July 24, 2025
Sure! Here’s a draft blog article on Unanimous Shareholder Agreements (USAs) tailored for an Ontario audience. It explains the concept clearly for small business owners, entrepreneurs, or new shareholders.
What Is a Unanimous Shareholder Agreement—and Do You Need One?
When starting a corporation in Ontario, most business owners focus on incorporating, setting up bank accounts, and getting operations running. But one essential legal tool is often overlooked: the Unanimous Shareholder Agreement (USA).
If you’re running a private corporation with more than one shareholder, a USA could be one of the most important documents you sign. Here’s what it is, what it does, and why you may need one.
What Is a Unanimous Shareholder Agreement (USA)?
A Unanimous Shareholder Agreement is a binding legal agreement signed by all shareholders of a corporation. Its main function is to limit the powers of the directors and transfer certain decision-making powers to the shareholders themselves.
USAs are governed in Ontario by the Business Corporations Act (OBCA), and they must be unanimous—meaning every shareholder must agree to the terms, and any new shareholders must agree to be bound by the existing USA before acquiring shares.
Why Would You Use a USA?
Without a USA, the board of directors has full legal authority to manage and direct the business and affairs of the corporation. That’s not always ideal—especially for closely held corporations where the shareholders and directors are often the same people.
A USA allows shareholders to:
- Override or restrict director powers
- Create customized rules for how shares are transferred
- Set procedures for dispute resolution
- Require shareholder approval for major decisions
- Establish rules for dividends and capital contributions
It’s essentially a corporate prenuptial agreement—designed to avoid conflicts and clarify expectations before issues arise.
Key Clauses Typically Found in a USA
Here are some common provisions in a Unanimous Shareholder Agreement:
- Share Transfer Restrictions
Prevents unwanted third parties from becoming shareholders. Often includes a right of first refusal, shotgun clause, or approval process. - Decision-Making Powers
Specifies which decisions need unanimous or majority shareholder approval (e.g., selling the business, issuing new shares). - Dispute Resolution
Includes mechanisms like mediation, arbitration, or buy-sell clauses to resolve deadlocks or shareholder disputes. - Exit Strategy
Defines what happens if a shareholder wants out, becomes incapacitated, or dies. - Dividend Policy
Sets expectations around how profits will be distributed. - Roles and Responsibilities
May include clauses on how shareholder-employees are compensated or removed if necessary.
What Happens Without a USA?
Without a USA in place, the standard provisions of the Ontario Business Corporations Act (OBCA) apply. That means:
- Directors control corporate decisions
- Shareholders have limited power (beyond voting rights)
- Share transfers are generally unrestricted unless otherwise stated in the articles or bylaws
This default structure can lead to surprises or disputes, especially when personal relationships or expectations change.
When Should You Create a USA?
Ideally, a USA should be put in place at the outset of the business relationship—when everyone is on the same page and before disputes arise. If you’re already in business, it’s not too late, but it does require unanimous consent from all current shareholders.
Takeaways
- A Unanimous Shareholder Agreement isn’t just a formality—it’s a vital roadmap for how your business will run and how major issues will be handled.
- For private corporations in Ontario, especially where ownership is shared between friends, family, or business partners, a USA can protect relationships, preserve value, and help prevent costly litigation.
- If you’re considering setting up a USA or reviewing an existing one, it’s wise to speak with a corporate lawyer who can tailor the agreement to your specific needs and ensure it complies with Ontario law. The cost is modest compared to what it may save you down the road.
What Weilers LLP Can Do To Help You
The business lawyers at Weilers LLP are here to help with all of your corporate law needs, including a unanimous shareholders agreement tailored to suit your particular situation. During the life of the corporation, we often advise management or shareholders on the interpretation and requirements of their USA.
If you need help drafting or reviewing a USA, give us a call and see if we are the right lawyers for you.