When starting or growing a corporation, it’s essential to think beyond the initial excitement and plan for the long term. A Shareholders’ Agreement is one of the most important tools for setting clear expectations, preventing disputes, and protecting the future of the business.
At Fletcher Barrow, we help businesses of all sizes draft, review, and negotiate shareholders’ agreements that reflect their unique needs and safeguard their success.
A Shareholders’ Agreement is a legally binding contract between the shareholders of a corporation that outlines their rights, responsibilities, and obligations.
It governs how the company will be operated, how major decisions are made, and what happens if issues arise.
Unlike corporate by-laws (which are public and govern the mechanics of running the corporation), a shareholders’ agreement is private and can address much deeper and more customized matters.
Every shareholders’ agreement should be customized to meet the specific needs of the corporation and its owners, but common provisions include:
Mechanisms such as rights of first refusal, shotgun clauses, or mandatory buyouts in certain events.
Defines the duties and commitments of shareholders who are also directors or officers.
Sets out how disputes between shareholders will be handled (e.g., mediation, arbitration).
Clarifies when and how profits will be distributed.
Rules regarding how shares can be sold, transferred, or inherited.
Specifies what decisions require unanimous approval vs. majority vote.
Plans for scenarios like retirement, disability, or death of a shareholder.
Protects the business from internal and external risks.
Set clear rules and avoid future misunderstandings from the beginning.
Protect everyone’s interests as the business grows and evolves.
Plan for generational succession while maintaining harmony.
Lenders, investors, and partners often look for a strong shareholders' agreement before committing.
No. Corporations are not legally required to have a shareholders’ agreement. However, without one, you risk major uncertainty and potential costly disputes in the future.
Ideally, as early as possible — when the corporation is formed or when new investors or shareholders join. It’s easier to agree on terms when relationships are positive.
Yes. Shareholders can amend the agreement by mutual consent, typically requiring a unanimous or special majority vote.
By-laws govern corporate operations and are typically public documents. Shareholders’ agreements are private contracts that govern the internal relationship between shareholders, offering more flexibility and confidentiality.
Without one, disputes are governed solely by default corporate legislation, which may not provide adequate protection for minority shareholders or clear solutions for complex business problems.
At Fletcher Barrow, we understand the unique needs of businesses at every stage. We can help you craft a customized Shareholders’ Agreement that protects your investment, maintains trust among owners, and provides a strong foundation for future succe