Shareholder Agreement Template (Part 6): Recitals | Background Information

Please keep in mind that this is not legal advice

. The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a shareholder agreement or unanimous shareholder agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers). We have Ontario lawyers who can assist you in this regard (I would know, I'm one of them!). If you'd like, you can contact me directly.

In my last article, I tackled the introductory clause. Here I'm going to talk about the recitals to a shareholders agreement or unanimous shareholders agreement. I strongly encourage you to contact me to have a customized shareholders agreement prepared for you. THERE'S NO SUCH THING AS A STANDARD shareholders agreement. It will need to account for your specific situation and requirements.

Recitals | Background Information

This is the place where you include background information about the purpose and context for which the parties are entering into their agreement. It's not really a good idea to start putting definitions here. Rather, you want to mention:

what the corporation's share capital looks like (i.e. authorized and issued shares);

who the shareholders are and what shares they own (number, class, series); and

that the parties want to enter into this agreement to set out their respective rights and duties as shareholders and for managing the corporation.

Now it may be worthwhile to have the parties, in the first section of the Agreement, acknowledge the truthfulness and accuracy and completeness of the recitals.

Consideration

After the recitals comes the part where the parties say something like "NOW THEREFORE IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS, PLUS THE SUM OF ONE DOLLAR, AND VALUE AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED BY THE PARTIES, THE PARTIES HEREBY AGREE AS FOLLOWS". This statement is trying to reflect the judge-made rule that a contract is not enforceable unless something of value is given between the parties. There has to be a fundamental exchange which can be monetized somehow. Giving each other mutual promises is good. So too is giving each other $1. But the problem is that you don't need to write all of this stuff if the contract itself contains a fundamental exchange. That exchange can be detriment to one party (i.e. it's giving up something of value) and a benefit to the other party. Without this exchange, the shareholder agreement won't be enforceable. The bottom line is that you don't need to write all off this mumbo-jumbo. I simply write "The Parties Therefore Agree as Follows" (or something to that effect). You get the idea.

In the next blog about shareholder agreements, I'll get into some of the meat and potatoes of the agreement.

Remember: if you'd like to buy a text link on this blog to your website, you can contact me. Also, if you're looking for a Toronto Shareholder Agreement lawyer, you can contact me to get a quote.

Shareholder Agreement Template (Part 6): Recitals | Background Information

By: DynamicLawyers

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