Shareholder Agreements - The Law Society of Saskatchewan

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Corporate Commercial Section 6 Shareholder Agreements 2009 © The Law Society of Saskatchewan While Section 140(2.1) of the SBCA provides: Where a person who is the beneficial owner of all the issued shares of a corporation makes a written declaration that restricts in whole or in part the powers of the directors to manage the business and affairs of a corporation, the declaration is deemed to be a unanimous shareholder agreement. It is possible that an agreement among all the shareholders made prior to incorporation or continuance under the SBCA is a "unanimous shareholders agreement" for the purpose of the SBCA, however, it is good practice to recommend the parties ratify the agreement after incorporation. Organizational Matters USA’s may deal with organizational matters which are not addressed in the corporation's articles or bylaws such as: • the identity of the directors; • the bank and location of bank accounts’ • signing officers for banking; • selection of auditors or accountants; and • selection of a corporate solicitor. Control Over Directors Section 97 of the SBCA vests management of the business and affairs of a corporation in the board of directors, "subject to any unanimous shareholders agreement". In the absence of a USA, a minority shareholder would have very little input into the day-today operation of the corporation. USA’s often deal with the following ongoing financial and operating concerns (which would otherwise be within the discretion of the board of directors): • diverting the "business" or assets of the corporation to any other entity; • carrying on a new business or affiliation which was not intended in the USA • entering into any non-arm’s length transaction; Corporate–6–2 Saskatchewan CPLED Program
Corporate Commercial Section 6 2009 © The Law Society of Saskatchewan Shareholder Agreements • entering into any agreement in excess of expenditure limits; • borrowing money; • encumbering assets; • paying dividends in excess of normal policy; • maintaining adequate internally generated working capital; • hiring or firing employees; • fixing remuneration to be paid; and • issuing treasury shares There are two mechanisms under which a USA can give shareholders control over the conduct of a corporation’s business: • It can vest in the shareholders some or all of the power to manage the business and affairs of the corporation. • It can recognize that the directors will manage the business and affairs of the corporation, but provide that the directors and the corporation cannot take certain actions specified in the USA (unless all or some specified majority of the corporation's shareholders agree). A corporation must have directors (section 97), but the directors may be divested of all powers and liabilities pursuant to a USA and by virtue of sections 97(1) and 140(4). Section 140(4) gives a shareholder exercising what would otherwise be the directors’ power to manage the business and affairs of the corporation the rights, duties and liabilities of a director. If the power to manage a corporation’s business and affairs is vested in the shareholders, there remains the problem of how decisions will be effected. This must be included in the USA. It is appropriate to include an indemnification provision in the USA for directors, if their discretion is fettered. They are liable for decisions made by the corporation but have little power to affect how the decisions are made. Section 140(4) provides that: A shareholder who is a party to a unanimous shareholder agreement has all the rights, powers and duties and incurs all the liabilities of a director of the corporation to which the agreement relates to the extent that the agreement restricts the discretion or powers of the directors to manage the business and affairs of the corporation, and the directors are hereby relieved of their duties and liabilities, including any liabilities under section 114, to the same extent. Saskatchewan CPLED Program Corporate–6–3
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Shareholder Agreements - The Law Society of Saskatchewan

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