You may be familiar with the concept of a “unanimous shareholder pact.” But you may get the impression that this is only an alternative version of the term “shareholders` pact.” It is a completely different type of instrument. Prior to the introduction of the Canada Business Corporations Act and under the common law, shareholders had limited rights to limit the control of directors, even if shareholders acted unanimously. The introduction of the Canada Business Corporations Act in 1975 repealed the common law and allowed shareholders to unanimously discharge directors of some or all of their executive powers, as shareholders wanted. First, shareholders, after the United States, are able to limit the powers of directors. Such a restriction may take various forms and may or may not require the indirect participation of shareholders in the management of the company. One approach is to change the majority vote for the adoption of decisions by the board of directors. This can be done by increasing the number of votes needed, by asking for a special majority or by creating a veto. Another approach is to subordinate board decisions to the prior agreement of shareholders. Despite its popularity, many prefer to avoid the latter approach, as its dual decision-making process could more or less significantly delay decision-making. Once you have decided that your company needs an agreement among shareholders to settle its business, you must decide which form of shareholder pact is most effective. As a general rule, there are two options: a unanimous shareholders` pact (“USA”) and a standard shareholder pact. While it is impossible to sit down and list all potential events that could impact the business in the future, a structure that provides a framework to support and lead the board can be very helpful for the company. A framework for decision-making provides greater security and fairness to all parties involved and helps to protect the interests of majority and minority shareholders in the same way.
This framework is often provided most effectively through a shareholder pact. Creating a new business is a very exciting time for many entrepreneurs. However, enthusiasm and optimism for the new entity may lead a business owner to overlook the potential for disagreement in the future on how best to manage the business, the long-term commitments of shareholders and how the company or shares of the company can be sold. Implementing a shareholder pact can avoid significant conflicts, costs and distractions from street activities. As well as learning the ropes of an organization`s management, there is much to know about corporate law and for what purpose different provisions and agreements serve the long-term interests of your business. Talk to a legal expert to help you advise your unanimous provisions on the shareholders` pact so that they are tailored to the specific needs of your organization.
Posted Apr 11th, 2021