Shareholders agreement for startups: Sample template for Ontario startups

Shareholders agreement for startups: Sample template for Ontario startups

A shareholders’ agreement is a private contract subscribed voluntarily between all shareholders of a company with the aim of regulating their relationships, rights and obligations, as well as the daily operations of the company.

Here in shareholders’ agreements are not specifically regulated by any law. It has no formal requirements in order to exist or to be valid, it is not necessary to inscribe it at the company’s registry nor before any other public office. Nonetheless, usually the parties decide to have one in order to create a more formal and secure document to sign before a notary.

The content of shareholders’ agreements will depend on the type of project or company we are regulating. It can cover various issues, from day-to-day operations, organization processes, business activities and relationships between the shareholders.

It is important to note that shareholders’ agreements are independent contracts, which means that they are a different type of document that can co-exist with the articles of association of a company.

Why are they important?

A startup path is much like a roller coaster. The future is unknown and in most cases during the first two or three years of the company, many important changes may occur due to various reasons.

A shareholders’ agreement is important because you can use it to foresee certain aspects that can affect negatively the progress or growth of the company. Although it is true that a shareholders’ agreement won’t prevent a problem by itself, it will however regulate how this problem can be fixed and what actions will have to be taken to solve it.

Ultimately, the essence of the shareholders’ agreement is to set the rules for the parties involved in the company, be it founders or investors. The way to achieve this goal is to reach an agreement that will have to be included in a legal document that will be binding for all parties.

We have to keep in mind that it is not only important to set the rules, but also to include which obligations and rights will the parties be granted so the agreement is valid and enforceable. It is essential to receive advice by an expert lawyer on these matters.

Risks of not having a shareholders’ agreement

Not having a shareholders’ agreement would be like walking blindfolded, not knowing what can happen in specific situations which can have a negative effect on the company.

When entrepreneurs claims they don’t need a shareholders’ agreement because they will not have any problems, they ought to think about “what if situations”. Often these are circumstances that are not considered or thought of at the beginning of any venture.