Minority Share Interests and Protecting Against Oppression

Contact Neufeld Legal PC at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Advancing and protecting your legal rights as a minority corporate shareholder.

Minority shareholders take on considerable risk when they invest in a closely held corporation and receive illiquid shares as their return on investment. As such, minority shareholders from the outset need to protect their legal and financial interests in the corporation. Although they have a reduced stake in the company, they should nevertheless secure certain fundamental rights and where possible receive additional undertakings from the majority shareholder(s). For these reasons, an equitable unanimous shareholders agreement is to the benefit of the minority shareholders as it generally provides operational management controls on the corporation and provides a viable exit strategy for the minority shareholder (thereby overcoming the absence of a liquid market for their shareholdings).

Prior to your becoming the minority shareholder, is in your best interests up to undertake an adequate due diligence review of the company within which you are investing your funds. Your inquiry should include questions into the following topics: corporate existence, articles of incorporation, by-laws, shareholders agreement, specific laws and regulations impacting the corporation and its business, other shareholders, shareholder meetings, notice provisions and voting system, specifics of minority shareholder rights, composition of board of directors, powers entrusted to the board of directors, officers and their powers, manner in which new shares are issued, abilities to dilute share value, manner in which outside capital is to be secured, situations of default for a shareholder, shareholder test and disability situations, exit strategies (buy / sell arrangements: shotgun provisions, puts and calls, piggyback provisions, etc.), redistribution of reacquired shares, the legal aspects of tax and accounting issues, existing and possible litigation, permits and licensing, intellectual property rights, real property ownership, business creditors, and many others. As you can see, becoming a minority shareholder is no simple feat, but requires adequate preparation and due diligence so as to ensure that your best interests are protected.

For knowledgeable and experienced legal representation in advancing your prospective or current shareholdings, while protecting your position as a shareholder, contact us at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.

What is a Unanimous Shareholders Agreement?

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