A shareholders’ agreement is a contract between
the shareholders of a company, which governs their
relationship with each other and the company.
outside party to find money to pay the
tax bill.
•• Life insurance could also be held to
the value of the shares to help buyout
the shareholder who passed away.
It is popular to own life insur-ance
through the corporation and thus
have it paid off in corporate dollars. The
pros and cons of doing this should be
properly evaluated.
Shareholders’ agreement
A shareholders’ agreement is a contract
between the shareholders of a company,
which governs their relationship with each
other and the company. People often don’t
associate a shareholders’ agreement with
succession planning. However, when there
are multiple shareholders involved, a share-holder
agreement may contain key aspects
relating to the succession planning ability
on a business’s shareholding – in fact, while
creating some certainty on matters, it may
reduce some flexibility.
Consider the following case: Three
friends decide to start a craft brewery. After
pulling initial seed capital, they reach out to
their friends and other business associates
to raise finances for their brewery opera-tions.
They successfully raise money from
30 other investors to end up with a total of
33 shareholders for the business. They run a
successful business for over a decade.
After this point, one of the found-ers
starts developing an interest in other
ventures and wants to exit the business.
A couple of shareholders pass away – in
one of the cases, three heirs of one share-holder
want to inherit the shares, in the
other, the four heirs want to be cashed
out. Some of the shareholders have been
asking when the business will solicit an
industry buyer who may offer a higher pre-mium
than an internal valuation. A few
years later, a major brewer wants to acquire
the business.
A properly drafted sharehold-ers’
agreement would have account-ed
for most of the situations seen in the
above case:
•• Restrictions on share transfers and per-mitted
share transfers. Clauses here may
allow shares to be transferred to family
members, companies or trusts owned by
the shareholders; also, may not allow out-side
people to come in as shareholders.
•• Providing for situations where one or
more of the shareholders dies, divorces,
becomes disabled, becomes uninterest-ed
in the business, or becomes in some
way unable or unwilling to contribute to
the business.
•• Provisions for exit strategies, including
the sale of the business, including “tag-along”
and/or “drag-along” rights for
shareholders on a proposed sale. When
a big brewer wants to buy the major-ity
shareholders, the tag-along clauses
will force the big brewer to buy out the
smaller minority shareholders as well,
giving the minority shareholders the
opportunity to cash out. If a minority
shareholder wanted to dissent from sell-ing
out, the drag-along clause would
have forced them to sell out as well.
•• Providing dispute resolution mecha-nisms
for resolving deadlocks among
shareholders and providing a method
B U S I N E S S
for determining fair market value of
shares to avoid costly and expensive
court proceedings on share transfers or
sales of the business. When sharehold-ers
passed away or the founder wanted
to exit the business, there would have
been guidance on determining the
share price.
This agreement is much easier to
finalize at the beginning of a business as
everyone will be more or less on the same
page. As time goes by, differences arise that
make it hard to determine a consensus
between the different shareholders. A simi-lar
partnership agreement could be drafted
for partnerships.
The above lists are not exhaustive, nor
are all the nuances considered here. Before
embarking on any of these succession plan-ning
options, it would be wise to contact
a professional who specializes with estate
and succession planning.
Adrian Joseph is the owner of Adrian
Joseph CPA Professional Corporation.
Visit www.adrianjosephcpa.com for
more information.
YOUR SOURCE FOR CO2
and more!
Serving the
Ontario Region!
36 Norbett Dr.
Stouffvile, ON
L4A 2G7
1.905.727.9583
orders@co2source.ca
www.co2source.ca
Mirco Bulk CO2 Bulk Tank
Installation
Bar & Resturant
Gases
Hydrostatic Testing
FALL 2019 § POURED CANADA § 47
/www.adrianjosephcpa.com
/www.co2source.ca
link
