as between the parties (the Corporation and the shareholders), but it is also a constating document that is akin to the articles (and has more authority than the By-Laws)!
non-compete