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    Annual Valuation Provisions in Shareholders’ Agreements

    Where a private corporation has more than one shareholder, the shareholders are well advised to enter into a shareholders’ agreement. This is an agreement that specifies how the corporation is to be governed, how major decisions will be made, and how shares in the corporation can be sold. The purpose of a shareholders’ agreement is to avoid disputes, both while running the business and when one or more of the shareholders wishes to, or is forced to, sell his shares.

    One of the provisions commonly found in a shareholders’ agreement concerns valuation. This provision can include mechanisms such as appointment of an independent valuer, or it can require the parties to periodically agree to a valuation, even where a sale of any of the shares is not imminent. For example, the agreement may require that each year, following the receipt of a financial report prepared by the corporation’s accountants, the shareholders agree to the fair market value of the shares and attach this as a schedule to the shareholders’ agreement. Then, if it is necessary to determine the fair market value of the shares during the following 18 months, such fair market value will be determined on the basis of this valuation.

    Unfortunately, shareholders do not always take advantage of these valuation provisions, which can lead to bitter disputes if a sale of shares is necessary, for example, due to the death of a shareholder.

    Where a shareholders’ agreement provides for an annual valuation, actually agreeing to a valuation every year is a small investment of time that can help avoid potentially expensive and time consuming litigation.

    For more information on shareholders’ agreements, please contact Katya Permiakova at 613-563-6694 or [email protected] or Tim Grieve at 613-563-6686 or [email protected].

    For more information on resolving shareholder disputes, please contact Chuck Merovitz at 613-563-6690 or [email protected].

    The content on this website is for information purposes only and is not legal advice, which cannot be given without knowing the facts of a specific situation. You should never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. The use of the website does not establish a solicitor and client relationship. If you would like to discuss your specific legal needs with us, please contact our office at 613-563-7544 and one of our lawyers will be happy to assist you.

    Posted By: Merovitz Potechin

    Merovitz Potechin LLP has been serving the business and personal needs of the Ottawa area since 1976. Our lawyers will work directly with you throughout your legal matter.

    We are committed to asking the right questions so you obtain the best advice. We are responsive to your needs, and you can trust that we will give you the care and attention you deserve.

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