Know Your Rights as a Shareholder

Joining a corporation as a shareholder often starts off on the right foot – the venture appears lucrative, and you are excited to work with the friends, family or business partners you have elected to start your business with. However, it is not uncommon for things to turn sour. Perhaps the other shareholders are locking you out, or conducting business that you know is hurting the company’s bottom line. If any of this sounds familiar, you should be aware of your rights as a shareholder and the avenues for legal remedies.

For provincially incorporated businesses, the Ontario Business Corporations Act (OBCA) provides a framework to protect the rights of shareholders and ensure fair treatment, even of minority shareholders. These rights include, but are not limited to:

1. Voting Rights – Shareholders who own voting shares have the right to vote on significant matters such as electing directors, approving a sale of all or substantially all of the assets of the company’s business, approving a dissolution, and amending the corporation’s articles or corporate by-laws. Each share typically carries one vote unless specified otherwise in the corporation’s articles or by-laws. In some cases, under the OBCA, even shareholders who hold non-voting shares may be entitled to vote on certain matters such as, for example, if the corporation proposes to amend its articles to change the rights and privileges or conditions attached to the shares that the shareholder may own.
2. Right to Information – Shareholders are entitled to access certain corporate documents, including financial statements, annual reports, minutes of meetings, and registers. This transparency allows shareholders to assess the company’s performance and make informed decisions. It provides them with a deeper understanding of the company’s operations and financial health. 
3. Right to Dividends – Dividends represent a portion of the company’s profits distributed among shareholders. Shareholders have the right to receive dividends if the company’s board of directors declares them. Note, shareholders are not entitled to dividends if the board of directors has not declared them. 

The OBCA directly offers distinct remedies to protect the interests of a shareholder whose rights have been violated. These include, without limitation: 

1. Derivative Actions: Shareholders can apply to a court to initiate an action on behalf of the corporation if the directors fail to remedy wrongs that effect the corporation itself. Derivative actions aim to hold accountable those who harm the corporation's interests, benefiting all shareholders collectively.
   
   To commence a derivative action, leave of the court is required and the shareholder must provide the board of directors with 14 days’ notice.
   
   If leave is obtained from the court and the derivative action proceeds, the court may make any order it sees fit, including providing the corporation’s board of directors with binding directions to remedy the wrongdoing. 
2. Oppression Remedy: Shareholders can seek relief through an oppression remedy if they believe the corporation's affairs are being conducted in a manner that is oppressive, unfairly prejudicial, or unfairly disregards their interests. This remedy empowers the court to rectify the situation and order appropriate remedies.

The court has broad powers where it determines that there has been oppressive behaviour.

The OBCA also contains remedies for shareholders to act on their rights to call shareholders meetings and to be paid the fair value of their shares when they dissent from certain corporate actions such as mergers or amendments to articles. 

In addition to the statutory protections provided under the OBCA, shareholders can enter into shareholder agreements to further safeguard their interests. Shareholder agreements are private contracts that define the rights, obligations, and relationships between shareholders. These agreements can address matters such as defining what matters may required shareholder approval, share transfers, buyback provisions, dispute resolution mechanisms, and pre-emptive rights for a shareholder to purchase newly issued shares before it is offered to other persons. By establishing clear guidelines, shareholder agreements provide additional protection and prevent conflicts among shareholders. 

Shareholders should consider seeking legal advice when facing situations that may impact their rights. Lawyers with expertise in corporate law can provide guidance on interpreting the OBCA, assessing potential remedies, and navigating the legal process.

Understanding the rights and remedies available under the OBCA is crucial for shareholders to protect their investments and participate in corporate decision-making. By knowing their rights, shareholders can take appropriate action if their interests are compromised. The OBCA's legal framework, coupled with shareholder agreements and legal advice, empowers shareholders to ensure fair treatment and accountability within the corporate landscape.

The foregoing should not be considered to be legal advice and should not be relied upon as such. Please consult a lawyer to get advice and an opinion on your unique circumstances.