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Unanimous Shareholder Agreements: Part 3 – Nuances

Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a shareholder agreement or unanimous shareholder agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).  We have Ontario lawyers who can assist you in this regard (I would know, I’m one of them!). If you’d like, you can contact me directly.

As a follow up to some previous articles I had written a few months about about unanimous shareholder agreements  – an introduction and a basic template – I though it would be worthwhile to discuss some of the nuances involved in drafting one of these agreements.  Specifically, I’ll be talking about non-competition clauses, dispute resolution clauses, and the general terms that are typically found in a unanimous shareholders agreement.

Non-Compete Clauses
I’ve previously discussed non-compete clauses and agreements generally (an introduction, the justification test in Ontario, and being too vague to enforce).  With respect to shareholder agreements, it’s typical to find a non-compete clause.  This clause will basically provide that each shareholder agrees with the other shareholders and the corporation not to compete (directly, indirectly, alone, in partnership, etc.) for a set period of time – namely, during the term of the Shareholder Agreement (i.e. until it is terminated) or until the Shareholder ceases to be a Shareholder and for a number of months or years thereafter.  “Competing” is generally defined to include carrying on business that is competitive with the corporation’s Business (a defined term in the Shareholder Agreement), soliciting the Corporation’s stakeholders (e.g. employees, suppliers, customers, etc.), and doing anything that would negative impact and affect the Business of the Corporation.

Dispute Resolution Clauses
If you want to avoid the cost, time, headache, and uncertainty of litigating disputes in respect of the Shareholder Agreement, you might want to include a dispute resolution clause.  These clauses can say something like: the parties agree that any and all disputes and questions that arise between any of the parties in connection with the Shareholder Agreement (or construction or interpretation or application thereof), any section of the Shareholder Agreement, or any document, act, omission, etc. related to the Shareholder Agreement shall be resolved by mediation or arbitration (or perhaps mediation fist, and then arbitration).  In either case, you should specify how many mediator(s) and arbitrator(s) will be appointed, who will pay for them, where the mediation or arbitration will be held, how the procedure will be determined (by the parties or by the mediator or arbitrator?) and whether an appeal is available from the decision of the arbitrator (mediator decisions are generally non-binding).

General Terms
Here are some of the general terms that I’ve typically found in Shareholder Agreements (and other agreements for that matter):

  • Notice (how do the parties give notice under the agreement for things like termination).
  • Further Assurance (sometimes, you need the parties to the agreement to give additional representations and warranties such that they say they have all the requisite power and authority to do everything they’ve promised to do under the Agreement and that they will do those things as promised).
  • Assignment (e.g. is this to be done by the parties having to consent in writing?).
  • Survival of terms (i.e. if a term is found by a court to be void, should the rest of the agreement survive?).
  • Governing Law (which jurisdiction governs the interpretation and enforcement of the agreement?).
  • Amendment (how is this to be done?).
  • Entire Agreement (i.e. this agreement supersedes all other agreements – whether oral or written – relating to the same subject matters in the agreement)
  • Waiver (e.g. no failure or delay of a party to enforce or exercise its rights under the agreement constitutes a waiver, etc.).
  • Interpretation (singular vs. plural; masculine vs. feminine, section headings, etc.)
  • Power of Attorney (shareholders sometimes require that, if any shareholder neglects or refuses or is unable to execute or deliver any document required to be delivered, then they shall be deemed to have appointed the Corporation as his or her lawyer attorney and agent for such purposes).
  • Independent Legal Advice (an acknowledgment by the parties that they have been told to and have received independent legal advice concerning the nature and substance of the Shareholder Agreement).
  • Severability (in case one provision is struck down and rendered invalid doesn’t mean the rest of the agreement is).
  • Currency (in which currency do dollar amounts referenced in the Shareholder Agreement pertain to?).

Tips for a friendly divorce, when John Jarvis daughter attends his 13-year-old, he remains in the guest room of his ex-wife's house. Bob Murphy of Chandler, Arizona, offered his ex-wife a key to his house when she divorced this year after 26 years of marriage.