An ordinary agreement binds its signatories; a unanimous shareholder agreement can, in addition, take powers away from the directors and give them to the shareholders. The choice depends on the control you are after and on your corporation’s structure.
The terms get used interchangeably: shareholder contract, shareholder agreement, unanimous agreement. Yet behind that loose vocabulary lies a real legal distinction, with concrete consequences for who governs the corporation and who carries the liability. Let us sort it out.
The ordinary agreement: a contract between partners
The “ordinary” shareholder agreement is a contract like any other, entered into between some or all of the shareholders. It organizes their relations: restrictions on transfers of shares, rights of first refusal, buy-sell clauses on death or departure, voting undertakings, dispute resolution mechanisms. It binds those who sign it, under the general law of contracts, but it does not touch the corporation’s legal architecture: the board keeps all its powers of management, and the directors all their liabilities.
The unanimous agreement: a transfer of powers
The unanimous shareholder agreement is a distinct creature, expressly provided for by the business corporations statutes. Its condition of existence is in its name: it must be signed by all the shareholders. Its distinctive feature lies elsewhere: it allows the directors’ powers of management to be withdrawn, in whole or in part, and given to the shareholders themselves. And the law draws the logical consequence: shareholders who assume the directors’ powers also assume their duties and liabilities, including the personal liabilities attached to the office.
The distinction at a glance, on the points that produce legal effects.
| Ordinary agreement | Unanimous agreement | |
|---|---|---|
| Required signatories | Some or all of the shareholders | All the shareholders, without exception |
| Nature | A contract between signatories | A mechanism provided by the corporations statute |
| Powers of the board of directors | Intacts | Removable, in whole or in part |
| Director liability | Stays with the directors | Follows the powers assumed by the shareholders |
| New shareholder | Must adhere to it in order to be bound | Is subject to it |
| Typical use | Most small businesses | Investors, family corporations, structural control |
Draft the right one, or have the one you already signed characterized.
What it changes, concretely
Take a corporation where a minority investor wants a veto over important decisions. By ordinary agreement you can provide that the shareholders undertake to vote a certain way, but the board remains the decision-making body. By unanimous agreement you can flatly stipulate that a given decision belongs to the shareholders and no longer to the board: the veto becomes structural. That is more powerful, but the minority shareholder who thus gains a piece of the management also inherits a piece of a director’s liability, which they may not have anticipated.
The characterization also affects third parties and newcomers: a unanimous agreement follows the shares, in the sense that anyone acquiring shares of a corporation governed by such an agreement is subject to it, a reach that an ordinary agreement, being a mere contract, does not have of itself.
How to choose, and how to know what you signed
In the great majority of small businesses the ordinary agreement is enough: it settles transfers, departures and disagreements without touching legal governance. The unanimous agreement is called for when you genuinely want to move the centre of decision toward the shareholders, a frequent situation with investors or in family corporations where the shareholders manage directly. Finally, be wary of labels: a document titled “unanimous agreement”, signed by all the shareholders and removing powers from the board, is one, whatever its title, and the reverse is equally true. It is the content that characterizes the agreement, and that is precisely the kind of check a lawyer makes in a few pages of reading.
The withdrawal of powers can be partial
People often picture the unanimous agreement as a complete switch, with the shareholders taking back the whole of management. That is neither the only possible configuration nor the most frequent. The withdrawal can be limited to precise matters: borrowing beyond a certain amount, selling a major asset, hiring or dismissing an officer, setting officers’ remuneration, issuing new shares.
That calibration has an obvious practical use. It lets you give an investor or a family branch structural control over the decisions that worry them, without handing them the day-to-day running of the business or exposing them more broadly than they wish. The drafting then calls for precision: whatever is not clearly withdrawn stays with the board, and vague wording creates exactly the uncertainty it claimed to dispel.
The effects people do not anticipate
The transfer of liability to the shareholders, mentioned above, has concrete ramifications. The first touches insurance. Policies for directors and officers are drafted around those offices; a shareholder who assumes a director’s powers without appearing as one may find themselves outside the coverage at the moment they need it. That question deserves to be put to your broker, agreement in hand.
The second touches third parties. Banks, investors and prospective buyers want to know who can actually bind the corporation. A unanimous agreement no one mentions, but which deprives the board of a power it believes it holds, produces signatures whose validity can be argued about. The third touches the arrival of a new shareholder: an acquirer of shares is subject to the unanimous agreement, and should therefore receive the text before buying, not after. Noting its existence on the share certificates and in the minute book is the usual way of making sure no one is unaware of it.
Recognizing yours in three minutes
Take out your document and check three things. First, the signatures : a unanimous agreement requires the adherence of all the shareholders, without exception, including those who came in after it was signed. If even one is missing, the characterization falls, whatever the document is titled. Next, the text : look for a stipulation restricting or removing the directors’ powers, or assigning a decision to the shareholders. That clause, and it alone, effects the transfer. Finally, the consistency : does the document say who now exercises the withdrawn power, and do the résolutions adopted since really come from that body?
If those three do not line up, you are probably in a hybrid situation, where the power is believed to have moved without actually having done so. It is a reading any lawyer does quickly, and better done now than on the eve of a transaction.
Some clauses belong in the articles instead: see what is changed by articles.
Whichever type, the content still has to be written
The distinction is about governance, not about protecting the partners. A unanimous agreement providing for neither transfers of shares, nor death, nor departure leaves its signatories as exposed as having no agreement at all on the day one of them leaves. The essential mechanisms are set out in our article on the shareholder agreement for a small business, and the more elaborate clauses in the one on the advanced agreement. The choice of vehicle comes after the choice of content, never the reverse.
Frequently asked questions
What is the difference between an ordinary agreement and a unanimous one?
The ordinary agreement is a contract between its signatories that does not touch the corporation’s legal governance. The unanimous agreement, signed by all the shareholders, allows the directors’ powers of management to be withdrawn, in whole or in part, and given to the shareholders.
Must the withdrawal of powers be total?
No, it can target precise matters: borrowing beyond a certain amount, selling a major asset, hiring an officer, setting remuneration. Whatever is not clearly withdrawn stays with the board of directors.
Is a new shareholder bound by the agreement?
Anyone acquiring shares of a corporation governed by a unanimous agreement is subject to it. An ordinary agreement, being a mere contract, does not have that reach of itself: the new shareholder must adhere to it in order to be bound.