Shareholder agreement vs unanimous shareholder agreement: what's the difference?
Written by For Founders Law, a Toronto firm licensed by the Law Society of Ontario. About us
Short answer
A unanimous shareholder agreement is signed by all the shareholders and restricts the directors' powers to manage the company, so the shareholders who take on those powers also take on the directors' duties and liabilities. An ordinary shareholder agreement is a contract among some or all shareholders that leaves the board's powers where they are. A unanimous shareholder agreement also binds anyone who later acquires shares, without a separate signature.
Both are contracts among shareholders, and the same document can be either one. What makes an agreement “unanimous” in the legal sense isn’t just that everyone signed it, but that it takes powers away from the board.
How do they compare?
| Ordinary shareholder agreement | Unanimous shareholder agreement | |
|---|---|---|
| Who signs | Two or more shareholders, often all of them | All shareholders, and possibly people who aren’t shareholders |
| Restricts the directors’ powers | No; it can bind shareholders on how they vote their shares | Yes, in whole or in part |
| Who carries director duties and liabilities | The directors | Shareholders who take over the restricted powers, to that extent; the directors are relieved to the same extent |
| New shareholders | Bound only if they sign, usually through a joinder | Deemed to be a party when they acquire shares |
| One-shareholder company | Not applicable | A written declaration by the sole shareholder can count as one |
| Buyer who didn’t know about it | Not bound unless they sign it | May be able to rescind the purchase within a set period |
What makes an agreement a unanimous shareholder agreement?
Two things: everyone who holds shares is a party, and it restricts the directors’ powers to manage or supervise the management of the business. Section 146(1) of the CBCA and section 108(2) of Ontario’s Business Corporations Act both describe a written agreement among all the shareholders, or all the shareholders and one or more people who aren’t shareholders, that does this. An agreement signed by every shareholder that leaves the board’s powers alone is an ordinary shareholder agreement.
An ordinary agreement can still control votes. Both statutes allow two or more shareholders to agree in writing how their shares will be voted (OBCA s. 108(1); CBCA s. 145.1).
Who takes on the directors’ liabilities?
Whoever takes the powers. Under OBCA s. 108(5), a shareholder who is a party to a unanimous shareholder agreement has the rights, powers, duties and liabilities of a director to the extent the agreement restricts the directors, including the directors’ liability for unpaid employee wages under section 131, and the directors are relieved to the same extent. CBCA s. 146(5) applies the same rule to the parties who are given the power to manage. Before signing one, check which decisions move to the shareholders and whether your insurance covers you for them. See what duties do directors have.
Do new shareholders have to sign?
For a unanimous shareholder agreement, not to be bound. A transferee of shares is deemed to be a party (OBCA s. 108(4); CBCA s. 146(3)), and under OBCA s. 108(7) so is a person issued new shares while one is in effect. A buyer without notice of the agreement may be able to rescind: under the CBCA, within 30 days after becoming aware of it (s. 146(4)); under the OBCA, within 60 days after receiving a complete copy, in the cases set out in s. 108(7), (9) and (10), and a transferee can instead demand that the seller pay fair value for the shares. An ordinary shareholder agreement binds only the people who sign it, so new investors, employees exercising options and advisors usually sign a joinder.
When to choose which
- An ordinary shareholder agreement fits when you want the board to keep running the company, with agreed terms on founder departures, share transfers, drag-along and tag-along rights and investor approvals. See do I need a shareholder agreement.
- A unanimous shareholder agreement fits when the shareholders want to make some decisions themselves, rather than through directors they appoint, and accept the director-level duties that come with that. It is also used in companies with a single shareholder, through a written declaration (OBCA s. 108(3); CBCA s. 146(2)).
- Either way, the agreement should say which it is meant to be, so no one is surprised by who carries the liability. See directors vs officers.
What to do next
We prepare shareholder agreements, including unanimous shareholder agreements, at fixed fees on our fees page.
This guide is general information about Ontario and Canadian law, not legal advice for your situation. To talk through which kind of agreement fits your company, book a free 15-minute consult.