Shareholders' Agreements in Quebec: What They Actually Do

A shareholders’ agreement is a private contract between the owners of a corporation. It sets out who decides what, how someone becomes a shareholder, how someone leaves, and at what price. It is not mandatory in Quebec, but it often becomes the only document that matters the day two partners stop agreeing.

Key points

• A shareholders’ agreement is not mandatory in Quebec, but it is what settles the question when partners disagree.
• A shareholders’ agreement covers at least five things: who decides, how you join, how you leave, at what price, and what to do in a deadlock.
• A shareholders’ agreement is private. Unlike the information filed with the Registraire des entreprises, nobody can look it up.
• A unanimous shareholders’ agreement goes further: it moves powers from the board of directors to the shareholders, and it binds future shareholders automatically.
• The best time to sign one is while everyone still gets along.

What is a shareholders’ agreement?

It is a contract signed between the shareholders of a corporation. It frames their relationship: who decides what, what each person is responsible for, how you come into the share ownership, and how you get out.

It is not a public document. The Registraire des entreprises du Québec publishes the names of a corporation’s directors and of its significant shareholders. The agreement itself stays between the partners, and nobody can consult it online.

How is it different from your articles and bylaws?

The articles of incorporation are part of the corporation’s constituting documents. Among other things, they define its share capital, sometimes called the share structure, meaning the classes of shares the corporation is allowed to issue. The bylaws govern how the corporation runs internally: meetings, signing authority, the role of the officers.

The shareholders’ agreement does something else. It organizes the relationship between the people who hold those shares.

The three documents complement each other, and a corporation can exist perfectly well without a shareholders’ agreement.

What does a shareholders’ agreement actually settle?

Five situations come up in almost every agreement. They are also the five that cost the most when nothing was planned.

Who decides what?

Without an agreement, decisions follow the default rules of the law, which rest on the percentage of shares held. A shareholder at 30 % can therefore end up with no say on decisions that affect them directly.

An agreement lets you step outside that logic. You can provide that certain decisions require everyone’s consent, whatever the percentages: a loan above a certain amount, a hire, the sale of a major asset, the arrival of a new shareholder, the election of the directors.

It also lets you write down what a percentage does not say: who is responsible for what, and how much each person is actually involved. Two equal partners can have very different roles, one full time, the other a few hours a week. The shareholder register only reflects who owns what. The agreement is what frames that ownership and the conditions attached to it.

What happens if a partner wants out?

This is the most common situation, and it is often the least prepared. Without an agreement, the person leaving can in principle sell their shares to whoever they want. You could end up in business with someone you did not choose.

An agreement usually provides a right of first refusal, which forces the seller to offer their shares to the other shareholders before selling to an outsider.

In a startup, the stake is higher than it looks. A young corporation is often not worth much on its own, and its value comes from the work and the involvement of the partners. At that stage, shares work more like an entry ticket for someone who has to do the work than like a passive investment.

Providing that the shares go first to those who stay is a way to protect control of the corporation for the people who keep it alive.

What if a shareholder dies or becomes disabled?

If nothing is planned, the shares of a deceased shareholder pass to their estate. You could find yourself in business with heirs who have neither the experience nor the desire to run the company.

The agreement can provide for a mandatory buyback of the shares, either by the corporation or by the other shareholders. It can be funded by life insurance taken out for that purpose, and it avoids a lot of misunderstandings.

How do you price the shares?

If a situation leads to a sale of shares, you need a clear valuation method. Otherwise, when the day comes, everyone will have their own idea of what the business is worth, and that is where the trouble starts.

The agreement can set the method in advance: a formula, a multiple, a valuation by an independent third party, or a value the shareholders themselves revisit periodically.

There is a financial argument for settling this early. Having a business valued by an independent third party is expensive, and if the transaction at stake is modest, that valuation can eat an absurd share of the sale price.

So the method matters more than the number. Take the time to choose how you will proceed.

How do you break a 50-50 deadlock?

If two equal shareholders stop agreeing, the business can come to a full stop. Neither of them can formally impose a decision on the other.

One way out is the shotgun clause: one partner offers to buy the other’s shares at a price they choose, and the other must either accept or buy out the first on the same terms.

Be very careful with this kind of clause. It does break a deadlock, but it is the nuclear option. Once triggered, it will almost always destroy whatever was left of the relationship, on top of pushing one of the partners out. It is a last resort that leads to a breakup by design.

The imbalance to watch here is financial. The clause assumes both partners have the means to buy the other out, which is rarely true. Whoever has more cash can name a price the other cannot match, which ends the debate before it starts.

Other mechanisms exist and are far less radical: mandatory mediation, arbitration, or an independent director who decides. What matters is that there is one, and that it is proportionate to the problem.

Ordinary or unanimous: what is the difference?

The two terms look alike and do not mean the same thing.

	What it does	Who has to sign
Ordinary	Organizes the relationship between the shareholders, without touching the powers of the board of directors	Those who want to be parties to it
Unanimous	Can do the same, and on top of that take part of the directors’ powers away and transfer them to the shareholders, which moves their liability along with it	All shareholders, without exception

Every unanimous shareholders’ agreement is a shareholders’ agreement, but the reverse is not true. A unanimous agreement can cover both sides at once, which means a single well-built document can be enough.

Why keep them as two separate documents?

There are situations where splitting them makes sense. A unanimous agreement reaches further than the people who signed it: anyone who becomes a shareholder later is automatically a party to it, without ever having negotiated it. The corporation also has to declare the existence of a unanimous agreement to the Registraire des entreprises.

Everything written in that document therefore follows the corporation and imposes itself on future shareholders. That includes roles and responsibilities, but also the share valuation method, for example.

Hence the occasional value of keeping in the unanimous agreement only what touches the directors’ powers, and leaving the rest in an ordinary agreement signed by the partners of the moment.

The choice depends on your structure and your goals.

When should you sign a shareholders’ agreement?

As early as possible, for two reasons.

The first is practical. The share split and the agreement are thought through together, not one after the other. You need to know what each person is entitled to, based on how involved they are in the business.

The second is human. Negotiating an exit clause while things are going well is hard but possible, and it forces everyone to state their expectations out loud. Negotiating once the relationship has soured turns into a puzzle, with lawyers on both sides.

If your share split is not settled yet, start there.

What if the budget is not there?

At startup, the budget was probably not built to spend thousands of dollars on a contract. Few clients, uncertain revenue and essential equipment usually come before legal fees.

That is understandable, and it is not a reason to do nothing. What matters most at that stage is the exercise of sitting down with your cofounders and answering the questions that count, together.

Putting those answers on paper gives you the certainty that you are on the same page, and a concrete starting point that will shorten the lawyer’s work the day the budget is there.

Is it actually mandatory?

No. The law requires no shareholders’ agreement, and a corporation runs perfectly well without one.

It works a bit like marriage. You can rely on the default regime. If things go bad, you will only be able to fall back on the rules that apply to everyone, whether they favour you or not.

Clients often ask us whether this document is really necessary, because they get along and everyone is motivated by the project. That is exactly the point. It is when things are going well that the exercise is easier and cheaper. Have you ever tried to negotiate with a client who wants nothing to do with your opinion? Then you understand why a contract with your partners matters even more than a contract with your clients.

And like any contract, it has to be signed by each party to be enforceable against them, with some exceptions for a unanimous agreement. The bigger the group gets, the more interests diverge, and the harder it becomes to draft an agreement everyone accepts. Better to start early.

When does a shareholders’ agreement end?

A shareholders’ agreement is not forever. There are several ways it can end, the simplest being when only one shareholder is left in the business. The others leave and sell their shares, either to the corporation or to the one who stays. An agreement exists to organize the relationship between several people, so when there is only one left, it no longer has an object.

Other situations can end it, depending on what the document provides and on what happens to the business. That is the kind of question you check with a lawyer.

Frequently asked questions

Does a shareholders’ agreement have to be notarized in Quebec?

No. A contract signed by all the parties is enough. The value of the document comes from its content and from the signatures, not from its form.

Can you change a shareholders’ agreement after it is signed?

Yes, but the consent of all the parties is normally required. That is what makes changes harder as the number of shareholders grows.

Can a minority shareholder demand one?

They cannot impose it, since a contract is signed freely. In practice, the moment they carry the most weight is when they come into the share ownership, while the negotiation is still open.

Do you need a shareholders’ agreement if you are the only shareholder?

No, there is nobody to agree with. The question comes up when you bring in a first partner, and that is when it should be prepared.

In summary

A shareholders’ agreement does not only protect against disagreements. It plans what happens when they arrive, while nobody yet has an interest in pulling the blanket their way.

At least five questions deserve a written answer before you start: who decides, how you join, how you leave, at what price, and what to do in a deadlock.

Even if the formal document comes later, the conversation should happen today. That is your starting point.