Overview
Putting a unanimous shareholders' agreement in place is an exercise in good governance. It gives a group of owners an agreed framework for running the corporation, sharing its profits and dealing with the departure of a shareholder, and it settles those questions at a point when everyone is still working well together. Every agreement is different, because the answers depend on who the shareholders are and what each of them wants from the business.
A unanimous shareholders' agreement is a creature of statute. It requires the agreement of every shareholder, and it can go further than an ordinary shareholders' agreement by restricting the powers of the directors and transferring their duties and liabilities to the shareholders themselves. We set out how these agreements work, and what they typically contain, in How unanimous shareholder agreements establish clear frameworks for corporate governance.
Consider a common Manitoba fact pattern. Three shareholders own an active operating business: two hold 40% each, and the third holds 20%. All three are individuals who reside in Manitoba, holding their shares directly rather than through a holding corporation or a family trust. The two larger holders work in the business full time; the minority may or may not. At this stage, everyone gets along.
That is exactly the right moment to do this work, and what follows are some of the issues we raise with a shareholder group in this position before any drafting begins. It is not a complete list, and the conversation in the room is always broader. But an agreement can only record decisions the shareholders have actually made.
1. Start with what the statute already gives you.
Before settling what the agreement should say about decision-making, it helps to know how votes are counted when it says nothing.
Under The Corporations Act (Manitoba) and the Canada Business Corporations Act (the CBCA), most decisions of the shareholders are made by ordinary resolution, which is a simple majority of the votes cast. A smaller category of fundamental changes, such as amending the articles, requires a special resolution, meaning at least two-thirds of the votes cast.
Note the phrase "votes cast." These thresholds are measured against the shares actually voted at a properly constituted meeting, not against all shares outstanding. In a 40/40/20 company, that has consequences:
- The two 40% shareholders, acting together, can carry everything: every ordinary resolution, every special resolution, and the election of the entire board.
- The 20% shareholder, on their own, can block nothing.
- The 20% shareholder becomes decisive only if the two larger holders disagree with each other and everyone shows up to vote, and then only on an ordinary resolution. If the two larger holders are split, a 40/20 coalition reaches 60% of the votes cast, which is short of the two-thirds a special resolution requires.
Both statutes allow a corporation to raise these thresholds. Section 6(3) of The Corporations Act (Manitoba) provides that where the articles or a unanimous shareholders' agreement require a greater number of votes than the Act does, the higher requirement prevails. That is the lever, and if the 20% shareholder is to have any say on matters that affect them, it has to be built in deliberately.
There is one other point of leverage, and it is easy to miss. A unanimous shareholders' agreement can only be put in place if every shareholder agrees to it. That gives the 20% holder leverage at the outset that they will not have later, though how much depends on the circumstances. A shareholder whose capital or expertise the business needs is in a stronger position than one who is simply along for the financial ride, and who can be structured around or left out.
2. Who sits at the board table, and what gets decided there.
Board composition is usually the first point of friction. The instinct of the larger holders is that seats should track votes. The instinct of the minority is that each shareholder should have one. A three-person board with one seat each gives a 20% owner the same voice as a 40% owner on operational matters, which may or may not be what the group intends.
The alternatives are worth discussing openly. A five-person board, with each 40% shareholder appointing two directors and the 20% shareholder appointing one, tracks the ownership split exactly.
Or the board may be two directors, one appointed by each of the 40% shareholders, with a defined process for breaking ties. That keeps the minority off the board altogether, which is a decision in itself.
Whichever structure is chosen, the group should then work through which decisions are significant enough that they should require the consent of the shareholders rather than being left to the board alone, and what level of shareholder approval those matters should require.
The usual choice is between unanimity and a special majority, typically 66 2/3% or 75%. In a 40/40/20 company, that choice is close to binary. Either special majority is met by the two 40% holders acting together, so neither gives the minority any say they did not already have. Only unanimity does, and it gives the 20% shareholder a veto over every item on the list. That may be exactly what the group intends, though in our experience it is often more than they meant to concede.
As for what belongs on the list, it commonly includes the sale or encumbrance of significant assets, borrowing or capital expenditures above a stated amount, issuing new shares, amending the articles, declaring dividends, entering into contracts with a shareholder or a shareholder's affiliate, changing signing authorities, and hiring relatives of a shareholder. Dollar thresholds should be set against the scale of this particular business. A $100,000 capital expenditure threshold means something very different in a company with $2 million of revenue than in one with $30 million.
3. How money actually leaves the business.
Minority shareholder disputes in closely held companies tend to start here. If the two 40% shareholders work in the business and the 20% shareholder does not, remuneration comes first. The active shareholders are often paid for the work they do, and dividends follow out of whatever cash the business has left. That ordering is normal and defensible, but the difficulty is that the active shareholders control both variables. Compensation set high enough leaves little to distribute, and a passive shareholder has no practical way to test whether the division between the two is reasonable.
The agreement should therefore say how compensation is set, rather than leaving it to be renegotiated each year by the people who receive it. That might be a formula, a benchmark against market rates for comparable roles, review by the corporation's accountants, or a requirement that compensation above a stated level be approved by all shareholders. A distribution policy does the same work from the other end, committing the corporation to pay out a defined share of profit once agreed reserves are met.
It is also worth asking whether all three should hold the same class of shares. Separate classes allow dividends to be declared on one class and not another, which lets the active shareholders be rewarded through distributions rather than through salary alone. The classes themselves are created in the articles, while the policy governing how dividends are declared on them belongs in the agreement. The tax consequences should be worked through with tax professionals before the structure is settled.
Two further questions belong in the same conversation.
The first is retention. Absent an agreed policy, the board decides each year how much profit to pay out and how much to keep in the business, and a board that consistently retains can leave a passive shareholder with no return for years. This is where a formula does useful work. The corporation maintains a defined minimum reserve or level of working capital, and a set proportion of the profit above that level is distributed each year. Whether the board can retain beyond the formula without shareholder approval is then a question the agreement should answer directly.
The second is funding. If the corporation needs money from its shareholders, whether by way of a guarantee of bank debt or a further advance, the agreement should say whether that obligation is proportionate to shareholdings, and what follows if one shareholder will not or cannot fund.
Where none of this is settled in advance, a shareholder who believes they are being treated unfairly is left with the oppression remedy under section 234 of The Corporations Act (Manitoba), or section 241 of the CBCA. That is a slower and considerably more expensive way to answer questions the agreement could have dealt with at the outset.
4. What the 20% shareholder receives, and what they do not.
What the minority gets should be a conscious decision rather than a drafting accident. Some minority shareholders are along for the financial ride. They put capital in, they accept that they are not running anything, and they are content with a return. Others are working owners with a smaller stake who reasonably expect a voice and a way out.
The more common protections are consent rights over the reserved matters described above, a right to financial information at a defined level and frequency, and a tag-along right so the minority can join any sale by the majority on the same terms.
Put rights need to be separated into two kinds. A put triggered by a defined event, most commonly death or insolvency, is a standard feature and rarely contentious. Disability is often added where the shareholder works in the business, and is less commonly sought for a purely passive holding. A put exercisable at will, allowing the minority to demand a buyout for any reason and at a time of their choosing, is a different proposition. A minority shareholder will usually want one, and the majority will resist it, because such a right places an unpredictable claim on the corporation's cash.
An at-will put is still worth raising. Without it, a 20% shareholder can realize the value of their investment only on a sale of the whole business, which the majority controls, or on death or disability where those triggers are included. None of these is a route the shareholder can choose to take. The point sharpens where the agreement also binds the shareholders to a non-competition covenant for as long as they hold shares. A shareholder in that position cannot sell, cannot compel a buyout, and is contractually barred from doing the same work elsewhere.
The corresponding majority protection is a drag-along right, which compels the minority to sell if the majority accepts a bona fide third-party offer for the whole business. Since a buyer usually wants 100%, a 20% holder with no drag-along in place can frustrate a sale, or extract a premium for consenting to it.
Whatever the group decides, the 20% shareholder should understand the answer before signing. That is a significant part of why independent legal advice matters here.
5. Shot-gun clauses with three shareholders.
The shot-gun, or buy-sell, clause is the best-known exit mechanism in private company agreements. One shareholder names a price. The other must either buy at that price or sell at that price. In a two-shareholder company with roughly matched resources, it is elegant.
With three shareholders, and with an ownership split of 40/40/20, the mechanics get awkward quickly:
- Can the two 40% shareholders combine and trigger jointly against the 20% shareholder? If so, the minority faces a forced sale at a price they did not set.
- Can the 20% shareholder trigger against the other two? In principle, yes, though they would need to fund the purchase of 80% of the business, and a minority holder who may well be passive forcing out the two people who run the company is rarely what anyone had in mind.
- If one 40% shareholder triggers against the other two, must the recipients respond jointly or may they respond separately? Separate responses can produce an outcome nobody intended, with one selling and one buying.
One common answer to the three-party problem is to keep the minority out of the shot-gun altogether, so that it operates only between the two 40% shareholders, and to address the minority through the other provisions instead: a right of first refusal, which gives the remaining shareholders a chance to match a third-party offer before shares can be sold outside the group, the tag-along and drag-along rights described above, and put and call rights triggered by defined events. That is not the right approach in every case, but it removes most of the drafting awkwardness, and it reflects what the clause is really for, which is to separate two people who can no longer run a business together.
Where a shot-gun is used, two refinements are worth considering. A honeymoon period prevents the clause from being invoked in the early years, while the shareholders are still learning how they work together. Less commonly included is a look-back provision, which deals with the shareholder who names a low price, buys out the other, and then resells the business shortly afterwards at a much higher one, usually by requiring a share of the uplift to be paid over.
One further drawback applies even between two shareholders. A shot-gun clause rewards the party with access to capital, regardless of who is right. Where the shareholders have materially different financial capacity, a structured mediation and arbitration process, or an independent umpire empowered to break a deadlock on a specific question, will often serve better.
6. Death, disability and departure.
In a 40/40/20 company, the death of a 40% shareholder is the event most likely to change the business permanently. Without an agreement, those shares pass under the deceased's will, and the survivors may find themselves in business with a spouse or adult children who have never worked in the company. Outside a family business, that outcome is rarely what anyone intends, and most agreements do not permit it. Where it is permitted, the agreement should say how a family unit votes and who speaks for it.
More often the agreement requires a purchase, which raises two questions. The first is funding, and corporate-owned life insurance is the usual source. The second is structure: the shares can be sold to the surviving shareholders, or repurchased by the corporation for cancellation. Those two routes produce materially different tax results for the estate and for the survivors, and each interacts with who owns the insurance policy and how the proceeds come out of the company. Some agreements fix a single mechanism, while others allow a choice among defined alternatives when the time comes. Either way, the drafting needs tax advice, and it should be coordinated with the shareholders' wills.
We consider corporate-owned life insurance and the tax mechanics of these arrangements in greater detail in Tax and Estate Planning for Business Owners, a paper prepared for the 2026 Prairie Provinces Tax Conference.
The same analysis applies, with different answers, to long-term disability, retirement, personal bankruptcy, marital breakdown, and termination of a shareholder's employment. Several of these turn on whether the shareholder works in the business, so the triggers that suit a 40% working owner will not necessarily suit the 20% holder. Each should be addressed specifically, stating whether the resulting purchase is optional or mandatory, and how the price is to be determined.
7. Putting a price on the shares.
Every buyout provision in the agreement needs a method for arriving at a price. The method has to work at the point it is used, which is often a point at which the shareholders are no longer cooperating.
The common approach is to give the shareholders the first opportunity to agree on a price, and to appoint an independent chartered business valuator if they cannot do so within a set period. It costs money and takes time, but it produces a defensible number without requiring the parties to cooperate.
The alternative is a formula, such as a multiple of earnings or an adjusted book value. It is cheaper and faster, but it carries two risks. One is that a formula fixed at the outset can drift a long way from real value as the business changes. The other is that a formula is only as clear as its inputs, and an imprecise one will generate its own argument about how it should be applied.
Whichever route is chosen, the clause still has to settle:
- whether minority discounts and control premiums are permitted or excluded, which in a 40/40/20 company is not academic, because a 20% block valued with a minority discount may be worth considerably less than 20% of the enterprise;
- how shareholder loans and insurance proceeds are treated, how assets the business does not need, such as surplus cash or property it does not use, are accounted for, and how a corporately owned policy is valued in its own right, since it may carry a cash surrender value whether or not a death has occurred;
- whether the valuation, however it is arrived at, is final and binding; and
- who pays for it, whether that is the corporation, the buyer and seller in equal shares, or the shareholder whose conduct triggered the purchase.
Some agreements also provide for a periodic valuation, or one on demand no more than once in a set period. That keeps the shareholders from acting in the dark when something happens, and where a formula is used it gives them a chance to confirm that it still reflects the value of the business.
8. What happens on closing.
Every purchase under the agreement has to close, whether it was triggered by a shot-gun, a put, a call or a death. Rather than repeating the mechanics inside each provision, most agreements provide a single set of default closing terms that generally applies to all of them, subject to any changes made by the particular provision under which the purchase arises.
Those terms should deal with:
- the time and place of closing, and the documents to be exchanged;
- the payment terms, including instalments, interest and security for any deferred portion of the price;
- repayment of loans owing between the departing shareholder and the corporation, in both directions;
- resignation of the departing shareholder, and of any of their nominees, as a director and officer;
- release or replacement of any guarantee the departing shareholder has given for the corporation's debt, which usually requires the lender's cooperation and should not be assumed;
- mutual releases among the parties, and between the departing shareholder and the corporation;
- Important: tax residency declarations and withholding of taxes, as applicable, where the vendor is or may become a non-resident; and
- a power of attorney permitting the transfer to be completed if the departing shareholder will not sign.
9. Restrictive covenants.
Nearly every shareholders' agreement requires each shareholder to protect the corporation's confidential information, both while they hold shares and afterwards, and that much is usually uncontroversial.
Non-solicitation and non-competition covenants are a different matter. Everything is negotiated: the activity restricted, the geographic area, and whether the restriction runs only while a person holds shares or continues after they sell and for how long. The right answer turns on the business and on each shareholder's role in it. Enforceability is fact-specific as well. This is a detailed discussion in its own right and sits outside the scope of this article, but the shareholders should expect to have it.
10. Independent legal advice.
The agreement is prepared for the corporation, even though the instructions come out of meetings with the shareholders themselves. Counsel preparing it is not acting for any one of them individually. Each shareholder should be given a genuine opportunity to obtain independent legal advice before signing, and the agreement should say so. This is not a formality: it goes to enforceability, and it matters particularly where one party is accepting a materially different position from the others.
How We Can Help
There is no standard form for these agreements. Fillmore Riley's business and taxation lawyers draft them from first principles, working with clients on the corporate, commercial, tax and estate questions each agreement raises. If you are forming a corporation with others, have been operating without a written agreement, or need to revisit an existing one because the realities of the business have changed, please contact a member of our Business Law or Taxation practice.