Legal Briefs: How a unanimous shareholder agreement (USA) can protect your company
By Medicine Hat News on June 16, 2018.
Previous editions of this column have given readers tips and tactics to protect your money, your family and your estate. In this one, I want to talk about protecting your company. You likely have money, time (and maybe even blood, sweat and tears) invested in your company so it’s important to consider a protection plan for your business. Shareholder disputes and disagreements can be devastating to a company. Whether you co-own a company with your spouse, relatives or friends, there are many obstacles that can threaten shareholder relationships. Finding ways to minimize these obstacles is important to your company’s success. A useful corporate tool to help protect against these types of disturbances among shareholders is a unanimous shareholder agreement (or USA.) Like the name suggests, a USA is an agreement between all of the shareholders in a corporation. A USA is like a manual that sets the rules for the shareholders. Alberta’s Business Corporations Act (Act) governs our province’s corporations. The Act sets out minimum requirements and standards every Alberta company must follow. By entering into a USA, shareholders can depart from the Act and decide their own governance rules. USAs can be quite lengthy but they often cover a wide range of foreseeable events. The terms in your USA will be unique to your corporation and its shareholders. Here are some important topics and questions to consider when planning a USA: 1. Who makes the decisions? A USA sets out the rights and responsibilities of the shareholders. It outlines what corporate decisions belong to the shareholders and which ones are made by the directors. A USA may restrict the authority given to directors under the Act and give the important decision-making powers to the shareholders. 2. How are decisions made? Depending on the nature of the question, a decision might require the unanimous consent of the shareholders. For example, when deciding whether a company takes out a loan to help with financing. On the other hand, a decision might only require a majority of shareholder votes to pass. 3. Triggering events. What happens to a shareholder’s shares on the following events? — Death — Mental or Physical Incapacity — Divorce — Bankruptcy These are often called “triggering events” and they can cause confusion and disagreement among shareholders. Triggering events are stressful without having to negotiate and navigate their impact on a company. Planning ahead and setting out what happens to a shareholder’s shares on the occurrence of these events will help establish clarity and certainty. 4. Appropriate dispute resolution. What happens when shareholders can’t agree? Court is a time-consuming, expensive and emotionally draining system. Court is also a place where matters are open to the public. A nasty and public shareholder dispute can harm your business. A USA can provide for other methods of dispute resolution such as mediation, collaboration and if all else fails, arbitration. Finding ways to keep shareholder disputes out of the courtroom will be beneficial to your company. 5. Valuating shares. Whether a triggering event occurs or a shareholder wants out of the company, how the shares are valuated is often a contentious issue. With the help of a USA and your company’s accountant, a valuation method can be set in advance to set clear guidelines for departing shareholders. Planning a USA doesn’t have to be intimidating. Talk to your lawyer and accountant to see if your company could benefit from a USA. Your professional advisors will guide you through the USA process to ensure your company is well protected. Some thoughtful planning now will save you time, stress and money down the road because prevention is easier than finding a cure. Hilary Pritchard helps navigate the turning points of life. She is an associate with Pritchard & Co. Law Firm, LLP. Contact Hilary at 403-527-4411 or at hpritchard@pritchardandco.com. 19-18
