Two people who trust the deal but not necessarily each other's future judgment are about to become co-owners of one corporation. The gap between those two facts is what a shareholder agreement is for.
Key takeaways
Two investors deciding to buy a business together sounds, at the term-sheet stage, like the easy part of the deal — the hard part is supposed to be negotiating with the seller. It rarely stays that way. The moment the purchase closes, the two buyers are locked into a shared corporation with each other for as long as they both hold shares, and the questions that matter — who breaks a tie, what happens if one wants out, what happens if they simply stop agreeing — are much cheaper to answer before closing than after.
The standard structure is a single corporation, formed specifically for the acquisition, in which each investor holds shares directly — a 60/40 split, an even 50/50 split, or whatever the deal calls for. That corporation, not an informal understanding between the two investors, is the legal owner of the target once the purchase closes. Everything about how the two investors actually govern their relationship — who decides what, what happens on disagreement, what happens if one wants to exit — has to be written into the corporation's own governing documents, because outside of those documents, ordinary corporate law defaults apply, and those defaults are not built for a two-person co-ownership.
CBCA s. 146(1) lets the shareholders enter into “an agreement among all the shareholders… that restricts, in whole or in part, the powers of the directors to manage… the business and affairs of the corporation,” and the Act says such an agreement “is valid.” That single sentence is what lets two investors take decisions that would normally sit with a board — approving a major expenditure, admitting a new investor, changing the business's direction — and require both of them to agree directly, rather than leaving it to a board where one investor's appointed director could outvote the other's.
Two features of s. 146 make the agreement durable rather than just a private handshake. Under s. 146(3), “a purchaser or transferee of shares subject to a unanimous shareholder agreement is deemed to be a party to the agreement” — so if one investor later sells their stake, the buyer steps into the same restrictions automatically, without needing to separately sign on. And under s. 146(5), to the extent the agreement gives shareholders the directors' own powers, those shareholders “have all the rights, powers, duties and liabilities of a director” for that purpose — a real consequence, not a formality, because director liabilities under s. 122 and elsewhere follow the power, not the title.
A fifty-fifty split between two unrelated investors is workable right up until the two of them disagree about something the corporation actually has to decide. A treadstonelaw.ca note on shareholder agreements states the mechanical problem directly: a corporation with two equal, disagreeing shareholders “cannot elect directors or pass resolutions” — deadlock isn't a metaphor, it's a corporation that structurally cannot act. The same note describes the standard tool for resolving it: a shotgun clause, under which “one shareholder serves notice naming a price per share” and the other “must then either sell their shares at that price or buy the offering shareholder's shares at the same price” — a mechanism that, as the note puts it, “forces honest pricing” because the person naming the price doesn't know in advance whether they'll be the buyer or the seller at it, but which also “strongly favours whichever shareholder has readier access to funding,” since the other side needs cash on short notice to exercise the buy option. Drag-along and tag-along rights solve a related but different problem — drag-along lets a majority compel a minority into a third-party sale so a buyer can acquire the whole company, and tag-along lets a minority sell alongside a departing majority on the same terms — both relevant once the investors aren't evenly split and one is looking to exit.
Where two-investor structures usually break
No deadlock mechanism at all. Two investors agree on everything at closing and never discuss what happens if they stop agreeing — the exact moment a shotgun clause or equivalent needs to already be in place.
Uneven access to capital. A shotgun clause is only fair between parties with roughly comparable ability to fund a buyout on short notice — unequal access changes who effectively controls the outcome regardless of who names the price.
Assuming the residency rule is someone else's problem. If one investor is not a Canadian resident, CBCA s. 105(3) still requires at least 25% of the acquisition vehicle's directors to be Canadian residents (or at least one, on a board of fewer than four) — see structuring when the buyer is a non-resident.
An operating partner with industry experience and a passive capital partner agree to buy a specialty distribution business together, with the operating partner holding 60% and the capital partner holding 40% of a newly formed acquisition vehicle. Their s. 146 unanimous shareholder agreement gives the capital partner a veto over any transaction above a stated dollar threshold, any change in the CEO, and any further debt financing — decisions that would otherwise sit with a board the operating partner, as majority holder, could effectively control. It also includes a shotgun clause as the exit mechanism if the two later disagree about the business's direction and can't resolve it through the veto rights alone. Because the capital partner is a Canadian resident and the operating partner is also Canadian resident, the acquisition vehicle's board satisfies s. 105(3) without needing to appoint an outside director purely to meet the residency test — a question the two would have had to solve explicitly had either of them been a non-resident.
Yes. CBCA s. 146(3) deems a purchaser or transferee of shares subject to a unanimous shareholder agreement to be a party to it automatically. There is a narrow protection in s. 146(4): a purchaser who was not given notice of the agreement may rescind the transaction within 30 days of becoming aware of it — which is why proper notice to any incoming shareholder matters.
The corporation can become unable to elect directors or pass resolutions — a genuine operating deadlock, not just a disagreement. Without a pre-agreed mechanism such as a shotgun clause, resolving it usually means an ad hoc negotiation from a much weaker position, or a court application, neither of which is cheap or fast.
It forces whoever names the price to price it honestly, since they don't know in advance whether they'll end up buying or selling at that number. It does, however, favour whichever investor can access funding fastest to exercise the buy option — a real asymmetry worth addressing explicitly if the two investors' access to capital isn't comparable.
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