Shareholder Agreements - The Law Society of Saskatchewan

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Corporate Commercial Section 6 Shareholder Agreements 2009 © The Law Society of Saskatchewan This section could have the effect of imposing on shareholders (to the extent that powers have been removed from the directors) those duties otherwise imposed or which could be imposed on directors of a corporation under other provincial laws (such as the Employment Standards Code, R.S.A. 2000, c. E-9 and Workers' Compensation Act, R.S.A. 2000, c. W-15). Section 140(4) of the SBCA not only imposes on shareholders all duties and liabilities otherwise the responsibility of directors (to the extent that the USA provides). It also grants to a shareholder all the rights and powers of those directors. In light of sections 113, 114 and 118 of the SBCA, it is important that a shareholder of the corporation wishing to dissent from any action taken by other shareholders of the corporation, do so, and take such steps as are necessary to record that he or she did not consent to the resolution or action in question. Section 104 of the SBCA provides that directors can be removed by ordinary resolution of shareholders, but a USA may vary this requirement. Power to Borrow and Give Security Particular provisions of the SBCA give directors the power to borrow and give security (subject to the USA): 97(1) Subject to any unanimous shareholder agreement, the directors of a corporation shall: (a) exercise the powers of the corporation directly or indirectly through the employees and agents of the corporation; and (b) direct the management of the business and affairs of the corporation. 98(1) Unless the articles, bylaws or a unanimous shareholder agreement otherwise provide, the directors may, by resolution make, amend, or repeal any bylaws that regulate the business or affairs of the corporation. 16(1) It is not necessary for a bylaw to be passed in order to confer any particular power on the corporation or its directors. 183(1) Unless the articles or bylaws of, or a unanimous shareholder agreement relating to, a corporation otherwise provides, the articles of a corporation are deemed to state that the directors of a corporation may, without authorization of the shareholders: (a) borrow money upon the credit of the corporation; Corporate–6–4 Saskatchewan CPLED Program
Corporate Commercial Section 6 2009 © The Law Society of Saskatchewan Shareholder Agreements (b) issue, reissue, sell or pledge debt obligations of the corporation; (c) subject to section 42, give a guarantee on behalf of the corporation to secure performance of an obligation of any person; and (d) mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the corporation, owned or subsequently acquired, to secure any debt obligation of the corporation. 183(1.1) Notwithstanding subsection 110(3) and clause 116(a), unless the articles or bylaws of, or a unanimous shareholder agreement relating to, a corporation otherwise provide, the directors may, by resolution, delegate the powers mentioned in subsection (1) to a director, a committee of directors or an officer. Control over Type of Business in Which the Corporation is Engaged Shareholders may wish to restrict the business of the corporation. Section 6 of the SBCA permits the articles to set out any restrictions on the business that a corporation may carry on. However, section 97 provides that the directors must manage the business and affairs of the corporation subject to any USA. Therefore, a USA may restrict the conduct of the business either by vesting the power to manage the business in the shareholders or by requiring a specified level of shareholder approval to certain business decisions. An amendment to the articles to add, change or remove a restriction on the business that the corporation may carry on gives rise to a right of dissent and appraisal under section 184 of the SBCA. If the restriction is included in the articles or in any USA, there will not be ultra vires problems, but in certain circumstances, this would permit certain actions to be set aside by the shareholders (see sections 15 to 18 of the SBCA). Fundamental Change The SBCA requires shareholder approval of certain "fundamental changes". Fundamental changes include: • amalgamation; • reorganization; • winding-up or dissolution of the corporation; Saskatchewan CPLED Program Corporate–6–5
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Shareholder Agreements - The Law Society of Saskatchewan

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