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Protecting the interests of minority shareholders in unanimous shareholders’ agreements

Charlie Kim and Matthew McGuigan
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This story was originally published by Law360 Canada, (www.law360.ca) a division of LexisNexis Canada.

Law360 Canada (July 25, 2025, 2:00 PM EDT) -- Minority shareholders, by virtue of their minority status, may not have the power or leverage to heavily negotiate the terms of a unanimous shareholders’ agreement (USA). To that end, USAs can impose harsh realities on minority shareholders. When negotiating USAs, minority shareholders should be mindful of this imbalance to ensure that they are protected and well-positioned relative to majority shareholders. This article seeks to provide insight into the items that shareholders should consider when entering into USAs in a minority position.

Board nominees

As legislated under the Ontario Business Corporations Act (OBCA), directors are elected by a simple majority of votes cast by shareholders. This means that, absent anything to the contrary contained in a USA, majority shareholders have the ability to elect all of the directors of the corporation. However, minority shareholders can try to negotiate into the
USA the right to nominate at least one person to the board of directors who is either themselves or another trusted/like-minded person. While minority shareholders may not be able to nominate the majority of the board, board representation through a USA can at the very least provide minority shareholders with the ability to participate and ensure their interests are being communicated. Nevertheless, directors are mandated by the OBCA to owe fiduciary duties to the corporation, which means they must act in the corporation’s best interest, and not that of any particular shareholder. As such, both majority and minority shareholders do not have ultimate and uncontested decision-
making power with regards to decisions of the directors. 

Fundamental matters

As noted above, board members elected by majority shareholders will dominate the board and approve most decisions, even if minority shareholders have board representation. The OBCA nevertheless requires shareholder approval of certain fundamental decisions and allows for shareholder dissent rights, thus providing minority shareholders with certain statutory protections.

However, these protections may not be sufficient for a minority shareholder to block certain corporate actions. Minority shareholders should have proper safeguards against majority dominance with respect to shareholder decisions. This can be in the form of veto rights. 
In providing veto rights, minority shareholders can promote equitable treatment. Certain matters that could warrant veto rights include: entering into a new line of business, adopting or amending the corporation’s business plan, authorizing expenditures above budgeted amounts, commencing an initial public offering or authorizing distributions.

Drag-along/tag-along rights

Drag-along and tag-along rights are common provisions found in USAs. Majority shareholders will typically choose to include drag-along rights in a USA while minority shareholders will negotiate to include tag-along rights to protect themselves in a sale of the majority’s interest.
Tag-along rights allow minority shareholders to participate in a sale triggered by the majority shareholders of their interests in the corporation. The minority shareholders will be entitled to sell their interests on the same terms and conditions. In other words, minority shareholders are able to “tag-along” to the sale, ensuring that they are not stuck with an unwanted third-party business partner.

Moreover, the provision allows minority shareholders to achieve liquidity and realize a return on investment at the same rate as the majority shareholder, protecting their interests. This protective provision should always be negotiated in a USA if a drag-along provision is included.

Drag-along provisions give majority shareholders, who are selling their shares to a third party, the right to force the remaining shareholders to also sell their shares to the third party. This could force minority shareholders who are management or employees of the corporation to sell their interests. Thus, these provisions are for the benefit of majority shareholders.

However, minority shareholders should, to the extent possible, ensure that the provision is drafted to best serve their interests. For instance, the drag-along right should only be triggered when the majority shareholder is selling all of its interest. Otherwise, if the sale is for less than all of the shares and the drag-along is triggered, then a minority shareholder’s already limited stake would be further diluted, hindering their liquidity and voting power.

Inspection rights

Shareholders have limited inspection rights under the OBCA, which only includes rights to access certain limited records of the corporation, including the constating documents of the corporation, minutes of meetings and certain registers. There is no unlimited right to access any document or record, such as material contracts, tax returns and management records. This barrier may create difficulties for minority shareholders who are not directors, as they may be unable to verify key transactions or documents.

To provide for greater corporate transparency and accountability, minority shareholders should negotiate to have certain inspection rights for material documents included within a USA. This can also include the right to inspect the properties and assets of the corporation in instances where the corporation is developing a project or considering the sale of corporate assets.

Obligations arising through USA

Shareholders are typically passive investors as they generally do not owe any positive obligations to the corporation. However, USAs may give rise to obligations that impose significant burdens on minority shareholders, who may have limited resources or capacity to meet those obligations effectively. For instance, certain USAs provide for capital calls, which are provisions that allow the corporation to demand and receive additional funding from investors to obtain short-term financing.

Other positive obligations include guarantee provisions that typically set out the circumstances under which shareholders agree to personally guarantee certain obligations of the corporation.

Minority shareholders should be aware of these types of positive obligations to understand their potential financial liability, and attempt to limit such obligations.

Key takeaways

Minority shareholders have limited negotiating power. Nevertheless, the key in protecting their interest is determining what provisions should be included or omitted in a USA. Albeit not an exhaustive list, the above highlights certain points that should be negotiated for by minority shareholders when entering into USAs in an attempt to even the playing field.

Charlie Kim is a Partner in the Business & Transactions Group at Robins Appleby LLP. Drawing on over 15 years of experience as a business lawyer in Ontario, he counsels private equity firms, business owners, and lenders in a Canadian, cross-border and international context. He has authored a series of legal articles on numerous business law related issues, including shareholder rights and corporate governance.

Matthew McGuigan is an Associate in the Business & Transactions Group at Robins Appleby LLP. He is an Ontario lawyer advising on mergers and acquisitions, debt financing, private capital markets, and shareholder and partnership arrangements in the Canadian, cross-border, and international context. With a dual JD/HBA from Western University and Ivey Business School, Matthew applies his business acumen to address his client's legal needs.

At Robins Appleby, we have been providing legal advice for over 70 years to entrepreneurs, businesses, financial institutions, and foreign companies operating in Canada. Located in Toronto's financial district, our firm is trusted by clients to help solve critical, time-sensitive issues. We offer a wide range of legal services including business and transactions, affordable and social housing, litigation and dispute resolution, commercial real estate development, tax law, employment law, and estate planning.


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