Many companies I see were incorporated online in an afternoon. The articles arrived by email, the business started trading, and nobody opened the minute book again. Years later the owners want to sell, borrow, or split up, and that’s when the gaps cost money. (If you haven’t incorporated yet, start with sole proprietorship vs. incorporation. If you’re selling, see share purchase vs. asset purchase.)
Why co-owners need a shareholder agreement
Without an agreement, the OBCA’s default rules apply, and they weren’t written for two partners running a business together. Take a 50/50 company. Neither owner can pass a resolution without the other. Neither can force a buyout or a sale. If one walks away, they still own half the company. When things go badly, the usual next step is an oppression application in Superior Court under Section 248 of the OBCA, which is slow and expensive.
Section 108 of the OBCA lets all the shareholders sign a unanimous shareholder agreement (USA) that takes some or all decision-making away from the directors. The catch is that shareholders who take on those powers also take on the directors’ duties and liabilities, including the duty of care in Section 134.
A good agreement, signed while everyone still gets along, deals with four things:
- Who decides what. List the decisions that need everyone’s sign-off, such as borrowing over a set amount, issuing new shares, paying dividends, or signing a lease, so one owner can’t act alone.
- How to get out. A dispute process (mediation, then arbitration), a valuation formula, a right of first refusal, and buy-sell terms. That can mean a shotgun clause for equal partners, drag-along rights so a majority can sell 100% of the company, and tag-along rights so a minority isn’t left behind.
- Death, disability, and divorce. A buyout funded by life insurance, lined up with each owner’s secondary will and continuing power of attorney for property, plus spousal waivers under the Family Law Act. Otherwise shares can end up with an ex-spouse or an heir who wants nothing to do with the business.
- Independent advice. The company and each shareholder have different interests in the negotiation. If each owner has the chance to get their own legal advice, and that’s documented, the agreement is much harder to attack later.
What has to be in your minute book
Under Sections 140 and 141 of the OBCA, every Ontario corporation has to keep certain records at its registered office (or another place the directors choose). Lenders, buyers, and the CRA all ask for them.
| Record | What it is | Why it matters |
|---|---|---|
| Articles, by-laws, shareholder agreements (s. 140) | The founding documents and every amendment, plus the resolutions passed when the company was set up. | A bank will usually want a lawyer’s opinion that the company was properly set up, along with the by-laws and a resolution approving the loan. |
| Minutes and resolutions (s. 140) | Annual shareholder resolutions (approving the financial statements and, if every shareholder agrees, skipping the audit) and director resolutions declaring dividends or bonuses. | In a CRA audit or a share sale, a missing dividend resolution or an undocumented shareholder loan can lead to a reassessment or money held back from the price. |
| Directors register and securities register (ss. 140–141) | Who has been a director and when, and every share issued, transferred, or redeemed, matched to share certificates. | The securities register is the legal record of who owns the shares. Schedule 50 of your T2 return doesn’t replace it. If the register is wrong, it has to be formally corrected before a sale or estate transfer. |
| Land register (s. 140.1) and significant control register (s. 140.2) | Every interest the company holds in Ontario land (with dates and PINs), and every individual who holds 25% or more of the votes or value, or controls the company in fact. | Missing registers are a statutory offence for the company, its directors, and its officers, and they hold up due diligence on a sale or refinancing. |
Read the commercial lease before you sign it
For a clinic, restaurant, shop, or warehouse, the lease is often the biggest commitment the business makes. Commercial leases fall under the Commercial Tenancies Act, not residential tenancy rules, and the lease wording does most of the work. Three things catch business owners again and again:
- Personal guarantees. Landlords routinely ask the owner to personally guarantee the whole lease. That undoes much of the point of incorporating. Try to limit the guarantee to the first few years or a set dollar amount.
- What the landlord can do if you fall behind. A landlord generally can’t both end the lease and lock you out and also seize your property for the same unpaid rent. Check the notice periods, cure periods, and your right to ask a court for relief from forfeiture (Commercial Tenancies Act ss. 19 and 20). Check the assignment clause too, since you’ll need it if you ever sell the business, and look for any clause that lets the landlord move you.
- Construction liens from your build-out. If your contractor isn’t paid, Section 19 of the Construction Act lets them lien your leasehold interest, and in some cases the landlord’s property as well. Most leases treat a registered lien as a default and give you a short window to clear it at your own cost.
A short checklist
- Sign a shareholder agreement while all the owners still agree on things.
- Update the minute book every year, including the securities, land, and significant control registers.
- Have the offer to lease reviewed. Most of the important terms, including the guarantee, TMI caps, assignment, exclusivity, and renewal, are fixed at that stage.
- Hold back 10% on your build-out under Section 22 of the Construction Act.
- Get your accountant and your lawyer talking before any share reorganization.
Set up your company properly
Barbarian Law® is at 14981 Yonge Street, Upstairs, in Aurora. We handle incorporations, minute book clean-ups, and shareholder agreements, share and asset purchases, and commercial leases ($750 + HST for a tenant lease review; from $1,500 + HST to draft a lease for a landlord) across York Region and the GTA, with more than $150M in completed transactions. See our full fee schedule.
- No retainer. No deposit. Invoiced after the work is delivered. You get a written estimate before the file opens.
- I handle your matter myself from start to finish.
Frequently Asked Questions
Minute books, shareholder agreements, and commercial leases.
Does Schedule 50 of my T2 return prove who owns the shares?
No. Under the OBCA, the company’s securities register is the legal record of who owns the shares, backed by subscriptions, directors’ resolutions, and share certificates. If your T2 and your minute book don’t match, the register has to be formally corrected before a share sale or bank loan can close.
What records does an Ontario corporation have to keep?
Under Sections 140 and 141 of the OBCA: articles, by-laws, any unanimous shareholder agreement, minutes and resolutions of directors and shareholders, a register of directors, a securities register, a register of interests in Ontario land (s. 140.1), and a register of individuals with significant control, meaning 25% or more of the votes or value (s. 140.2).
Why have an offer to lease reviewed before signing?
In Ontario an offer to lease is usually binding. It fixes the rent, TMI (taxes, maintenance, and insurance), personal guarantees, build-out rules, and assignment rights before the formal lease is even drafted.
How much does a commercial lease review cost at Barbarian Law®?
A tenant lease review is a flat $750 + HST. Drafting a lease for a landlord starts at $1,500 + HST. No retainer, no deposit, and you’re invoiced after the work is delivered.
What if my contractor puts a lien on the unit I lease?
Under Section 19 of the Construction Act, the lien attaches to your leasehold interest and sometimes the landlord’s as well. Most commercial leases treat that as a default, so you usually have to clear it fast, often by paying security into court.
This article is general information, not legal or tax advice, and reading it does not create a lawyer-client relationship. For advice on your own company or lease, contact Barbarian Law®. Barbarian Law® is a registered trademark (CIPO Reg. No. TMA 1,359,734).
