Usually, the only time that the answer will be no to the question in the title of this Blog is when there is only one shareholder.
Once your company has issued shares beyond the one shareholder (presumably you), you should have a shareholders’ agreement. I know what you are thinking, you are only issuing to family members so it’s not necessary. Always plan for the worst.
A shareholders’ agreement provides for the management and financing of the corporation, and also deals with the rights and obligations of the shareholder amongst each other. Every shareholders’ agreement is drafted to each particular situation.
For example, if the shareholders are employees of the corporation, it will map out what happens to the shares of that employee if they are no longer employed by the corporation.
Additionally, if shareholders are family members, that shareholders’ agreement will include specific provisions geared towards martial breakdown, and family involvement in the company.
Even though the agreement is tailored to each particular situation, there are standard terms which will be found in all shareholders’ agreements, such as how to transfer shares, how to pay dividends, financing and dealing with directors and employees. For this reason, it is important that lawyers are involved when drafting these agreements, and also that each party to the agreement has an opportunity to review it with their own lawyers.
So when we ask you if you would like a shareholders’ agreement prepared, you might want to think twice before saying “maybe later”, because sometimes “later” is already too late.
Christine Allan, Law Clerk