This information appears on your corporation's Certificate of Incorporation and Articles of Incorporation you received from the government department or authority when the corporation was first incorporated.

Information required:

• Jurisdiction of incorporation.
• Date of incorporation.
• Legal name of corporation.
• Registered office address.
• Business (trade) names it operated under.

Every corporation has what are called "shares" (also called "stocks"). The corporation issues share certificates to the shareholders (as mentioned above to the persons who "hold" (i.e., own) the shares or stock), as evidence of owning the shares. In many cases, each share is given one vote, so the person with the most shares has the most votes.

Corporations generally have two different classes of shares, common and preferred. The class of shares called "common" shares participate in the corporation's remaining assets upon dissolution or liquidation. This means that the holders of these shares will receive, any remaining sums of money following the dissolution or winding-up of the corporation (following the payment to any creditors of the corporation and if applicable “preferred” (also called “special” shares) shareholders are paid). While typically there is only one class of common shares, a corporation may have in its capital stock several different classes of common shares, with different rights attached to each. Moreover, while typically called and referred to as "common shares", common shares may also be called any of the following names: voting shares; participating shares; voting and participating shares; or, may even be called and represented by a letter, such as Class "A" shares. If you are unsure as to what class of shares each shareholder owns, review the minute book of your corporation and check the tab or ledger indicating "shareholders". There, you will find the class(es) of shares held by each shareholder.

Certain corporations issue a second class (or several classes) of shares called "preferred" shares. Preferred shares give their holders a priority, preference or privilege or impose a restriction vis-a-vis other classes of shares. This could mean that the holders of these preferred shares would receive dividends (profits) in preference to another class of shares (including the common shares). However, these preferred shares may also have restrictions; for example, they may not entitle the holder to vote. Again, if you are unsure whether any shareholder owns preferred shares, review the minute book of your corporation and check the tab or ledger indicating "shareholders". There, you will find the class(es) of shares held by each shareholder. If this is a new incorporation, the comments made above apply equally to preferred shares.

If your corporation is a new incorporation and has yet to issue any shares, you must now decide on the shareholdings of each shareholder before continuing with the preparation of your shareholders agreement.

Information required:

• Number of different classes of shares in the corporation's share capital (e.g., common, voting, participating, preferred, Class "A", Class "B", etc.).
• Name of each class.
• Indication whether each class is a "common" or preferred" class.
• Number of shareholders.
• Number and class of shares for each shareholder.

Typically, directors are the individuals that administer the affairs of the corporation and make all major decisions for the corporation. More specifically, they are able to adopt resolutions in a number of areas which include, among others: the issuance and registration of share certificates, transfers, allotment and payment of shares; the declaration and payment of dividends (profits); the number, term of office and remuneration of directors; the appointment, functions, duties and removal of officers; and the time and place of holding of annual meetings, calling of regular and special meetings of the board of directors and the procedure to be followed at said meetings.

However, the express purpose of entering into a shareholder agreement is to restrict the powers of the directors, in whole or in part, and to require certain decisions to be made by shareholders holding a pre-determined number of the voting shares of the corporation. Nonetheless, every corporation must have at least one director to officially conduct the affairs of the corporation.

Information required:

• Number of directors that will form board of directors.
• Number of director(s) that each shareholder will be entitled to designate.
• Name of each director.

Officers are the persons who hold certain senior management positions, such as President, Vice-President, Secretary and Treasurer, among others. A corporation must generally appoint a President and a Secretary, which positions may be held by the same individual. The directors are most often responsible for appointing the officers. Officers may also be directors and shareholders of the corporation. In fact, this is typical in small corporations.

Information required:

• Name of the person who will be the President of the corporation.
• Names other persons who will also hold officer positions.

One of the main functions of a shareholder agreement is to ensure that no major or important decisions relating to the corporation may be taken without the prior consent of shareholders holding a pre-determined percentage of the voting shares of the corporation. This ensures that each shareholder will be consulted on these matters, providing his point of view and desire and, depending on the percentage selected, may grant such (or each) shareholder with a "veto" for any such decision. These matters will be listed below.

Information required:

• Select pre-determined percentage of the voting shares required for major and important decisions to be authorized.
• Matters included in list of items that can be selected that require above percentage:
  • increase, decrease or modification in the number of shares or the classes of shares.
  • purchase for cancellation of shares by the corporation.
  • the granting of any loan, investment or guarantee by the corporation.
  • an increase in any loan the corporation has previously taken out.
  • the declaration and payment of dividends (profits) on any class of shares.
  • the repayment by the corporation of any loans to any shareholder.
  • the approval of all budgets of the corporation.
  • the sale of all or substantially all of the corporation's assets.
  • he purchase or sale of real estate.
  • any modification of the corporation's by-laws.
  • the corporation's dissolution or liquidation, its merger with another company or the creation of any subsidiary.
  • the filing by the corporation of any notice under any law with respect to bankruptcy or insolvency.
  • an important change in the nature of the corporation's business, its objectives or the relocation of its registered office.
  • changes to the payment of any remuneration or salary to a shareholder.
  • the adoption on behalf of the corporation of any contract not in the ordinary course of the corporation's business.

Information required:

• You can regulate who will sign checks for the corporation.
• Determine number of signatures required for the corporation to issue checks.
• Maximum amounts for one or multiple signatories.

A pre-emptive right clause provides that each current shareholder will be offered the right to acquire his proportional share of any new shares that are issued by the corporation, enabling him to maintain his current proportion of shares in the corporation following the new issue of shares. A "pre-emptive" right essentially protects the current shareholders from dilution of their shares in the corporation.

A buy/sell clause allows shareholders to "buy out" (i.e., buy the shares of) the other shareholder(s) by creating an obligatory purchase and sale mechanism between shareholders.

Essentially, one shareholder submits an offer to purchase all the shares held by the other shareholder(s). Each shareholder receiving the offer will then have a choice (one of which must be chosen) to either (i) sell his shares at the offered price or (ii) purchase the shares of the shareholder making the offer at the identical price and conditions offered. This way the shareholder making the initial offer cannot offer to purchase the shares of the other shareholder(s) at a lower price than is reasonable (i.e., that he is willing to accept); if he does, the shareholder receiving the offer may decide to purchase the offering shareholder's shares instead of selling. In this way, the buy/sell clause keeps the shareholders "honest" as to the price they are willing to offer and receive for shares in the corporation.

The clear advantage of the buy/sell ("shotgun") clause is that if ever the shareholders no longer get along or agree on how to manage the corporation one could buy the (shares of the) other shareholder(s) out.

However, before including a buy/sell clause, each shareholder should consider his financial resources relative to the other shareholders. In particular, if a shareholder has very little capital at his disposal, that shareholder may be at a substantial disadvantage relative to another shareholder with ample liquidity. The reason for this concern is that if the shareholder with the liquidity (shareholder A) knows that the other shareholder (shareholder B) does not have the financial means, or the ability to raise the required funds in a relatively short period of time, then A may decide to make B an offer for the purchase of B's shares for an amount that is substantially lower than their actual value. A may submit such an offer knowing that B does not have the financial means to buy A's shares instead and effect the reverse buy out. As such, the "threat" of the reverse buy out is significantly diminished by one shareholder not having the requisite financial means.

Information required:

• What percentage of deposit required to make offer.

A right of first refusal clause allows for a shareholder wishing to sell his shares to do so, but only after having offered them first to existing shareholder(s). As such, a right of first refusal requires that before a shareholder sells to a person who is not a shareholder, he must first offer them to existing shareholders (at the identical price and terms offered or received from the non-shareholder). In this manner, the shareholder wanting to sell is not penalized and will be able to sell, and the existing shareholders are still able to limit the introduction of new shareholders, if they so choose. This clause is generally beneficial to all shareholders in that it gives them a first "crack" at the purchase of shares of any shareholder wishing to sell his shares.

Accordingly, a shareholder who has received a binding offer from a third party (the Purchaser) submits it to the existing shareholder(s), who will have a right to match the offer and purchase the shares upon the same terms and conditions, thereby excluding the Purchaser who made the offer. The shareholder(s) receiving the offer will have fifteen (15) days to decide whether or not to exercise their right of first refusal. If the shareholder(s) do not purchase all of the shares on those terms, then the shareholder who received the offer may sell his shares to the Purchaser upon the terms contained in the offer.

When there are three or more shareholders, the offer is made to all other shareholders in proportion to the number of shares respectively held among them. Consequently, each shareholder wishing to purchase the selling shareholder's shares can do so and avoid any change to the proportion of shares he then holds. In other words, each shareholder has the right to purchase his proportion of shares to avoid any change in his proportion vis-a-vis the other current shareholder.

Almost ALL shareholder agreements include this clause.

The "piggyback" clause allows a shareholder to sell his shares to a third party purchaser who has offered to purchase the shares of any one of the shareholders upon the same price and conditions. In other words, if shareholder A receives an offer from a third party (the Purchaser) to purchase his shares, then shareholder B may require that the Purchaser also purchase his shares at the same price and conditions made to shareholder A. As such, one (or more) shareholder "piggybacks" on the offer made to one of the shareholder. If the Purchaser does not agree to purchase the shares of all the shareholders willing to "piggyback", then none of the shareholders may sell their shares to him.

This clause generally benefits shareholders who own a small percentage of shares in the corporation (minority shareholders). This is because it allows them to ensure their inclusion in the sale with the majority shareholder(s). For example, if shareholder A holds 90% of the shares and shareholder B holds 10% of the shares, it is possible that third party may only be interested in buying the shares of shareholder A. After all, by buying 90% of the shares, he would have effective control of the corporation and not be required to pay for the shares of shareholder B. However, by including this piggyback clause, shareholder B can force the sale of his shares along with the shares of shareholder A to the third party, thereby benefiting from the sale.

The "Drag-Along" clause acts like a piggyback clause in reverse. This clause allows one shareholder (the Selling Shareholder) to sell his shares to a third party (the Purchaser), and may require the other shareholder(s) to sell their shares to the non-shareholder who wants to purchase all the shares of the corporation. This clause may be important in the event that the only purchaser for a shareholder's shares is a person interested in owning all and not less than all of the shares of the corporation. Also like the "piggyback" clause, the right of first refusal is required for this clause as well.

If the existing shareholders decide not to buy all the shares of the Selling Shareholder who has received the offer, then the Selling Shareholder may force the other shareholders to sell all of their shares to the Purchaser at the same price and conditions contained in the offer. As such, the Selling Shareholder does not lose out on the opportunity to sell his shares and allows the other shareholder(s) the option of buying him out without being forced to sell their shares to the potential Purchaser.

This clause is typically beneficial to a shareholder who has received an offer from a third party which is conditional upon acquiring all of the outstanding shares of the corporation. In this way, another shareholder (holding a small number of shares) could not frustrate or block the sale by holding out or trying to negotiate a "better" deal for himself.

Here is an example to illustrate the use of this clause. Shareholder A holds 90% of the shares of ABC Widgets Inc. with shareholder B holding the remaining 10%. A received an offer to purchase all of his shares from C, a third party. However, C makes it a condition that he also purchases all the outstanding shares of ABC Widgets Inc., i.e., B's shares. A would then submit C's offer to B. B would then have the option of buying A out upon the same terms of the offer from C. If B elects not to buy out A, then A can force B to sell his 10% stake in ABC Widgets Inc. to C. If the unanimous shareholders agreement does not have this drag-along clause, then A could not compel B to sell his shares to C.

This Cash Call clause provides that if the corporation requires additional funding and cannot obtain such funding from its principal bank or financial institution, then the shareholders will be required to advance their proportionate share of the necessary funds (i.e., in accordance with the percentage of the shares they own in the corporation). If one shareholder does not advance his share (the Defaulting Shareholder), then the other shareholder(s) (the Funding Shareholder) is entitled to advance that shareholder's proportionate share. Having done so, the Funding Shareholder(s) has the option of either converting the advanced fund into a loan to be repaid by the corporation, or convert the loan into additional shares, thereby diluting the shares of the Defaulting Shareholder.

For example, shareholder A and B each hold 10,000 shares in a corporation called ABC Widgets Inc. Let us assume that this corporation needs $100,000 for its business operations and has been unable to secure the requisite loan from its bank. Accordingly, since each of A and B hold 50% of the shares in ABC Widgets Inc, each would be required to provide 50% of the required amount, namely, $50,000. However, let us assume that B does not have the liquidity or simply does not want to invest such sum, and A supplies B's $50,000 share. A then has the option to convert the $50,000 amount (B's share of the required funds) into an interest-bearing loan to be paid by ABC Widgets Inc. to A. Alternatively, A may convert all or part of the $50,000 into new shares. A may convert the $50,000 into 5,000 additional shares in ABC Widgets Inc. (the actual amount will depend on the value selected by the shareholders in this unanimous shareholders agreement). Following the transfer, A would hold 15,000 shares and B would hold 10,000 shares. Accordingly, A would hold a greater percentage of the equity of ABC Widgets Inc.

The stated advantage of such a clause is that each shareholder retains a vested interest in continuing to invest funds in the corporation. If one shareholder does not invest his share of the required funds, then he may lose a proportion of his equity. Moreover, it rewards shareholders who decide to invest in the corporation when such funds are needed by the corporation.

However, if such a clause is not inserted, a corporation may lose its financial appeal to a shareholder if he is the only shareholder investing additional funds, i.e., the other shareholder is reaping benefits from his investment. This may lead to resentment and cause a shareholder who continues to invest funds in the corporation to question his continued financial support as there is no additional "upside" for him.

Before including a cash call clause, each shareholder should consider his financial resources relative to the other shareholders. In particular, if a shareholder has very little capital at his disposal, that shareholder may be at a substantial disadvantage relative to another shareholder with ample liquidity.

Information required:

• Determine what type of cash call clause: (a) advanced funds remain a loan repayable by the corporation; or (b) funding shareholder has option to convert advanced funds into a loan repayable by the corporation OR dilute the Defaulting Shareholder(s)' number of shares in the corporation.
• Select period of time over which the corporation would repay the converted loan.

Confidentiality clauses (also called non-disclosure clauses) prohibit and restrict a shareholder from disclosing any confidential information of which he has knowledge or has acquired as a result of being a shareholder of the corporation. This type of clause prohibits the shareholder from disclosing to any person, or otherwise making public, any such confidential information. Furthermore, it prohibits the shareholder from using any such confidential information for his or any other person's benefit.

Information required:

• Period of time after stopping to be a shareholder person will be required to maintain confidentiality.

A non-competition clause restricts the ability of a shareholder to compete with the corporation for a set period of time following the date he ceases to be a shareholder of the corporation. This type of clause must typically, to be legal and enforceable, be reasonable as to its scope, duration and territory. Accordingly, for such a clause to be upheld in a court of law, it is generally suggested that it be limited to the type of business actually conducted by the corporation. The geographic location within which the shareholder is prohibited from competing with the corporation should reflect the actual territory within which the corporation conducts business. For example, if the corporation only conducts business in the province of British Columbia, an agreement prohibiting a shareholder from working in Ontario or the whole of Canada may be held to be unreasonable and therefore unenforceable. Lastly, the duration of the non-competition obligation must generally be reasonable. The courts have interpreted this to mean different periods of time, depending on numerous factors. It is not generally recommended that the duration be longer than 24 months. The goal of this type of clause is to protect the legitimate interests of the corporation and not to make it impossible for the shareholder to gainfully employ himself.

Information required:

• Period of time after stopping to be a shareholder person will be required to refrain from competing with the corporation.
• Territory person will not be able to compete in.
• Description of the business activities.

A non-solicitation clause is similar to a non-competition clause in that it restricts the shareholder from soliciting customers of the corporation. The effect of this type of clause is such that the shareholder is allowed to compete with the corporation, except that he cannot try to do business with the customers of the corporation, or try and alter the relationship the corporation has with these customers. This clause also restricts the former shareholder from soliciting employees of the corporation. Non-solicitation and non-competition clauses are usually combined in order to achieve comprehensive protection of the corporation's interests.

Information required:

• Period of time after stopping to be a shareholder person will be required to refrain from soliciting customers, suppliers and employees of the corporation.

This clause provides that if a shareholder becomes insolvent, bankrupt or attempts to protect his assets using insolvency or bankruptcy laws, then the other shareholder(s) will have the right to purchase the shares of this shareholder at a pre-determined price upon the occurrence of any of these "defaults". By including this type of clause, the corporation and the non-defaulting shareholders may avoid the undesirable circumstances of having a bankrupt co-shareholder and avoid the introduction of third parties as shareholders (i.e., trustees in bankruptcy, creditors etc.).

Information required:

• Decide the price of the shares: Book value, Fair market Value and Designated Value.

"Book Value", as used in the agreement, means, in relation to the common shares of the corporation, their net book value, excluding goodwill, as at the last day of the month immediately preceding the date when such determination is required to be made, as determined by the then regular auditors or accountants of the corporation using generally accepted accounting principles consistently applied.

"Fair Market Value", as used in the agreement, means, in relation to the common shares of the corporation, the price determined in an open and unrestricted market between informed and prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of money or monies' worth, the whole to be determined by the opinion of an independent expert.

"Designated Value", means the value of the common shares of the corporation as designated by the shareholders in the shareholders agreement, and as revised by the shareholders each year following the preparation of the corporation's financial statements.

This clause may result in the sale of the shares of a deceased shareholder to the corporation. Upon death, the surviving shareholder(s) can require the estate of the deceased to sell its shares to the corporation at a pre-determined price set out in the unanimous shareholders agreement. This clause is often included to prevent the introduction of third parties (i.e., heirs and successors of the deceased shareholder) in the operations of the corporation. If the other shareholders do not wish to be required to purchase the shares of the deceased shareholder, the agreement can allow the successors to offer their shares to the other shareholders. In other words, the other shareholders can purchase the shares, but if they decide not to, the shares remain in the hands of the successors.

For example, let us assume that shareholders A, B and C each hold 1,000 shares in ABC Widgets Inc. A unexpectedly dies. His shares then go to his estate and would normally be transferred to the rightful heir, who happens to be D, A's son. Now let us assume that D has no experience in the widget business and wants to take the business in a different direction. With the insertion of this clause, B and C could decide to force the estate to sell A's shares before D can acquire them for the agreed upon price in this unanimous shareholders agreement. In this way, D could not adversely affect the operations of the corporation. Without this clause, then B and C could not force A's estate (and D) to sell A 1,000 shares.

Information required:

• Period of time over which payments are to be made: (a) consecutive equal monthly instalments; or (b) an initial payment with equal consecutive annual (anniversary) payments.
• Decide the price of the shares: Book value, Fair market Value and Designated Value.

"Book Value", as used in the agreement, means, in relation to the common shares of the corporation, their net book value, excluding goodwill, as at the last day of the month immediately preceding the date when such determination is required to be made, as determined by the then regular auditors or accountants of the corporation using generally accepted accounting principles consistently applied.

"Fair Market Value", as used in the agreement, means, in relation to the common shares of the corporation, the price determined in an open and unrestricted market between informed and prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of money or monies' worth, the whole to be determined by the opinion of an independent expert.

"Designated Value", means the value of the common shares of the corporation as designated by the shareholders in the shareholders agreement, and as revised by the shareholders each year following the preparation of the corporation's financial statements.

This Clause will result in the sale of the shares of a shareholder to the corporation following his disability, as certified by two (2) medical doctors, for an extended period of time determined in advance by the shareholders and included in this unanimous shareholders agreement. Upon a shareholder's disability, a shareholder will be required to sell his shares to the corporation at a pre-determined price set out in this shareholders agreement. This clause is similar to the clause requiring the transfer of shares upon the death of a shareholder, except that it applies in the case of the disability of a shareholder.

For example, let us assume that shareholders A, B and C each hold 1,000 shares in ABC Widgets Inc. A unexpectedly becomes (mentally or physically) disable and can no longer contribute to the operations of the corporation. With the insertion of this clause, B and C could decide to force A to sell his shares for the agreed upon price in this unanimous shareholders agreement. Without this clause, then B and C could not force A to sell his 1,000 shares.

Information required:

• Select period of time of full-time consecutive disability following which the corporation will have the right to purchase the shares of that disabled shareholder.
• Select period of time of sporadic non-consecutive disability following which the corporation will have the right to purchase the shares of that disabled shareholder.
• Period of time over which payments are to be made: (a) consecutive equal monthly instalments; or (b) an initial payment with equal consecutive annual (anniversary) payments.
• Decide the price of the shares: Book value, Fair market Value and Designated Value.

"Book Value", as used in the agreement, means, in relation to the common shares of the corporation, their net book value, excluding goodwill, as at the last day of the month immediately preceding the date when such determination is required to be made, as determined by the then regular auditors or accountants of the corporation using generally accepted accounting principles consistently applied.

"Fair Market Value", as used in the agreement, means, in relation to the common shares of the corporation, the price determined in an open and unrestricted market between informed and prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of money or monies' worth, the whole to be determined by the opinion of an independent expert.

"Designated Value", means the value of the common shares of the corporation as designated by the shareholders in the shareholders agreement, and as revised by the shareholders each year following the preparation of the corporation's financial statements.

The choice of the "governing law" determines which provincial law will govern the agreement, as well as, the interpretation and construction of its terms and conditions. Typically, the governing law is that province's laws where the corporation is incorporated or has its registered or registered office.

Arbitration is a process of dispute resolution in which a neutral third party (generally selected by all shareholders), called an arbitrator, renders a binding decision after a hearing where each of the disputing parties have an opportunity to be heard on the matter in dispute. As such, arbitration is an alternative to the general court system. Arbitration may have an added benefit over the court system when dealing with a complex or technical issue. In such cases, it is generally in the interest of the parties to agree on an arbitrator who possesses an expertise or other knowledge in the matter of dispute, as opposed to the court system, where the parties do not "select" the judge who will preside over their case. Moreover, arbitration may avoid the formalities, delays and expense of ordinary litigation.

This clause provides that if any of the shareholders have loaned money to the corporation, then they will be entitled to receive the reimbursement of such loan prior to the payment of any dividends (profits) to the shareholders by the corporation.

A guarantee or an intervention is where a person (the guarantor or intervener) agrees to bind and oblige himself for the obligations of another person. In this way, it is as if the guarantor has signed the agreement himself, and has agreed to perform the obligations of the party who signed the agreement. This type of liability is called "joint and several" liability. A person who is "jointly and severally" liable, here a third party, means that such person is liable for all of the obligations as if that person were the person who signed the agreement, here a shareholder.

This is particularly important in a situation where there exists a corporate shareholder. Since the law considers a corporation to be a distinct person from its shareholders, it may be desirable that the ultimate shareholder of the corporate shareholder (i.e., the physical person who is the "true" shareholder) also bind and oblige himself to the obligations contained in this shareholders agreement.

• Name of person who will personally be guaranteeing the obligations of a shareholder.
• Name of shareholder for whom the guarantor will be guaranteeing the obligations.