50/50 Shareholders in Ontario Law

Many 50/50 shareholders refer to themselves as partners, when in fact they each own shares in a company which owns the business.

The distinction is important because a dispute between 50/50 shareholders is governed by Ontario’s Business Corporations Act, RSO 1990, c B.16, or the Canada Business Corporations Act, RSC 1985, c C-44 in the case of a federal company, and a partnership dispute is governed by the Partnerships Act, RSO 1990, c P.5 and common law.

Shareholders Agreements

It is important for 50/50 shareholders to have a shareholders’ agreement in place to determine how to deal with deadlocks between board members and to provide each of the shareholders with an exit strategy. If you are setting up a business as 50/50 shareholders, it is recommended that you invest in a shareholders’ agreement that clearly outlines the process in these situations. If you are purchasing 50% of an existing business, it is recommended that you retain a qualified solicitor to draft a shareholders’ agreement or to review the existing one.

Disputes Without Shareholder Agreements

When 50/50 shareholders do not have a shareholders’ agreement in place, or the agreement does not provide the remedy needed, you can look to the Ontario Business Corporations Act or to the analogous sections under the federal Canada Business Corporations Act.

In dealing with a dispute between 50/50 shareholders, in most cases a court will begin its analysis with section 207 of the Business Corporations Act. The threshold test is whether in the circumstances, it would be just and equitable to liquidate and dissolve the company. This test can be satisfied by there being a stalemate on the board and consequently no decisions can be made and nothing can get done. Other circumstances are discussed on this website at Just and Equitable Division of a Company. If the test is satisfied, then a court may also have recourse to the relief provided under the oppression remedy provision under section 248 of the Business Corporations Act.  More information on Oppression Remedies is found in that section of this website.

The types of orders available under 248 are quite broad and include, along with a variety of other forms of relief:

• restraining the oppressive or unfair conduct;
• directing the company, or another shareholder, to purchase some or all of the shares of the oppressed shareholder;
• varying or setting aside a transaction or contract involving the corporation;
• directing the company to compensate the aggrieved person, and
• winding up the company.

These alternative remedies can be useful where the business is profitable and it makes more sense for one of the shareholders to take over than to liquidate the business.

For more information on Oppression Remedies see that section of this website and Just and Equitable Division of a Company.