Business & Corporate Law
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A shareholder agreement is a contract among the owners of a corporation that sets out how the company will be run, how shares can be bought and sold, and how disputes will be handled. In British Columbia, it works alongside the Business Corporations Act and the company’s articles, and the two documents need to fit together.
Many business partners start a company on a handshake. Problems tend to surface later: one owner wants to sell, another stops contributing, a founder dies, or the owners simply disagree on the direction of the business. A clear shareholder agreement written early gives everyone a roadmap for those moments. This guide explains how BC law treats these agreements, how Ontario differs, the clauses that matter most, and the remedies available when relationships break down.
Key points
Table of contents
A shareholder agreement is a written contract among some or all of the shareholders of a corporation, and often the corporation itself. It sets the rules the owners have agreed to live by: who makes which decisions, how shares can be sold or transferred, what happens if an owner dies, leaves or wants out, and how disagreements will be resolved.
A corporation’s articles are a public, statutory document. A shareholder agreement is usually private and can go into far more detail. In practice the two must work together: if the agreement says one thing and the articles say another, the conflict can cause real problems when a dispute arises.
Shareholder agreements matter most in closely held companies, such as family businesses, start-ups with two or three founders, professional corporations and holding companies, where the owners are also the directors and managers and there is no public market for the shares.
The Business Corporations Act, SBC 2002, c 57 (the BCBCA) does not define a “unanimous shareholder agreement”. It defines a “unanimous resolution” as a resolution consented to in writing by all shareholders entitled to vote on it (s. 1(1)). This is an important difference from Ontario and the federal statute.
Instead, s. 137 of the BCBCA allows the articles of a company to transfer, in whole or in part, the directors’ powers to manage or supervise the management of the business to one or more other persons. Under s. 137(1.1), that provision is effective only if it was in the articles when the company was recognized or was added by special resolution, and it clearly shows the intention to transfer the powers. If powers are transferred, the persons who receive them take on the directors’ rights, powers, duties and liabilities (and defences) to the extent of the transfer, and the directors are relieved to the same extent (s. 137(2)).
The practical point: in BC, a private agreement among shareholders does not, on its own, shift directors’ statutory duties. If the owners want that result, the articles need to be drafted to do it.
The articles also carry the special rights and restrictions attached to each class or series of shares (ss. 12(2)(b) and 58(1)(b)). If shares are subject to a transfer restriction, the share certificate must carry a conspicuous statement that the restriction exists (s. 57(1)(e)). In Yung v Three Good Friends Property Holdings Inc., 2018 BCSC 1963, the court found a share transfer invalid because it did not comply with the express restrictions in both the shareholders’ agreement and the company’s articles (para. 54). That decision turned on its own documents, but it shows why the agreement and the articles should match.
Ontario’s Business Corporations Act, RSO 1990, c B.16 (the OBCA) expressly recognizes unanimous shareholder agreements. Under s. 108:
For a company incorporated in Ontario, the drafting approach is therefore different from a BC company. Owners with operations in both provinces should confirm which statute governs their corporation before relying on any clause. Pax Law Corporation’s Toronto office serves clients in Ontario.
In Duha Printers (Western) Ltd. v. Canada, [1998] 1 SCR 795, the Supreme Court of Canada described a unanimous shareholder agreement as “a corporate law hybrid, part contractual and part constitutional in nature”. That case concerned a tax question under Manitoba’s corporate statute, so it should not be read as an interpretation of the BC Act.
No two agreements are the same, but most well-drafted agreements deal with the following:
Tag-along and drag-along are commercial terms, not statutory definitions, so their effect depends on the precise wording of each agreement.
A shotgun clause is designed to break a deadlock quickly, but it is a blunt tool. It can favour the shareholder with better access to financing, and the steps it requires must be followed carefully.
The BC Court of Appeal has considered shotgun clauses directly. In Blackmore Management Inc. v Carmanah Management Corporation, 2022 BCCA 117, the Court held that, on the terms of that agreement, a shotgun offer was not revocable unless the parties had agreed otherwise, and that the parties who invoked it were bound by the consequences (para. 72). This was an interpretation of that agreement’s wording, not a rule that every shotgun offer is irrevocable.
In Wolverton Pacific Partnership v Triple F Investments Ltd., 2022 BCCA 262, the Court upheld findings that the shareholders’ agreement remained in effect and that the offer met the buy-sell requirements, noting that “strict compliance is not perfect compliance” (paras. 46 and 57).
Before triggering, or responding to, a shotgun offer, it is wise to obtain advice on the exact notice, price, financing and timing terms in your agreement.
Shareholder agreements often prevent owners from competing with the business or soliciting its clients. Courts look closely at these restrictions. In Shafron v KRG Insurance Brokers (Western) Inc., 2009 SCC 6, the Supreme Court of Canada held that a restrictive covenant must be unambiguous, that the party seeking to enforce it must show it is reasonable, and that an ambiguous covenant is prima facie unenforceable (para. 27). The Court also said “blue-pencil” severance should be used sparingly (para. 36).
Shafron involved an employment covenant, which is subject to a more rigorous test (para. 25). A non-compete given by a shareholder, for example on the sale of a business, may be assessed differently. Even so, clear limits on time, geography and scope remain essential.
Even with a good agreement, disputes happen. The BCBCA gives shareholders several court remedies:
In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, the Supreme Court of Canada described reasonable expectations as “the cornerstone of the oppression remedy” and set out two questions: does the evidence support the reasonable expectation claimed, and was that expectation violated by conduct amounting to oppression, unfair prejudice or unfair disregard (paras. 61–62, 68)?
The BC Court of Appeal applied this framework in Huntly Investments Limited v. Casa Margarita Enterprises Ltd., 2024 BCCA 31, confirming that oppression is fact-specific and upholding a buyout order between shareholders (paras. 24–25, 52). In Smith v Tassone, 2026 BCCA 387, the Court noted that, in a closely held family corporation, reasonable expectations must be assessed in light of both the family relationships and the corporate structure (para. 51). And in McDougall v Knutsen, 2024 BCCA 55, the Court held that without a finding of oppression, a buyout order could not be made (para. 71).
A shareholder agreement is often the best evidence of what the owners reasonably expected. Where a dispute goes to court, Pax Law Corporation’s civil litigation lawyers can help.
Sections 237 to 247 of the BCBCA set out a statutory dissent procedure. Section 238 lists when a shareholder may dissent, including certain changes to the articles, amalgamations, arrangements that permit dissent, a sale of all or substantially all of the undertaking, and continuation outside BC. A shareholder may dissent whether or not the shares carry voting rights. If the steps are followed, the dissenter is treated as having sold the shares to the company, and if the payout value is not agreed, either side may apply to court to have it determined (ss. 244(3) and 245).
Dissent is a statutory exit in specific situations; it is not a general right to leave. That is one reason a contractual exit route in a shareholder agreement is valuable.
Shareholders can also inspect certain company records. Section 42 lists the records a company must keep, and s. 46 sets out which of them shareholders may inspect, subject to its exclusions. The articles may give shareholders broader access.
Many owners prefer to resolve disputes privately. Under s. 7 of BC’s Arbitration Act, SBC 2020, c 2, if a party starts a court action about a matter that was agreed to be arbitrated, another party may apply, before submitting its first response on the substance of the dispute, to stay the court proceeding. The court must grant the stay unless the arbitration agreement is void, inoperative or incapable of being performed.
An arbitration clause should be drafted with care: it should say what disputes it covers, how the arbitrator is chosen, where the arbitration takes place and how urgent relief is handled.
The best time to sign a shareholder agreement is at the start, when the owners are getting along and can discuss difficult scenarios calmly. This is often done together with incorporating the company. An agreement can also be signed later, and existing agreements should be updated as circumstances change.
If you are already in a dispute, an agreement may still help settle it. Related reading: how to buy out a shareholder in a BC corporation, selling a business as a share sale in BC, and our business law services, including contract drafting and review.
No. The Business Corporations Act does not require one. It is a private contract that owners choose to sign, but it is strongly recommended for any company with more than one owner.
The BC Act does not define a “unanimous shareholder agreement”. Instead, s. 137 allows the articles to transfer directors’ powers to other persons, with the related duties and liabilities moving to the extent of the transfer.
Section 108 of Ontario’s Business Corporations Act expressly provides for unanimous shareholder agreements, deems a transferee of shares to be a party, and shifts directors’ duties to the shareholders to the extent the agreement restricts the directors.
It is a buy-sell mechanism: one shareholder names a price, and the other must either sell their shares at that price or buy the offering shareholder’s shares at that price. The exact steps depend on the agreement.
It depends on the wording. In Blackmore Management Inc. v Carmanah Management Corporation, 2022 BCCA 117, the Court held that under that agreement the offer was not revocable unless the parties had agreed otherwise.
A tag-along right lets a minority shareholder join a sale to a third party. A drag-along right lets a qualifying majority require the others to sell. Both are contractual and depend on the agreement’s wording.
They can be, if they are clear and reasonable. The Supreme Court of Canada in Shafron v KRG Insurance Brokers (Western) Inc., 2009 SCC 6 held that ambiguous restrictive covenants are prima facie unenforceable. That case involved an employment covenant, which faces a stricter test.
You may be able to apply to the BC Supreme Court for an oppression remedy under s. 227 of the Business Corporations Act. The court can make a wide range of orders, including a buyout, but the application must be brought in a timely manner.
In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, the Supreme Court of Canada asked whether the evidence supports the expectation claimed and whether it was violated by oppressive, unfairly prejudicial or unfairly disregarding conduct.
Yes. Transfer restrictions and special share rights belong in the articles, and conflicts between the two documents can lead to disputes about which rule applies.
Yes. Under s. 7 of BC’s Arbitration Act, a court must generally stay a lawsuit about a matter the parties agreed to arbitrate, unless the arbitration agreement is void, inoperative or incapable of being performed.
Yes. An agreement can be signed at any time, and existing agreements should be reviewed when owners change, the business grows or a sale is planned.
If you are setting up a company with partners, reviewing an existing shareholder agreement, or facing a disagreement with other shareholders, Pax Law Corporation can explain your options. Pax Law Corporation is a general practice with offices in North Vancouver and Toronto, and you can book a consultation with either office.
This article is for general information only and is not legal advice. The law can change and every case is different. Reading it does not create a lawyer–client relationship. For advice about your own situation, please book a consultation with a lawyer.
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