What Should Be Included in a Unanimous Shareholders’ Agreement in Ontario?

If two or more people own a corporation together, a Unanimous Shareholders’ Agreement—often called a USA—is one of the most important documents to put in place early.

A USA sets out the rules between the shareholders. It can deal with decision-making, share transfers, dispute resolution, exits, and what happens if one shareholder dies, becomes disabled, divorces, or simply wants out.

For many business owners, the real question is not whether a USA is useful. It is: what should it actually include?

The short answer is that there is no one-size-fits-all checklist. However, in Ontario, there are certain features that a USA should include if it is going to properly protect the business and the people involved.

What Is a Unanimous Shareholders’ Agreement?

A Unanimous Shareholders’ Agreement is a written agreement among all shareholders of a corporation. In Ontario, it can do more than a regular shareholders’ agreement. It can also restrict some or all of the powers that would otherwise belong to the directors.

In practical terms, that means a USA can shift certain decision-making powers from the board to the shareholders themselves.

For closely held corporations, family businesses, and founder-owned companies, that can be very useful. It allows the owners to agree in advance on how important decisions will be made and how difficult situations will be handled.

What Must Be Included for It to Be a True USA?

At a minimum, a proper USA should:

• be in writing;
• be signed by all shareholders; and
• clearly state any restrictions on the powers of the directors.

If those elements are missing, the agreement may still operate as a contract between some or all shareholders, but it may not qualify as a true unanimous shareholders’ agreement.

That legal distinction matters because a valid USA can affect how the corporation is managed and who has authority to make decisions.

What Should Be Included in a Well-Drafted USA?

Even if the minimum legal requirements are met, a basic agreement may still leave major gaps. A strong USA should usually address the following areas.

1. The Parties and the Corporation

The agreement should clearly identify:

• the name of the corporation;
• the names of all current shareholders;
• the number and class of shares each shareholder owns; and
• any other parties who are intended to be bound, where appropriate.

This sounds simple, but accuracy matters. If ownership is not described properly, disputes can arise later over voting rights, control, and entitlements.

2. How the Business Will Be Managed

A USA should explain how decisions will be made.

This section often deals with:

• who manages the day-to-day business;
• what authority remains with the directors;
• what decisions require shareholder approval; and
• whether certain shareholders have the right to appoint directors.

This is especially important where the shareholders want to keep direct control over major business decisions rather than leaving them entirely to the board.

3. Important Decisions That Need Special Approval

Not every decision should be made by a simple majority.

A good USA should list the major decisions that require:

• unanimous approval;
• a super-majority vote; or
• approval by a specific shareholder or class of shares.

These decisions often include:

• issuing new shares;
• taking on significant debt;
• selling major assets;
• changing the nature of the business;
• paying unusual dividends;
• amending the articles or by-laws; and
• approving related-party transactions.

This type of clause helps protect minority shareholders and reduces the risk of one group making major changes without broad agreement.

4. Rules About Selling or Transferring Shares

One of the most important parts of any USA is the section on share transfers.

Without clear restrictions, a shareholder may try to sell shares to an outside party, transfer shares to a spouse or family member, or otherwise change the ownership structure in a way the other owners never intended.

A USA should usually address:

• whether shares can be sold freely or only with consent;
• rights of first refusal;
• rights of first offer;
• whether the corporation or other shareholders have the first chance to buy;
• tag-along rights for minority shareholders; and
• drag-along rights if the corporation is being sold.

For private corporations, transfer restrictions are often essential.

5. What Happens if a Shareholder Wants to Leave

A good USA should plan for exits before there is tension.

This part of the agreement may deal with:

• a shareholder who wants to retire;
• a shareholder who no longer wants to be involved;
• a breakdown in the working relationship;
• a termination of employment in owner-managed businesses; or
• a forced buyout in certain circumstances.

Some agreements include a shotgun clause or other buy-sell mechanism. Others set out a step-by-step process for offering shares to the remaining owners first.

The right structure depends on the size of the business, the bargaining power of the shareholders, and whether all owners are active in the company.

6. How the Shares Will Be Valued

A buyout clause is only useful if the agreement also explains how the shares will be priced.

A USA should clearly say whether value will be determined by:

• an agreed formula;
• fair market value;
• book value;
• a fixed annual value;
• an accountant; or
• an independent business valuator.

Unclear valuation clauses are a common source of shareholder disputes. The more precise the agreement, the better.

7. Death, Disability, Incapacity, or Bankruptcy

A USA should address what happens if a shareholder:

• dies;
• becomes disabled or incapable;
• becomes bankrupt or insolvent; or
• can no longer participate in the business.

This is one of the most important practical sections in the agreement.

Without a clear plan, the remaining shareholders may find themselves in business with an estate trustee, a family member, or another unexpected party. A properly drafted USA can set out whether the shares must be sold, who can buy them, and how payment will be made.

8. Divorce and Family Law Issues

In owner-managed and family-run corporations, marital breakdown can create serious business complications.

A USA often includes provisions intended to reduce that risk, such as:

• restrictions on transferring shares to a spouse;
• a requirement for spousal acknowledgements or consents; and
• provisions dealing with what happens if family law claims affect the shares.

This does not eliminate all family law issues, but it can help protect the corporation from unwanted disruption.

9. Future Funding and Capital Contributions

Businesses often need more money over time. A USA should deal with what happens if the corporation needs additional funding.

This section may address:

• whether shareholders can be required to contribute more money;
• whether contributions are loans, equity, or both;
• what happens if one shareholder contributes and another does not; and
• whether a failure to contribute can lead to dilution or other consequences.

This is particularly important in newer or growing businesses.

10. Confidentiality and Restrictive Covenants

Where shareholders are actively involved in the business, the agreement may also include:

• confidentiality obligations;
• non-solicitation clauses; and
• in some cases, non-competition provisions.

These clauses are designed to protect the business if a shareholder leaves and later competes or attempts to take customers, staff, or confidential information.

They must be drafted carefully. Restrictions that are too broad may be difficult to enforce.

11. Dispute Resolution and Deadlock

Disagreements between shareholders are common. A USA should provide a path for resolving them.

This may include:

• mandatory negotiation;
• mediation;
• arbitration;
• a buy-sell process; or
• a deadlock-breaking mechanism.

This is especially important where ownership is split 50/50. Without a clear process, the corporation can become paralysed when the shareholders disagree.

12. How New Shareholders Become Bound

If a new shareholder joins later, that person should not be able to avoid the existing agreement.

A USA should include a clause requiring any new shareholder to sign an agreement to be bound by it before receiving shares.

This helps preserve consistency as the corporation grows or ownership changes.

13. What Happens if Someone Breaches the Agreement

A USA should also say what happens if a shareholder breaks the rules.

Possible consequences may include:

• a right to seek an injunction;
• a forced sale of shares;
• loss of certain rights;
• an obligation to indemnify the corporation or other shareholders; or
• other agreed remedies.

This section gives the agreement practical force.

Common Mistakes in Shareholders’ Agreements

Some of the most common problems arise when the agreement:

• is based on a generic template that does not fit the business;
• is not signed by all shareholders;
• does not clearly deal with control and voting rights;
• has weak or vague valuation language;
• says little or nothing about death, disability, or exit scenarios;
• ignores family law risk; or
• does not properly address deadlock.

A USA is most valuable when it is drafted before relationships break down, not after.

Why a USA Matters for Private Businesses

A well-drafted USA can help prevent disputes, protect minority shareholders, preserve control, and create a clear exit path if the owners no longer wish to work together.

It can also reduce uncertainty by answering difficult questions in advance, including:

• Who gets to make key decisions?
• Can shares be sold to outsiders?
• What if one shareholder dies or wants out?
• How is the company valued?
• What happens if the owners cannot agree?

For closely held corporations, those are not theoretical questions. They are the issues that most often lead to expensive disputes.

Bottom Line

In Ontario, a valid Unanimous Shareholders’ Agreement should be:

• written;
• signed by all shareholders; and
• clear about any restrictions on director powers.

Beyond that, a strong USA should usually deal with ownership, control, voting, share transfers, buyouts, valuation, death and disability, family law risk, funding obligations, dispute resolution, and future shareholders.

A generic agreement may not be enough. The terms should reflect the corporation’s ownership structure, business goals, and the practical realities of the shareholder relationship.

How Ahlawat Law PC Can Help

Ahlawat Law PC assists business owners with drafting, reviewing, and negotiating shareholder agreements, including Unanimous Shareholders’ Agreements for Ontario corporations.

A properly prepared agreement can help reduce conflict, clarify expectations, and protect both the business and its shareholders over the long term.