6KDUHKROGHUV· $JUHHPHQWV
PINDER, TAYLOR, McNEILLY, GODKIN LLP
Chartered Accountants & Business Advisors
January, 2004
6KDUHKROGHUV·$JUHHPHQWV
OVERVIEW The corporate business world faces many challenges today from both external and internal forces. A properly drafted shareholders’ agreement can provide some guidance to resolve and deal with some of these problems as they arise. As such, these agreements must be tailored to the specific needs and objectives of the parties involved. The process of reaching a consensus on specific items to be incorporated in the agreement often occurs after lengthy exploration of possible or anticipated problems and the potential solutions. This publication addresses, in a brief summary format, some of the key components to be considered in such agreements. KEY COMPONENTS Shareholders’ agreements often incorporate specific business issues that might address: the management and operational aspects of the company such as authority for signing and purchasing or how often meetings will be held. − whether or not unanimous agreement is necessary to change directors, corporate by-laws, etc. − the use of corporate surplus for such things as return of capital to shareholders, dividend payments and/or re-investment inside the company − non-competition issues and restrictions along with any confidentiality concerns
−
Most agreements will undoubtedly contain provisions that deal with share ownership matters following a major personal event at the shareholder level such as disability, bankruptcy or death. The potential financial consequences of these events must be examined from both the personal and corporate viewpoints. The agreement would provide both guidance and the desired protection mechanisms to deal with any of these situations should they arise. Buy-sell arrangements between the shareholders should also be addressed in an agreement of this nature. The focus here is to provide for a smooth transaction of the business on the withdrawal of shareholders while providing some protections to all of the parties concerned. The essence of such arrangements must address the valuation of the business, the pricing of a shareholders’ interest in the company, the financing for the related buy-out and the related income tax issues for the company and all shareholders.
continued on page 2
To Contact us: 71 Main Street North, Exeter, Ontario. N0M 1S3 Phone: (519) 235-0101 Fax: (519) 235-3211 Toll Free: 1-888-786-7864 Website: www.ptmg.on.ca E-mail: ptmg@ptmg.on.ca
Shareholders’ agreements must also encompass and be consistent with other contracts and legal documents such as: − wills − marriage contracts − employment contracts − incorporating documents − life insurance contracts CONCLUSION Shareholders’ agreements serve many functions including the establishment of various rights and obligations among the shareholders along with any restrictions attached to the ownership of their shares. In the absence of a public market for the disposition of the company’s shares, it prov ides some methodology for their liquidation while controlling the entrance of new shareholders into the picture. Usually the best time to draft these agreements is when all parties are getting along. The professional team of PTMG can work along side other key advisors to assist clients in this process.
´&RPELQLQJ 3URIHVVLRQDO$GYLFHZLWK3HUVRQDO
6HUYLFHµ