Are you feeling frustrated with your business partner’s lack of commitment? Concerned about unequal contributions or disputes over profits? Without a shareholders’ agreement, your business could be at serious risk.
Why is a shareholders’ agreement essential?
A shareholders’ agreement defines the roles, responsibilities, and obligations of business partners, while establishing mechanisms to resolve disputes. Without one, Canadian corporate laws offer limited protection, especially in 50-50 partnerships. The absence of such an agreement significantly increases the likelihood of litigation, potentially jeopardizing your business’s future.
Common issues without a shareholders’ agreement
- Unequal effort and contributions from partners
- Disagreements over business priorities, investments, and profit distribution
- Operational impasses that can lead to costly legal battles
In severe cases, litigation may become necessary, leading to prolonged, expensive, and complex court procedures that could disrupt the business.
Benefits of a shareholders’ agreement
A well-written agreement can include provisions such as:
- Penalties for non-compliance, such as unequal profit distribution or the forced sale of shares at a discounted price
- Restrictions on selling shares to third parties
- Guidelines for handling shares in case of a partner’s death
- Policies to ensure smooth business operations and equitable profit sharing
Practical Advice
The best time to negotiate and sign a shareholders’ agreement is at the start of the business or when the relationship between partners is positive. Once conflicts arise, it’s often too late. A shareholders’ agreement is also beneficial for businesses with a majority shareholder or multiple partners.
Take Action Now
If you’re struggling with a partner or want to prevent future issues, consult a lawyer. Resolving disputes without an agreement can be highly complex.
For more information on our legal services for corporate matters, shareholder agreements, and commercial litigation, contact WMR Law and find the best lawyers in Montreal. Contact Oscar Rodriguez Pacanins at +1 514 907-3231 (ext. 101) or orodriguez@wmr-law.ca for more information.
For detailed guidance, contact us today.
For more information on this theme, refer to the original blog post: ¡No aguanto más a mi socio!: la importancia del contrato entre accionistas.