Shareholders’ agreement

• A private contract that is not required by law but is strongly recommended whenever there are two or more owners (shareholders)
• Provides for in advance situations such as resignation, death, disability (inability to work), and disputes
• It sets out in writing who can buy back shares, at what price, and under what terms
• The buyback of shares is often funded by a life insurance policy taken out on each shareholder
• Upon the death of a shareholder, the CRA considers the shares to have been sold at their current market value (a deemed disposition) and taxes 50% of the capital gain in 2026: the agreement and insurance prevent a forced sale

It’s like a prenuptial agreement signed when everything is going well: no one likes to think about it, but that’s exactly the right time to do it. Consider two partners with equal shares; one dies suddenly. Without an agreement, their shares pass to their heirs, who overnight become your new business partners, even though they’ve never worked in the business. Here’s an example with numbers: a business is worth $600,000, and each partner holds $300,000 worth of shares. Upon death, The CRA considers shares sold at their current market value (a presumed provision) and imposes a 50% capital gains tax in 2026: without anticipated cash flow, the estate may be forced to sell at the worst possible time. Instead, the agreement specifies who buys back the shares, at what price, and how the buyback is paid for, often through life insurance. It should be drawn up at the same time as your share capital and, if applicable, your Management Company (Gesco), because the ownership structure determines who can buy out whom. If there are two or more owners without an agreement, make this a priority this year. Bankeo will connect you, for free, with a vetted accountant who works closely with your lawyer or notary, and we’ll be there for you every step of the way.

What is a shareholders’ agreement, and is it mandatory?

It is a contract between the owners of a company that sets out the rules governing their relationship in writing. No law requires it, but as soon as a company has two or more owners, it becomes one of its most important documents: without it, a death, disability (inability to work), or dispute could end up in court, at the worst possible time and at the greatest possible cost to everyone. From a tax perspective, a death also triggers a deemed disposition of the shares and a taxable capital gain: without planned liquidity, often in the form of life insurance, the estate may be forced to sell.

What is a shotgun clause?

It’s a way to break a deadlock when two partners can no longer see eye to eye. One partner offers to buy the other’s shares at a set price; the other then has two choices: sell at that price, or buy back the first partner’s shares at the same price. The offer must therefore be fair; otherwise, it could backfire on the person making it.

Who should help me draft the agreement?

A lawyer or notary drafts the agreement, but your accountant plays a key role: determining the business’s value, figuring out how to finance the buyout through life insurance, and calculating the taxes resulting from the transfer of shares. Bankeo connects you for free with a vetted accountant who works closely with your legal advisor, at no cost to you, and we’re here to support you every step of the way.