Written by Behdad Karimi Dermeni, CPA · Reviewed by Maryam Ajorloo, CPA
A shareholder agreement is a private contract between the owners of a corporation that sets out how the company is run, how decisions get made, who can sell shares and to whom, and what happens when an owner leaves, dies, or disagrees. It sits on top of your articles and by-laws and fills in everything they leave out.
Starting a company with a co-founder feels a lot like moving in with a friend: everyone is certain the dishes will sort themselves out. A shareholders agreement is the conversation about the dishes, held while you still like each other. Below is a free shareholder agreement template for Canadian corporations you can copy, the clauses that matter most, and the tax points a CPA will want settled before anyone signs.
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What Is a Shareholder Agreement?
Every Canadian corporation already has two governing documents: its articles of incorporation and its by-laws. They cover the basics, such as share classes and how directors are elected. They say almost nothing about the questions that actually break up companies.
What if one founder stops working in the business but keeps their shares? Can a shareholder sell to a competitor? Who decides whether profits are paid out or reinvested? A shareholder agreement answers those questions in advance, in writing, so nobody has to improvise an answer during a dispute.
You will see it written as a shareholder agreement or a shareholders agreement (sometimes with an apostrophe). They mean the same thing. The version that has special legal status is the unanimous shareholder agreement, which we cover further down, because it can quietly move legal responsibilities from the directors to the shareholders.
The heuristic we give every new corporation: if the company has more than one shareholder, it needs a shareholder agreement, and the best time to sign it is before there is any money to argue about.
What to Include in a Shareholder Agreement
A solid agreement for a small Canadian corporation covers ten areas. The first four are where most disputes start.
Ownership and capital. Who holds which shares, what each person paid or contributed, and whether anyone is expected to put in more money later. Attach a cap table as a schedule so there is one agreed record of who owns what.
Decision-making. Which decisions the directors make alone and which need shareholder approval, and at what threshold. Selling the business, issuing new shares, taking on major debt, and changing what the company does are the usual candidates for unanimous or two-thirds approval.
Transfer restrictions and right of first refusal. Shareholders cannot sell to outsiders without first offering the shares to the existing owners on the same terms. This is how you avoid waking up with a stranger as your business partner.
Exit events. What happens to a shareholder's shares on death, disability, retirement, bankruptcy, marriage breakdown, or leaving the business. Each of these should trigger a defined buyout, not a negotiation.
Valuation. How the shares are priced in a buyout: a formula, an annual agreed value, or an independent business valuation. Leaving this blank is the single most expensive omission in small-business agreements.
Buy-sell provisions. The mechanics for one owner to buy out another, including the shotgun clause, and how the purchase will be funded.
Tag-along and drag-along rights. Tag-along protects minority shareholders by letting them sell on the same terms if a majority owner sells. Drag-along lets a majority owner require minority owners to join a sale, so one holdout cannot block a deal.
Dividends and shareholder loans. Whether profits are distributed or retained, how dividends are declared, and the rules for owners borrowing from or lending to the company.
Non-competition, non-solicitation, and confidentiality. What a departing shareholder can and cannot do afterwards. Courts look hard at these, so keep them reasonable in time and geography.
Dispute resolution. A path out of deadlock: negotiation, then mediation, then arbitration or a buy-sell trigger, so a disagreement does not end up in court by default.
Free Shareholder Agreement Template (Canada)
Copy everything between the lines and replace the bracketed text. It is written for a small, privately held Canadian corporation with a handful of shareholders who also work in the business. It is a starting point, not a finished legal document: have a corporate lawyer review it before anyone signs, and in particular read the note on section 3 below the template.
SHAREHOLDER AGREEMENT
This Agreement is made on [date] among [Corporation Legal Name] (the "Corporation"), a corporation incorporated under the [Canada Business Corporations Act / name of provincial statute], and each of the shareholders listed in Schedule A (each a "Shareholder" and together the "Shareholders").
1. Purpose. The Shareholders are entering into this Agreement to set out their rights and obligations as shareholders of the Corporation and how the Corporation will be governed.
2. Share ownership. The issued and outstanding shares of the Corporation are held as set out in Schedule A. The Corporation will not issue additional shares, or securities convertible into shares, without the approval required under section 4.
3. Board of directors. The board will consist of [number] directors. Each Shareholder holding at least [percentage]% of the voting shares may nominate [one] director, and each Shareholder agrees to vote their shares to elect those nominees.
4. Decisions requiring Shareholder approval. The Corporation will not do any of the following without the written approval of Shareholders holding at least [two-thirds / all] of the voting shares:
(a) sell, lease, or otherwise dispose of all or substantially all of its assets;
(b) amalgamate, merge, or wind up;
(c) issue, redeem, or purchase any shares;
(d) borrow more than $[amount] or grant security over its assets;
(e) change the nature of its business; or
(f) enter into any contract with a Shareholder or a person related to a Shareholder.
5. Transfer restrictions. No Shareholder may sell, transfer, or pledge any shares except in accordance with this Agreement.
6. Right of first refusal. A Shareholder who receives a bona fide offer from a third party for their shares must first offer those shares to the other Shareholders, in proportion to their holdings, at the same price and on the same terms. The other Shareholders have [30] days to accept. If they do not purchase all of the shares, the selling Shareholder may sell the remaining shares to the third party within [60] days on terms no more favourable to the buyer.
7. Tag-along right. If Shareholders holding more than [50]% of the voting shares agree to sell to a third party, each other Shareholder may require that their shares be included in the sale at the same price per share and on the same terms.
8. Drag-along right. If Shareholders holding at least [75]% of the voting shares accept a bona fide offer to buy all of the shares, they may require the other Shareholders to sell on the same price per share and terms.
9. Triggering events. On the death, permanent disability (as defined in Schedule B), personal bankruptcy, or [departure from active involvement in the business] of a Shareholder, the Corporation or the other Shareholders will purchase, and the affected Shareholder or their estate will sell, all of that Shareholder's shares at the price determined under section 10.
10. Valuation. The price of shares purchased under this Agreement will be [the value most recently agreed by the Shareholders in writing within the previous 12 months / fair market value as determined by an independent Chartered Business Valuator selected by the Corporation's accountant]. If the Canada Revenue Agency or a court determines a different fair market value, the price will be adjusted to that value and any difference paid within [90] days.
11. Funding. The Corporation [will / will not] maintain life insurance on each Shareholder to fund purchases under section 9. Any insurance proceeds received will be applied first to the purchase price.
12. Shotgun clause. If the Shareholders are deadlocked on a matter under section 4 for more than [60] days, any Shareholder may deliver a written offer naming a price per share at which they will buy all the other Shareholder's shares. The receiving Shareholder must, within [30] days, either sell their shares at that price or buy the offering Shareholder's shares at that same price. [Use only where there are two Shareholders of roughly equal financial means.]
13. Dividends. Dividends will be declared at the discretion of the board, subject to [retaining working capital of at least $[amount] / the approval threshold in section 4]. Each class of shares may receive dividends as permitted by the Corporation's articles.
14. Shareholder loans. No Shareholder will borrow money from the Corporation without the approval of the board. Any amount a Shareholder lends to or advances on behalf of the Corporation will be recorded as a shareholder loan and repaid [on demand / on the terms approved by the board].
15. Non-competition and non-solicitation. While a Shareholder and for [12] months after ceasing to be one, no Shareholder will carry on a business competing with the Corporation within [geographic area] or solicit its clients or employees.
16. Confidentiality. Each Shareholder will keep the Corporation's confidential information private and use it only for the Corporation's benefit.
17. Dispute resolution. The Shareholders will first try to resolve any dispute through good-faith negotiation, then mediation. Any dispute not resolved within [60] days of a mediation request will be settled by arbitration in [city, province] under the arbitration legislation of [province].
18. New shareholders. No person may become a Shareholder unless they first sign an agreement to be bound by this Agreement.
19. Governing law. This Agreement is governed by the laws of [province or territory] and the federal laws of Canada applicable in it.
20. Entire agreement and amendments. This Agreement is the entire agreement among the parties about its subject matter and prevails over the Corporation's by-laws to the extent of any conflict. It may be amended only in writing signed by all of the Shareholders.
Schedule A: Shareholders and Shares. [Name, address, class and number of shares, and amount paid for each Shareholder.]
Schedule B: Definition of Permanent Disability. [For example: unable to perform their usual duties for 180 consecutive days, as certified by a physician.]
Signed:
[Corporation Legal Name]
Signature: ______________________ Name and title: ______________________ Date: ______________
[Shareholder 1 Name]
Signature: ______________________ Date: ______________
[Shareholder 2 Name]
Signature: ______________________ Date: ______________
The note on section 3 (read this before signing). If every shareholder signs and the agreement restricts what the directors can decide on their own, as sections 3 and 4 do, you may have created a unanimous shareholder agreement. That is often exactly what small companies want, but it carries legal and tax consequences, which the next two sections explain.
How to Put a Shareholder Agreement in Place in 6 Steps
Agree the business terms first, lawyers second. Sit down together and decide the big questions in plain language: who owns what, which decisions need everyone, what happens if someone leaves. A lawyer drafting from a clear term sheet costs far less than one mediating a vague one.
Fill in Schedule A from your actual share register. The cap table in the agreement must match the corporation's minute book exactly. If it does not, fix the minute book before you sign.
Choose a valuation method you would accept from either side. Pick the formula or process assuming you might be the one buying, or the one being bought out. That test produces fair clauses.
Decide how buyouts will be funded. A buyout clause without money behind it is a wish. Look at life insurance for the death trigger and an instalment schedule for the others.
Have a lawyer review it and your CPA check the tax clauses. The lawyer confirms it works under your provincial statute. Your accountant checks control, dividends, loans, and exit planning, covered below.
Sign, file, and diarize a review. Every shareholder signs, the original goes in the minute book, and share certificates should note the agreement exists. Review it every two to three years, or whenever a shareholder joins or leaves.
Unanimous Shareholder Agreements: When the Owners Take Over the Board
A unanimous shareholder agreement is a specific kind of shareholder agreement recognized in corporate law. Under the federal Canada Business Corporations Act, section 146, it is a written agreement among all the shareholders that restricts, in whole or in part, the directors' powers to manage the corporation. Most provincial statutes have an equivalent, including Ontario's Business Corporations Act, and Quebec's Business Corporations Act allows the shareholders to restrict or withdraw the board's powers entirely (section 213).
Three consequences make the unanimous version different from an ordinary contract:
Responsibility follows power. To the extent the agreement takes a power away from the directors, the shareholders who receive it take on the rights, duties, and liabilities of a director, and the directors are relieved of them to the same extent. Under the federal Act that includes directors' liability for unpaid employee wages.
It binds future shareholders. Anyone who buys or receives shares is deemed to be a party. A buyer who was not told it existed can rescind the purchase within 30 days of finding out, which is why share certificates should mention it.
It counts when the CRA decides who controls the company. More on that below, because it is the part most templates never mention.
A sole shareholder can create the same effect with a written declaration, which is common in owner-managed corporations and worth knowing about if you are the only owner today but plan to add a partner later.
The Shotgun Clause and Other Buy-Sell Provisions
A shotgun clause (sometimes called a buy-sell clause) is a deadlock breaker. One shareholder names a price per share. The other must either sell their shares at that price or buy the first shareholder's shares at the same price. Because the person naming the price does not know which side of the deal they will end up on, they have every incentive to name a fair one.
It is elegant, and it is also blunt. A shotgun clause works best between two shareholders with similar ownership and similar access to cash. Where one owner is much wealthier, they can name a low price knowing the other cannot afford to buy, which turns a fairness tool into a squeeze. If your ownership or finances are uneven, pair it with a financing period, a minimum price floor tied to the valuation clause, or replace it with mediation followed by an independent valuation.
The other buy-sell provisions in the template, the triggering-event buyouts in section 9, are less dramatic and far more often used. They are the clauses that decide what happens to a founder's shares when life happens, and they only work if the valuation and funding clauses are filled in.
The Tax Clauses Your CPA Will Want to See
Law firms write most of the shareholder agreement guides you will find, and they cover governance well. The tax side is where small corporations get surprised, and a shareholder agreement touches it in five places.
1. Control, CCPC status, and the small business deduction. Whether a private corporation is a Canadian-controlled private corporation (CCPC), and whether it is associated with other corporations, depends on who controls it. In Duha Printers (1998), the Supreme Court of Canada held that a unanimous shareholder agreement is considered when determining legal (de jure) control. That matters because CCPC status is what gives access to the small business deduction, and associated corporations must share a single $500,000 business limit. Before signing, have your accountant confirm the agreement does not hand control to a non-resident or tie your company to another shareholder's corporation in a way you did not intend.
2. Dividend policy. The template leaves dividends to the board, which keeps flexibility for tax planning. If you use different share classes to pay different dividends to different owners, confirm the articles actually permit it. Dividends paid to family members who are not active in the business can fall under the tax on split income (TOSI) rules. For how dividends compare with salary for an owner-manager, see our guide to salary vs dividends in Canada or run your numbers through the salary vs dividend calculator.
3. Shareholder loans. Under subsection 15(2) of the Income Tax Act, a loan from a corporation to a shareholder can be added to the shareholder's personal income. The main exception: the loan is repaid within one year after the end of the corporation's tax year in which it was made, and the repayment is not part of a series of loans and repayments. Section 14 of the template requires board approval for any shareholder borrowing, which gives you a natural checkpoint. Money flowing the other way, when you pay business costs personally, becomes an amount the company owes you, explained in our guide to due to shareholder balances.
4. Funding a buyout with life insurance. When a corporation owns a life insurance policy on a shareholder, the death benefit in excess of the policy's adjusted cost basis generally adds to the corporation's capital dividend account, which can be paid out to shareholders as a tax-free capital dividend. How the agreement structures the purchase, whether the corporation redeems the shares or the surviving owners buy them, changes who gets that benefit, and special rules can reduce it. This is a clause to design with both your accountant and an insurance advisor.
5. Valuation and the exit. A buyout between related people at the wrong price can create tax problems for both sides, which is why section 10 includes a price adjustment clause. The CRA publishes guidance on when it will respect one, and a good-faith attempt to transact at fair market value is the core of it. On a sale, shares of a qualified small business corporation may be eligible for the lifetime capital gains exemption, $1.25 million of capital gains for dispositions on or after June 25, 2024, indexed to inflation from 2026. The shares generally have to meet a 24-month holding and asset test to qualify, so the time to plan for it is years before the sale, not the week of.
None of this requires a complicated agreement. It requires one conversation with your accountant before the lawyer finalizes the draft.
When Should You Sign a Shareholder Agreement?
At incorporation, if there is more than one owner. This is the cheapest and friendliest moment. Nobody knows yet who will contribute more, so the terms feel fair to everyone.
Before anyone new receives shares. A key employee getting equity, an investor coming in, or a family member joining the business are all moments to sign or update the agreement. Section 18 of the template makes signing a condition of becoming a shareholder.
When the business starts making real money. If you skipped it at the start, sign it now. Disputes grow with profits.
Before a sale or succession. Buyers and lenders will ask whether one exists, and a clean agreement plus clean books makes the corporation easier to value.
The common thread is that a shareholder agreement is only as good as the numbers underneath it. Valuation clauses, dividend policies, and buyout funding all depend on financial statements everyone trusts. The financial reports in ReInvestWealth give every shareholder the same view of the balance sheet and income statement, built from books the AI Bookkeeper keeps current.
Keep the Books Your Agreement Depends On
Signing the agreement is the easy part. Living by it means knowing, at any moment, what each shareholder has drawn, lent, or been paid, and what the company is actually worth.
That is the part we built ReInvestWealth for. Connect your bank accounts and every shareholder draw, contribution, and dividend lands in the right category as it happens. Invite your accountant and they see the same clean books you do, so year-end and any buyout valuation start from numbers nobody has to argue about. Start free for 30 days
Frequently Asked Questions
What is a shareholder agreement?
A shareholder agreement is a private contract among the shareholders of a corporation, and usually the corporation itself, that sets out how the company is governed, how shares can be transferred, how shares are valued and bought out on events like death or departure, and how disputes are resolved. It supplements the articles and by-laws.
Do all shareholders have to sign a shareholders agreement?
An ordinary shareholder agreement binds only the people who sign it, so some shareholders can agree among themselves. A unanimous shareholder agreement, the kind that can restrict the directors' powers, must be signed by all the shareholders, and anyone who later acquires shares is deemed to be a party to it.
What happens if there is no shareholder agreement?
The corporation is governed only by its governing statute, its articles, and its by-laws. Majority shareholders generally control decisions, there is no agreed way to value or buy out a departing owner, and a minority shareholder's main protection is a court application such as the oppression remedy, which is slow and expensive compared with a clause agreed in advance.
What is a shotgun clause in a shareholder agreement?
A shotgun clause lets one shareholder name a price per share, after which the other shareholder must either sell their shares at that price or buy the first shareholder's shares at the same price. It resolves deadlock quickly, but it favours whoever has better access to cash, so it suits two owners with similar finances.
Is a unanimous shareholder agreement different from a regular one?
Yes. A unanimous shareholder agreement is signed by every shareholder and restricts the directors' powers. The shareholders who take over those powers also take on the directors' duties and liabilities for them, it automatically binds future shareholders, and it is taken into account when determining who legally controls the corporation for tax purposes.
Do I need a lawyer to use this shareholder agreement template?
You should have a corporate lawyer review it before signing. The template gives you the structure and the right questions, but the enforceability of clauses like non-competes, the interaction with your articles, and whether it becomes a unanimous shareholder agreement all depend on your province and your facts. Have your accountant review the tax clauses at the same time.
A Note From Our CPAs
This guide is educational and covers the general rules for Canadian corporations with more than one shareholder. It is not legal advice, and corporate law varies by province, so have a lawyer review your agreement before anyone signs. For how the agreement affects your taxes, from dividends to buyouts, talk to your accountant. (If they use ReInvestWealth, they will already have clean books to work from.)
Written by Behdad Karimi Dermeni, CPA
Co-founder of ReInvestWealth and a founding community builder at Stripe. Behdad built ReInvestWealth to give smart, busy entrepreneurs CPA-level accounting without the CPA-level price tag. Read more · Connect on LinkedIn
Reviewed by Maryam Ajorloo, CPA
Maryam Ajorloo is a CPA who specializes in small business tax, sales tax, and everyday bookkeeping. She helps entrepreneurs keep clean, audit-ready books and make sense of write-offs, filing deadlines, and the numbers behind their business. Read more · Connect on LinkedIn
