Shareholder Agreements

A Shareholder Agreement forms the basis for the relationship of the shareholders in a private corporation.  The shareholder agreement reduces the potential for future disputes amongst the shareholders by defining the relationship up front.  One of the most important aspects of the shareholder agreement is the buy-sell provisions which stipulate restrictions on the transfer of shares.  This reduces the potential of the remaining shareholders being saddled with an unwanted shareholder.  The buy-sell provision can also create liquidity for the departing shareholder by stipulating that the remaining shareholders are obligated to buy him or her out, upon the occurrence of certain triggering events.

Buy-Sell Agreements:

A crucial component in a buy-sell agreement is ensuring that an appropriate mechanism is in place to generate the fair market value of the buy-out.  Due to changes in the stop-loss rules and the reduction of the capital gains tax rates below the dividend tax rates, it is imperative that buy-sell agreements are structured in a manner which will produce favourable tax consequences for both vendor and purchaser.