Are you worried about being forced to sell your shares in a company? In Canada, this scenario can be complex but not impossible. This article will break down the key points for you—covering your rights, legal mechanisms, and how shareholder agreements come into play.
Key Takeaways
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- Rights and Laws: Shareholders in Canada have rights under the Canada Business Corporations Act. They can submit proposals and vote on decisions at annual meetings.
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- Shareholder Agreements: These agreements can force shareholders to sell their shares. They include conditions like drag-along rights or takeover offers.
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- Legal Mechanisms: Legal rules, like drag-along rights, allow majority shareholders to make minority shareholders sell their shares during mergers or buyouts.
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- Put and Call Options: These options let a shareholder force a sale or buy another’s shares. This helps manage ownership changes smoothly.
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- Seek Legal Advice: It’s wise to get legal help to understand your rights and avoid disputes over forced sales in shareholder dealings.
Understanding Shareholder Rights in Canada
Shareholders have specific rights that protect them during various business activities. These rights are outlined under Canadian corporate laws, ensuring fair treatment for all parties involved.
Rights during share transfers
Shareholders have specific rights during share transfers. One key right is the right of first refusal. This means sellers must offer their shares to current shareholders before any outside parties.
Another important right is pre-emptive rights. These allow existing shareholders to buy new shares issued by the corporation in proportion to their current holdings.
A shotgun clause can also come into play. This clause lets one shareholder propose buying another’s shares at a set price. Shareholder agreements clearly outline these steps, ensuring that everyone understands the rules for transferring shares and follows corporate laws and regulations.
Protection under the Canada Business Corporations Act
Article 137 of the Canada Business Corporations Act sets rules for shareholder proposals at the AGM. Shareholders have rights to submit suggestions and take part in decisions. These resolutions help manage corporate actions.
Special resolutions need approval from two-thirds of shareholders. These cover big changes like name changes or asset sales. The CBCA states that annual meetings must be held no later than 15 months after the last one, and within six months after the fiscal year-end.
Notices are sent between 21 days and 50 days before these meetings so all shareholders know about them on time.
Legal Mechanisms that May Influence Share Sales
Legal mechanisms can force shareholders to sell their shares. These rules protect the company and its shareholders in certain situations.
Drag along rights
Drag along rights let majority shareholders make minority shareholders sell their shares. This helps to sell all of a company’s stocks without any holdouts. Minority shareholders must get the same price, terms, and conditions as the majority sellers.
This can be very important during mergers or buyouts. If the company becomes public, these rights may stop, allowing new rules for future stockholders.
Put and call options
Put and call options are tools in shareholder deals. A put option lets a shareholder force the sale of their shares to another party. A call option allows one party to buy another’s shares.
These options give certainty during ownership changes. Majority shareholders can use these options but must avoid unfair prejudice claims by minority shareholders.
Forced sales without valid reasons may face legal challenges.
Shareholder Agreements and Forced Sales
Shareholder agreements can include clauses that force a shareholder to sell their shares. These agreements outline specific conditions for forced sales.
Conditions that trigger forced sales
Majority shareholders can force minority shareholders to sell their shares. This happens through drag-along provisions or during takeover offers. Drag-along rights make it easier for a buyer to buy all shares, removing minority holders.
Holding more than 75% of shares lets majority shareholders change the company’s bylaws. If they get over 90% ownership and voting rights, they can enforce a compulsory sale.
Minority holders may petition against actions they see as unfair.
Conclusion
A shareholder in Canada cannot be forced to sell their shares without an agreement. Shareholder agreements can allow this if one partner harms the business. Having a clear agreement helps avoid disputes or resolve them smoothly.
It’s wise to seek legal advice to understand your rights and options fully. At Hadri Law, we guide you through these complex issues with care and expertise. Book a free consultation below