What Goes In The Articles, By-laws, and Unanimous Shareholders Agreement

AP writes, asking: What goes into the unanimous shareholders' agreement and what goes into the articles and bylaws?

Dear AP,

First I'll describe the way the different parties in a corporation/company interact:

            1. The shareholders appoint directors.

            2. The directors run the company.

            3. To run the company, the directors appoint administrators like CEOs, CFOs, etc., etc.

In terms of rules and documents that may impact the way Shareholders' interests in a company are affected:

• The Law (the relevant act)
• Constitutional Documents (Articles, Bylaws, Unanimous Shareholders Agreement)
• Non-unanimous shareholders agreements, voting trust agreements, side letters, etc.

And now, a not-so-brief summary of what sits in each type of document:

The Law

• The basics of what a corporation can, must, and cannot do, 
• What directors can, must and cannot do  
• The minimum rights and protections of shareholders 

Constitutional documents

• Articles
• The name
• The jurisdiction
• Minimum and maximum number of directors
• Details of the incorporating director
• Any restrictions on what business the corporation can carry out
• The different types of shares, the different rights of each type (voting, dividend, payout on liquidation of the company
• Restrictions on transfer of shares


• Bylaws
• Directors
• Minimum qualifications
• The length of their term
• How they are appointed and removed
• How the board deals with vacancies
• Directors Meeting
• When, where, and how meetings will be held, minimum notice requirements
• Who chairs the meetings and who gets to vote
• Minimum number of directors to run a meeting (quorum)
• Procedure for passing resolutions
• How/for what activities are board members paid/reimbursed
• Committees
• Delegation of decision making powers to committees
• Procedure for committee meetings
• Officers
• Delegation of power to officers
• Who will be the officers and what they can do
• Shareholders Meetings
• Like with the directors' meeting, all the procedural aspects of shareholders meetings.
• Indemnification of directors and officers by the company for the actions they take on behalf of the company
• Debt and Shares
• Allowing directors, through and for the corporation, to borrow money and provide security to lenders
• Allowing directors to allot shares
• The procedure for registering transfers of shares
• Issuing and replacing share certificates
• What to do if two people hold shares jointly or if a shareholder dies
• Dividends
• Allowing dividends to be issued
• Allowing reissue of payment if a shareholder doesn't receive dividends
• Allowing the entering to of unanimous shareholders agreements
• Notices
• Description of the how and how much notice should be provided for all the activities described above.
• Other items
• What is the financial year of the company
• Who is allowed to sign documents on behalf of the company

• Unanimous Shareholders Agreement (the "USA")

• Restrictions on share transfers  (excepting transfer to their own holding companies)
• Number and nomination of directors.  How are they appointed, removed, and replaced?
• Meetings of the board- how are they run? Quorum, notice, remuneration, voting
• Officers. How they are appointed, removed, and replaced
• Financial statements reporting guidelines 
• Meetings of the shareholders.  How they are run (Quorum, voting notice obligations to shareholders)
• Right of first refusal (requirements for, and right to purchase a selling shareholder's stake before an outsider)
• Tag-along (requirements for, right to sell at the same terms as a shareholder to an outsider)
• Drag-along (requirements for, right to force a shareholder to sell on the same terms as you to an outsider)
• What happens when a shareholder dies, is incapacitated, is bankrupt, is subject to a court order about his or her ownership interest, or if the shareholder violates the USA
• Terms related to setting up of a stock option plan, how much of the share capital goes into it etc.
• What happens if there is a conflict between the USA and the articles or by-laws
• How to calculate fair value and terms of sale when shareholders are selling to each other or to the corp.
• Non-solicitation of company clients or employees and non-competition with the company
• Matters requiring special approval. (need to be approved by a minimum of X% percentage of voting shares) These will often be what investors or minority shareholders use as a check on the running of the corporation.
• Amending the articles or by-laws of the corporation
• An amalgamation, arrangement or merger involving the corporation
• A sale of all or substantially all of the assets of the corporation
• Any increase to the size of the board of directors
• Agreements with related parties (of shareholders or officers)
• Hiring people with a salary more than ____
• The approval of the annual budget (if any)
• Taking on big expenditures above ___
• Issuing securities
• Taking on debts, outside of the normal course of business beyond ____
• Providing guarantees for other people's debt
• The approval of any dividend, distribution or return of capital to shareholders
• Selling assets of the company
• Winding up, reorganization, liquidation or dissolution of the corporation
• Declaring bankruptcy
• The appointment of and any change in the accountants or accounting practices

All other shareholder agreements

These documents can contain more (for example, a buy/sell shotgun clause in the USA.)

As you can see, there is overlap between the by-laws and the USA. The USA can completely obsolesce the by-laws, as long as your USA is unanimous.

If your Shareholders Agreement is not unanimous, it falls from bucket two (constitutional documents) to bucket 3 (All other agreements...) and it will only bind the participating shareholders.

To actually set the ground rules for the governance of the company and bind the directors, the agreement should include all shareholders.



This detailed review should give you some indication of what to look for when you get a lawyer to draft an unanimous shareholders' agreement. Ping us for a referral.
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