Guide to Shareholder Agreements in British Columbia: What They Are, Who Needs One, and Why They Matter
If you’re starting a business with a partner (or partners) and plan to incorporate, you’ve likely heard about the importance of having a Shareholder Agreement—also known as a Shareholder Contract. But what does that actually mean in practice?
At my law firm, I work with small business owners across British Columbia and often get asked: Do we really need a Shareholder Agreement? My short answer? Yes—if you want to protect your business and your relationships, this document is one of the most important legal tools you can have in place.
Whether you’re just incorporating or have been operating for a while with co-owners, this post breaks down what a Shareholder Agreement is, who needs one, what it does, and why it’s so crucial to get it properly drafted by a lawyer.
What Is a Shareholder Agreement?
A Shareholder Agreement is a private contract between the shareholders of a corporation that outlines how the business will be run, how decisions will be made, and what happens when someone wants to leave—or has to.
Unlike your company’s Articles of Incorporation or Notice of Articles, a Shareholder Agreement is not filed with the BC Registry and doesn’t become a public document. It’s a private agreement that governs the internal relationships between shareholders, helping to prevent and manage disputes down the road.
Who Needs a Shareholder Agreement?
If you’re the only shareholder in your company, you won’t need a Shareholder Agreement. You’re the decision maker!
But if your company has two or more shareholders, a Shareholder Agreement is essential.
Here are some common situations where a Shareholder Agreement should be considered:
You’re incorporating a new business with a co-founder
You’re bringing on a friend, spouse, or business partner as a shareholder
You’re issuing shares to an employee or investor
You’re already in business with co-owners but haven’t yet formalized expectations
Even if everything is running smoothly today, a Shareholder Agreement is designed to help you navigate future events—like disagreements, exits, or unexpected life changes. It’s always easier to discuss and agree on what will happen in the event of a shareholder dispute before the dispute.
What Does a Shareholder Agreement Do?
A well-drafted Shareholder Agreement does a lot of heavy lifting behind the scenes. It clarifies the rights, responsibilities, and expectations of each shareholder and offers a clear process for making business decisions and resolving disputes.
Here are some of the main things a Shareholder Agreement covers:
Decision-Making and Voting Rights
The agreement can set out how major decisions are made—like taking on debt, issuing more shares, or selling the company. It might allow for majority decisions or require unanimous approval for certain actions.
Shareholder Loans and Contributions
If shareholders are contributing capital or making loans to the business, the agreement can clarify repayment terms, interest rates, and whether those loans convert to equity.
Share Transfers and Exits
A Shareholder Agreement will outline what happens if a shareholder wants to sell their shares, retires, dies, or becomes disabled. This section often includes:
Right of First Refusal – requiring a shareholder to offer their shares to the other shareholders before selling to a third party
Buy-Sell Provisions – creating a roadmap for what happens if a shareholder exits
Drag-Along / Tag-Along Rights – protecting majority or minority shareholders during a sale
Dispute Resolution
The agreement can include a mechanism for resolving deadlocks or disagreements, which is especially important for 50/50 shareholder structures. For example, it may appoint a neutral third-party, assign a casting vote or use a “shotgun clause” (more on that below).
Non-Compete and Confidentiality
To protect the company, the agreement may include clauses that prevent shareholders from competing with the business or disclosing confidential information. In my experience, people often assume their business partners won’t start or advise a competing business, but this isn’t always the case. If this is an expectation, it needs to be set out in writing.
Valuation of Shares
A key element in many shareholder exits is determining the fair market value of shares. The agreement can outline a valuation method (such as an agreed formula or using a third-party accountant) to avoid costly disputes.
Common Clauses in a Shareholder Agreement
While Shareholder Agreements are tailored to each business, here are some of the most common clauses you’ll see:
Shotgun Clause: Allows one shareholder to offer to buy out the other at a set price—if the other shareholder doesn’t accept, they must buy out the offering party at the same price. This is a high-stakes way to break a deadlock but needs to be used carefully.
Casting Vote Clause: In 50/50 companies, this gives one director or shareholder a tie-breaking vote on operational matters to avoid paralysis in decision-making.
Pre-Emptive Rights: Gives existing shareholders the right to purchase new shares before they’re offered to outside investors, protecting their ownership percentage.
Mandatory Sale Events: Triggers that require a shareholder to sell their shares, such as bankruptcy, death, or divorce.
Vesting Schedule: If shares are being issued to employees or founders, a vesting clause ensures they earn their shares over time (especially useful for startups).
When Should You Put a Shareholder Agreement in Place?
The sooner, the better. Ideally, a Shareholder Agreement should be put in place at the time of incorporation or when a new shareholder is brought on.
However, it’s never too late to draft one—many companies come to me years into their business after realizing they need to formalize the relationship or after a conflict arises. It’s a lot easier (and cheaper) to get clear expectations on paper early rather than trying to fix problems after the fact.
Why It’s Important to Have a Lawyer Draft Your Shareholder Agreement
While it might be tempting to use a free template online, Shareholder Agreements are not one-size-fits-all. The stakes are high, and poorly drafted agreements (or missing clauses) can create serious legal and financial issues down the road.
Here’s why working with a lawyer—especially one familiar with British Columbia business law—is worth the investment:
Tailored advice: A lawyer can help you identify and address specific risks relevant to your business and industry.
Legal enforceability: Templates often miss important clauses or include outdated language. A properly drafted agreement ensures your contract is valid and enforceable under BC law.
Clear, plain language: Legalese doesn’t help anyone. I make sure my clients understand what they’re signing—and how to use their Shareholder Agreement if needed.
Flat fee predictability: At my firm, I offer flat fee pricing for Shareholder Agreements, so you’ll know exactly what to budget and won’t get surprised by hourly rates.
Final Thoughts: Protect Your Business Relationships and Future
Running a business with co-owners can be exciting, collaborative, and rewarding—but it also comes with legal responsibilities and the potential for disputes. A Shareholder Agreement gives you a clear framework to operate your business, handle bumps in the road, and protect what you’re building together.
If you have multiple shareholders and don’t yet have a Shareholder Agreement in place—or if your current one needs an update—now’s the time to get it sorted.
Looking for a Shareholder Agreement lawyer in British Columbia? I offer clear, flat-fee pricing and customized contracts designed to give you peace of mind.
Let’s protect your business—together.
Ready to get started?
Book a free consultation to learn more about whether your company needs a shareholder agreement.
