Unanimous Shareholder Agreements
A well-drafted unanimous shareholder agreement (“USA”) is an asset to a corporation and its shareholders, and can maximize the value of a business in several ways. Firstly, a USA may allow shareholders to pursue separate tax planning and remuneration strategies on distribution of profits. Secondly, a USA may provide a process to facilitate liquidity and fair market value evaluation and sale of the shares of a departing shareholder or of the enterprise as a whole. Without a well-planned procedure for shareholder exit, the inherent value in the business may be impaired, and shareholder disputes may impede business growth, evolution or sale. Thirdly, the shareholder exit strategy in the USA may provide for an optimal tax result for both the departing shareholder or shareholders and the remaining shareholders and corporation.
For example, a USA often provides for purchase of shares on the death of a shareholder, to ensure payment to the estate and beneficiaries, and to fund any tax liability of the deceased. The future tax treatment of such a purchase can be formalized in the USA, and life insurance or other funds used to pay for the shares of the deceased. Where the corporation is named as a beneficiary of an eligible life insurance policy, the death benefit may be received tax-free and paid into the capital dividend account of the corporation, and thereafter distributed tax-free to remaining shareholders. It may also be possible for the deceased to claim the lifetime capital gains exemption on such shares, and with proper planning, allow a spouse to additionally claim the capital gains exemption on sale to the remaining shareholders. Further, with proper drafting of the USA and sequencing of events, the cost base of the shares purchased by the remaining shareholders may be increased or ‘stepped up’ in such process, potentially reducing the gain on future sale of shares or assets by the remaining shareholders.
Where holding companies are shareholders, it may be possible to share business profits with family members in a tax-efficient manner. The USA can establish governance rules that may allow various family members to participate in profits while limiting their direct involvement in voting or management of the business.