Shareholder Agreement in Quebec: What It Covers and Why You Need One

A shareholder agreement is a contract between the owners of a corporation that sets out how the business is run, how shares can be sold and what happens when owners disagree or leave. In Quebec, a corporation is governed by the Quebec Business Corporations Act or, if it was incorporated federally, by the Canada Business Corporations Act. Neither law settles most of the questions that cause disputes between partners. This guide explains what a shareholder agreement covers, the clauses that matter most, and when to bring in a business lawyer.

What is a shareholder agreement?

It's a private contract among some or all of a corporation's shareholders. It sits alongside the corporation's articles and by-laws and fills the gaps they leave: who can buy in, who must sell, how decisions are made and how a deadlock ends. It matters most when a business has two or more owners, especially partners who each hold a large stake.

Ordinary vs unanimous shareholder agreement

An ordinary agreement binds the shareholders who sign it. A unanimous shareholder agreement is signed by all the shareholders and can go further: it can restrict or take over powers that normally belong to the board of directors, such as declaring dividends or approving major contracts. Both the Quebec Business Corporations Act (on LégisQuébec) and the Canada Business Corporations Act recognize this type of agreement.

Three consequences are worth knowing. Shareholders who take over directors' powers also take on the duties and liabilities that come with those powers. Someone who later acquires shares covered by a unanimous agreement is generally bound by it. And because every shareholder must sign, a single missing signature can mean the document doesn't qualify as a unanimous agreement at all.

Key clauses to include

• Share transfer restrictions: who can sell, to whom, and with whose consent.
• Right of first refusal: existing shareholders get the first chance to buy shares that are up for sale.
• Shotgun (buy-sell) clause: one owner names a price, and the other must either buy or sell at that price.
• Tag-along and drag-along: minority owners can join a sale of the business, and a majority can require them to join.
• Death, disability or departure: how an owner's shares are bought back and valued, often funded by insurance.
• Non-competition and non-solicitation: limits on competing with the business or taking its clients and staff.
• Decisions and deadlock: which decisions need unanimity or a larger majority, and how a stalemate is broken (mediation, arbitration or a buy-out).
• Financing: whether owners must put in more money, and what happens if one can't.

When an owner dies, their shares become part of their estate. Our guide to settling an estate in Quebec explains what the liquidator has to handle, which is why a clear buy-back clause helps both the business and the family.

Directors vs shareholders: who decides what?

Shareholders elect the directors and vote on fundamental changes, such as amending the articles or selling the business. The board of directors manages the corporation and appoints the officers. In a small business, the same people often wear all three hats, which is exactly why writing down who decides what avoids conflict later. A unanimous shareholder agreement can shift some of those decisions from the board to the shareholders.

What happens without a shareholder agreement

Without an agreement, the default rules of the corporations act apply, and majority rule decides most questions. A minority owner may have little say, and there may be no simple way to buy out a partner who wants to leave or stops contributing. When relationships break down, the fallback is often court. The law gives shareholders remedies, such as the oppression remedy, but litigation is slower and costlier than a clause agreed in advance. Our page on shareholder dispute lawyers explains how lawyers help when that happens.

Can you use a template?

A template is a starting point, not a finished agreement. The clauses that matter most, like valuation, the shotgun mechanism and what triggers a buy-out, depend on your business, your partners and your tax situation. A clause copied from another province or another company can be unenforceable or work against you. Many owners use a template to think through the questions, then have a lawyer draft or review the final version.

When to talk to a business lawyer

• you're starting a business with partners, ideally when you incorporate the business
• a new investor or partner is joining
• an owner wants to leave, retire or sell
• you want to restrict the board's powers through a unanimous agreement
• a disagreement between owners is starting to affect the business

You can compare business and corporate lawyers in Quebec on JustiConnect and book a consultation.

Frequently asked questions

Can I write my own shareholder agreement?

Yes. No law requires you to use a lawyer, and an agreement you write yourself can be binding. The risk is in what it leaves out or gets wrong, which usually only shows up once owners disagree. Having a lawyer review your draft is a common middle ground.

How much does a shareholder agreement cost?

It depends on how many shareholders there are and how complex the clauses need to be. Ask for a flat fee or an estimate at your first consultation.

Who has more power, a director or a shareholder?

Directors manage the corporation; shareholders elect them and approve fundamental changes. A unanimous shareholder agreement can move some of the directors' powers to the shareholders.

Is a shareholder agreement legally binding?

Yes. It's a contract, enforceable between the people who sign it. A unanimous shareholder agreement also limits what the board can do, to the extent it restricts the directors' powers.