What Is a Unanimous Shareholder Agreement?

A Unanimous Shareholder Agreement (“USA”) is a formal agreement among the shareholders of a private corporation that establishes the rights, responsibilities, and expectations of the corporation's owners. Importantly, a USA provides shareholders with the ability to customize the governance of their corporation beyond the default rules contained in legislation.

A well-drafted USA addresses how a corporation will be managed, owned, financed, and transferred. It governs both the internal relationships among shareholders and, in many cases, how the corporation interacts with third parties. While a USA is not legally required, a corporation without one is governed primarily by the provisions of the relevant legislation, such as the Business Corporations Act (Alberta). Although the governing legislation provides a general framework, it is not tailored to the unique structure, ownership, or objectives of your business.

A USA allows shareholders to create a governance framework that reflects the realities of their corporation rather than relying solely on a default mould.

Why a Corporation Needs a USA

Clarity

Change is inevitable in every business. New opportunities are presented, disagreements occur, and important decisions must be made. A USA generally establishes the rules of engagement at the beginning of the business relationship, before disputes emerge and positions become deeply rooted.

Like any long-term relationship, corporations evolve over time. A clear agreement that outlines how decisions will be made and how specific situations will be handled can prevent misunderstandings and significantly reduce the risk of costly shareholder disputes.

Preventing Deadlock

Corporate deadlock can be disruptive, expensive, and damaging to a business. A USA can include tailored mechanisms designed to resolve disagreements before they threaten the corporation's operations.

These mechanisms may include mandatory mediation or arbitration, enhanced voting procedures, deadlock resolution processes, and buy/sell ("shotgun") provisions (which result in the initiating shareholder either selling its shares or purchasing shares of the other shareholders).

A Tailored Exit Plan

No shareholder remains with a corporation forever. Retirement, disability, divorce, death, succession planning, and the desire for liquidity can all result in changes to ownership.

A USA provides a roadmap for these transitions. It can establish valuation methods for shares, restrict who may acquire ownership interests, require existing shareholders to be given purchasing opportunities, and regulate the circumstances under which shares may be sold to third parties.

By planning for ownership changes in advance, shareholders can avoid uncertainty during some of a corporation's most challenging moments.

Built-In Protection

Healthy corporations thrive on certainty.

A USA can require shareholder approval before significant corporate actions are taken, such as issuing new shares, declaring dividends, incurring substantial debt, or selling the business. It can also restrict the transfer of shares to unsuitable parties, including competitors, children, spouses, or investors whose interests may not align with those of the corporation.

These protections help preserve both ownership control and the long-term stability of the business.

Customized Structure

There is no such thing as a "standard" USA that is appropriate for every corporation.

The most effective agreements are tailored to the specific needs of the business and its shareholders. Ownership structure, management responsibilities, succession planning, financing requirements, and risk tolerance should all influence the terms of the agreement.

Identifying potential issues early and addressing them through a customized USA can save considerable time, expense, and uncertainty in the future.

Considerations and Risks

Although preparing a USA requires an investment of time and resources, that cost is often considered trivial when compared to the expense of resolving a shareholder dispute. 

Shareholder disputes are often among the most difficult and expensive forms of commercial litigation. Unlike disputes between unrelated parties, shareholder conflicts frequently involve individuals who continue to work together, manage the same business, and rely on the same assets and revenue streams. As a result, litigation can quickly become personal, prolonged, and disruptive to the corporation’s day-to-day operations.

Without a clear agreement governing issues such as decision-making authority, share transfers, funding obligations, valuation methodology, and exit rights, courts may be required to resolve disputes that could otherwise have been addressed through predetermined contractual mechanisms. In many cases, the legal fees, management distraction, lost opportunities, and damage to business relationships significantly exceed the cost of implementing a USA at the outset. Even where litigation is ultimately successful, the corporation itself often suffers from the uncertainty and disruption created by the dispute. While USAs are commonly executed when a corporation is formed, they can be implemented at any stage of the corporation's life. Common opportunities include:

• When admitting a new shareholder
• Before a significant investment or financing transaction
• During succession planning
• When ownership or management structures are changing

Importantly, a USA must be signed by all shareholders. For that reason, the best time to negotiate and implement a USA is often when relationships are positive and stakeholders are aligned.

Steps to Implement a USA

If the time is right to implement a USA, consider the following process:

1. Consult legal counsel to discuss your corporation's specific needs and objectives.
2. Meet with shareholders to identify priorities and areas of concern.
3. Review and negotiate proposed terms.
4. Execute the agreement.
5. Periodically review and update the USA to ensure it remains relevant as the business evolves.

Conclusion

A USA is not mandatory, and many private corporations operate for years based on informal understandings among shareholders. However, formalizing governance structures is not about mistrust; instead, it is about protecting the business and the relationships that support it.

A thoughtfully drafted USA provides certainty, reduces the likelihood of disputes, facilitates ownership transitions, and protects the value that shareholders have worked hard to create. For many private corporations, it is one of the most important documents that will ever be signed.

Questions? 

📞 Reach Nathaniel at Nbrenneis@brownleelaw.com or (780) 428-7308.

📞 Reach Ama at aaidoo@brownleelaw.com or (780) 497-4802.

📞 Reach Kathleen at kmarcinkevics@brownleelaw.com or (780) 970-5735.


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