A unanimous shareholders' agreement (USA) can take priority over a corporation's articles or bylaws in Ontario. Under section 108 of the Business Corporations Act (OBCA) and section 146 of the Canada Business Corporations Act (CBCA), a USA signed by every shareholder can restrict or override the powers of the directors, which allows it to supersede conflicting governance provisions. A regular (non-unanimous) shareholders' agreement generally cannot override the articles or bylaws.
That short answer hides a lot of important nuance. Whether a shareholders' agreement actually prevails depends on which type of agreement you have, how carefully it is drafted, whether it collides with a mandatory statutory rule, and, crucially, whether every shareholder has signed it. This post walks through the three corporate governance documents, explains how they interact under Ontario and Canadian law, and flags the pitfalls business owners most often overlook.
The Three Corporate Governance Documents That Govern Your Corporation
Every Ontario or federal corporation operates under a layered set of corporate governance documents. Before you can answer which one prevails, you need to understand what each document does.
Articles of Incorporation
The articles of incorporation are the foundational document filed with the government when the corporation is created, with the Ontario Ministry of Public and Business Service Delivery for OBCA corporations, or with Corporations Canada for CBCA corporations. The articles are a public record. They set out:
- The corporate name
- The registered office address (province)
- The authorised share structure (classes of shares, rights attached to each class)
- The minimum and maximum number of directors
- Any restrictions on the business the corporation may carry on
- Any "special provisions" the incorporators choose to include
Think of the articles as the corporation's birth certificate and constitution rolled into one. They create the legal entity and define its structural limits.
Bylaws
The bylaws are the corporation's internal rulebook. They are typically passed by the board of directors (subject to shareholder confirmation under the OBCA and CBCA) and govern day-to-day administrative matters such as:
- Director and shareholder meeting procedures
- Quorum and voting thresholds
- Officer roles and appointments
- Banking and signing authority
- Notice requirements
Bylaws are not filed publicly. They sit conceptually "below" the articles, if a bylaw conflicts with the articles, the articles win.
Shareholders' Agreement
The shareholders' agreement is a private contract among some or all of the corporation's shareholders. Unlike the articles and bylaws, it is not a creature of the corporate statute by default, it is a contract. Shareholders' agreements commonly address:
- Voting arrangements among shareholders
- Share transfer restrictions (rights of first refusal, rights of first offer, drag-along, tag-along)
- Buy-sell mechanics triggered by death, disability, divorce, or departure
- Dividend and distribution policies
- Deadlock resolution and dispute mechanisms
- Non-competition and confidentiality covenants
What makes the shareholders' agreement unique, and the focus of this post, is that it comes in two very different flavours.
Regular Shareholders' Agreement vs. Unanimous Shareholders' Agreement
The single most important distinction in this area of law is between a regular shareholders' agreement and a unanimous shareholders' agreement (USA). The two documents look similar on the surface but carry very different legal weight, and that weight determines whether a shareholders' agreement can take priority over a corporation's articles or bylaws.
Regular Shareholders' Agreement
A regular shareholders' agreement is a private contract among some, or even all, of the shareholders. It governs the relationship between the shareholders themselves, not the corporation's governance structure. A regular agreement:
- Binds only the parties who sign it
- Cannot restrict the powers of the directors to manage the corporation
- Does not automatically bind new shareholders who later acquire shares
- Operates at the contract level, if it conflicts with the articles or bylaws, the articles or bylaws generally prevail
If two of three shareholders sign an agreement saying dividends must be paid annually, and the bylaws say the directors have discretion over dividend timing, the directors' discretion controls. The two shareholders who signed have contract remedies against each other, but the corporation itself is not bound.
Unanimous Shareholders' Agreement
A unanimous shareholders' agreement is something more than a contract. It is a statutory instrument expressly recognised by both the OBCA (section 108) and the CBCA (section 146). The Supreme Court of Canada in Duha Printers (Western) Ltd. v. Canada, 1998 CanLII 827, famously described a USA as "part contractual, part constitutional", meaning it functions simultaneously as a contract among shareholders and as an element of the corporation's constitution.
Key features of a USA:
- Every shareholder must sign. If even one shareholder does not sign, the agreement cannot qualify as a USA under the statute, regardless of what it is titled.
- It can restrict director powers "in whole or in part." This is the statutory phrase in CBCA section 146, and the source of the USA's constitutional power.
- It binds future shareholders automatically. Anyone who later acquires shares is deemed to be a party to the USA, and the corporation must note the existence of the USA on its share certificates or DRS statements.
- Shareholders who assume director powers also assume director liabilities. If a USA transfers, say, the power to approve borrowings from the directors to the shareholders, the shareholders exercising that power take on the corresponding fiduciary duties and liabilities. This is often overlooked, the trade-off for control is exposure.
Because a USA sits at a level above ordinary contracts, it is authorised by the corporate statute itself, it can supersede conflicting provisions in the articles and bylaws on matters within its scope.
When Does a Unanimous Shareholders' Agreement Take Priority Over Articles or Bylaws?
A USA can override conflicting article or bylaw provisions, but only when three conditions are met:
1. The agreement is truly unanimous. Every shareholder, without exception, must have signed. An "almost-unanimous" agreement is not a USA; it is a regular shareholders' agreement.
2. The restriction relates to director powers within the scope of OBCA section 108 or CBCA section 146. The Library of Parliament's background paper on USAs under the CBCA identifies several areas commonly restricted by a USA, including:
- The directors' general management power
- The directors' power to issue shares
- The power to make, amend, or repeal bylaws
- The authority to appoint officers
- The authority to borrow money and secure corporate debt
3. The provision does not violate a mandatory statutory obligation or public policy. A USA cannot contract out of duties the statute expressly imposes or override fundamental shareholder protections. Courts will not enforce a USA provision that attempts to waive something the legislature has said cannot be waived.
Even when all three conditions are met, courts apply a strict interpretation. Duha Printers is instructive here: the Supreme Court made clear that vague or ambiguous language in a USA will not be read expansively to override director powers. If you want the USA to restrict a specific power, say so clearly.
What Happens When a Shareholders' Agreement Conflicts With a Corporation's Articles or Bylaws?
In practice, the hierarchy of corporate governance documents in Ontario shakes out like this:
- Regular shareholders' agreement vs. articles or bylaws, The articles and bylaws generally control. The agreement may still give the signing parties contract remedies against each other, but it does not bind the corporation's governance.
- Unanimous shareholders' agreement vs. bylaws, The USA can prevail for governance matters within its scope, provided it is clearly drafted and does not violate the statute.
- Unanimous shareholders' agreement vs. articles of incorporation, A USA can restrict director powers that the articles purport to grant, but it cannot change structural elements of the corporation (for example, the authorised share capital) that can only be altered by articles of amendment.
- Vague or ambiguous drafting, Courts will resolve ambiguity in favour of preserving the directors' statutory authority, not in favour of the shareholders' agreement.
The practical takeaway: align all three documents before a conflict arises. If your USA restricts a particular director power, the articles and bylaws should be reviewed and amended to be consistent. Conflicts create litigation risk; consistency creates certainty.
Nothing in this post is legal advice. The interaction between a shareholders' agreement and a corporation's constitutional documents is highly fact-specific. Always obtain advice from a qualified corporate lawyer before relying on any conclusion.
Does It Matter Whether Your Corporation Is OBCA or CBCA?
Ontario and federal law treat unanimous shareholders' agreements in broadly similar, but not identical, ways.
- Ontario corporations are governed by the Business Corporations Act (OBCA). Section 108 recognises USAs and permits them to restrict director powers.
- Federal corporations are governed by the Canada Business Corporations Act (CBCA). Section 146 is the federal counterpart and performs the same function.
Most privately held Ontario businesses are incorporated provincially under the OBCA because there is no compelling reason to choose federal incorporation for a locally operating company. Federally incorporated businesses are more common when the corporation operates across several provinces or wants the name protection that a Corporations Canada incorporation provides.
If you are not sure which statute governs your corporation, check your articles of incorporation: the heading will tell you whether you were incorporated under the OBCA or the CBCA. Other provinces have their own corporate statutes with their own USA rules, so the analysis above applies specifically to Ontario and federally incorporated corporations.
A note on tax: a USA can also affect "de jure control" of a corporation for income tax purposes, the issue at the heart of Duha Printers. Tax consequences are beyond the scope of this post. If your USA structure might affect control for tax purposes, involve a tax lawyer or accountant before finalising the agreement.
Related Questions
What is the difference between a shareholders' agreement and bylaws?
Bylaws are the corporation's internal rulebook, passed by the directors and binding the corporation. A shareholders' agreement is a contract between the shareholders themselves. Bylaws deal with how the corporation operates; a shareholders' agreement deals with the rights and obligations among the shareholders.
What makes a shareholders' agreement "unanimous"?
A unanimous shareholders' agreement is one signed by every shareholder of the corporation. Unanimity is strict, even one missing signature disqualifies the agreement from being treated as a USA under OBCA section 108 or CBCA section 146.
Can a shareholders' agreement override a corporation's articles of incorporation?
A unanimous shareholders' agreement can override article provisions that relate to director powers within the scope of OBCA section 108 or CBCA section 146. It cannot override structural elements of the articles, such as the authorised share structure, that can only be changed by articles of amendment.
What happens when a shareholders' agreement conflicts with a company's bylaws?
If the agreement is a USA, the USA generally prevails for governance matters within its scope. If the agreement is a regular (non-unanimous) shareholders' agreement, the bylaws typically prevail, although the signing parties may still have contract remedies against each other.
Does a shareholders' agreement bind future shareholders in Ontario?
A unanimous shareholders' agreement automatically binds new shareholders, anyone acquiring shares is deemed a party under the statute. A regular shareholders' agreement does not automatically bind new shareholders unless the agreement and share transfer process expressly require new shareholders to become parties.
What powers can a unanimous shareholders' agreement restrict?
A USA can restrict any or all of the directors' powers to manage or supervise the management of the corporation. Common examples include general management authority, the power to issue shares, the power to make bylaws, officer appointments, and borrowing authority. The shareholders who take on those powers also take on the corresponding fiduciary duties.
Are there limits on what a unanimous shareholders' agreement can do?
Yes. A USA cannot contract out of mandatory statutory obligations or override protections that the legislature has designated as non-waivable. The scope of what can and cannot be waived continues to evolve in Ontario case law, so any USA provision that attempts to displace a statutory right should be reviewed by a corporate lawyer.
Should a shareholders' agreement be consistent with the articles and bylaws?
Yes, always. Conflicts between these documents create ambiguity, legal risk, and litigation exposure. When a USA is put in place, the articles and bylaws should be reviewed and, where needed, amended so that all three documents speak with one voice.
Sources & Official Resources
Ontario Statutes Cited
Federal Statutes Cited
Case Law
- Duha Printers (Western) Ltd. v. Canada, 1998 CanLII 827 (SCC), USA as "part contractual, part constitutional"
- Duha Printers (Western) Ltd. v. Canada, Supreme Court of Canada decision page
Contact Hadri Law
Navigating the interplay between your shareholders' agreement, articles, and bylaws requires careful drafting and legal review. The corporate lawyers at Hadri Law, led by founder Nassira El Hadri and corporate lawyer Nicholas Dempsey, help Ontario business owners structure governance documents that work together, not against each other. Whether you are drafting a shareholders' agreement for the first time, reviewing an existing agreement before a share sale, or resolving a conflict between your governance documents, we can help.
Call (437) 974-2374 or book a free initial consultation online. We serve clients in English, French, Spanish, and Catalan from our office at First Canadian Place in downtown Toronto.
