Related Expertise
- Account collection
- Addition or departure of shareholders
- Bankruptcy and Restructuring
- Buy-Sell Agreement
- Change in the legal form of a company
- Commercial litigation (shareholders, employees or others)
- Company Book
- Consignment Contract
- Contract of partnership
- Convertible debenture
- Corporate reorganization and restructuring
- Corporate resolutions
- Creation of a subsidiary
- Director’s liability
- Drafting of articles of constitution
- Franchising
- Governance and Internal Management
- Implementation of a Tax Memo
- Intellectual Property
- Joint Venture Agreement
- Legal Publicity of Enterprises
- Management Company
- Planning and Tax Litigation
- Preparation and review of commercial leases
- Securities and access to public markets
- Share subscription agreement
- Shareholders Agreement
- Starting a business
- Strategic Partnership
- Taxation and tax litigation
- Term Sheet
- The Letter of Intent of the Offer to Purchase
- Trusts (estate and asset protection)
- Unfair competition, Duty of loyalty
When drafting a shareholders’ agreement, it may be wise to include a buy-back clause in certain circumstances. This type of clause specifically defines the corporation’s obligation to repurchase the shares while ensuring compliance with the provisions of the Business Corporations Act or the Canada Business Corporations Act.
The redemption value of the shares may be determined in advance in the shareholders’ agreement. The only limitation to this contractual freedom is the one provided for in section 94 of the Business Corporations Act1, i.e. the amount to acquire the shares cannot exceed the amount provided for in the articles. The corporation will then be obliged to purchase the shares for the price mentioned in the articles of incorporation.
It is also appropriate to include a clause allowing for the choice of how the shares are purchased, since this decision may have a tax impact. When a shareholder wishes to dispose of his shares, he has two choices, either to sell them to the corporation or to another shareholder. The sale of shares to the corporation will result in the taxation of a dividend, while the sale to other shareholders will result in a capital gain or loss. The purpose of drafting a clause in the shareholders’ agreement is to determine which shareholder will have the right to choose, either the buyer or the seller.
Thus, before proceeding with the transfer of the shares, it is essential for the company to ensure that they are fully paid up2 and that, at the end of this operation, the company will be able to pay its liabilities as they fall due3. Failure to comply with this solvency test may result in the liability of the company’s directors.
Bernier Fournier’s team can assist you in the drafting of a shareholders’ agreement or in the formalities surrounding the purchase, redemption or sale of shares.
1 Business Corporations Act, RLRQ, c. S.-31.1, section 94 (hereinafter the “Business Corporations Act”).
2 Business Corporations Act, section 94.
3 Business Corporations Act, section 95.