Addition or departure of shareholders

Expertises connexes

Although frequently associated with large companies, the corporation is often an appropriate legal form for small and medium-sized enterprises (SMEs). An integral part of the corporation is, of course, its shareholder base. But what to do when shareholders are added or leave? Several solutions are offered in either of these situations, which are discussed below.

How to add shareholders?

When adding a shareholder, two solutions are available to shareholders already present in the company: the issue of new shares or the sale of part of their own shares.

According to the first hypothesis, i.e. the addition of shareholders through the acquisition of new shares, which must be issued beforehand, an offer legally named subscription must be filed by the person wishing to become a shareholder. If the Board of Directors of the SME accepts this offer, a contract will be formed between the latter and the new shareholder. This is called the share subscription agreement.

Under the second hypothesis, i.e. the sale of shares belonging to the company’s shareholders, no new shares will be issued. Instead, there will be a transaction of shares, from one person to another. To do so, a buy-sell agreement must be drafted to meet your needs and the particularities of your company.

Throughout this process, it is important to ensure compliance with the law as well as with all the clauses of the shareholders’ agreement.

On this point, no matter what form you choose in order to add one or more shareholders to your company, you will have to proceed to the drafting of a new shareholders’ agreement, in order to protect yourself legally and financially from any possible problem. The members of our team are accustomed to assisting their clients in the drafting of shareholder agreements and in the process of issuing and subscribing for shares, in order to provide them with the peace of mind that comes from consulting a qualified lawyer.

Departure of shareholders

As with the addition of shareholders within a company, the person wishing to sell his or her shares, thus constituting the departure of that shareholder, is provided with two different options: to sell them to the company or to sell them to another shareholder of the company.

The first hypothesis, that of a share buyback by the company, implies that a portion of the shares is taken out of the hands of the company’s shareholders, temporarily or permanently. Thus, unlike the issuance of new shares, which tends to dilute the share capital, the buyback of shares by the company concentrates the share capital among the remaining shareholders.

In the second case, the shares are transferred from one shareholder to another. In this case, a buy-sell agreement will come into play, as when a shareholder is added to a company without issuing new shares.

Regardless of the reasons for which a shareholder is led to sell his or her shares in a company, it is always crucial to ensure that the transaction is carried out in accordance with the law and the shareholders’ agreement. Indeed, the latter often includes clauses whose objective is to control the movement of shares within a company, as well as to foresee or prevent potential dilution or concentration.

Due to the legal complexity of adding or removing shareholders from a company, it is advisable to deal with lawyers who specialize in commercial law and who are used to working with SMEs. To learn more about the services we offer, please contact the Bernier Fournier team.

Here are some links that may be relevant to you regarding corporate ownership:

– Registraire des entreprises du Québec – Glossary
– Registraire des entreprises du Québec – Legal Forms of Enterprises
– Éducaloi – Busness Corporations (Companies)