50/50 Shareholders in BC 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 British Columbia’s Business Corporations Act, SBC 2002, c 57 whereas a federal company dispute is governed by the Canada Business Corporations Act, RSC 1985, c C-44 and a partnership dispute is governed by the Partnership Act, RSBC 1996, c 348 and other common law.
It is important for 50/50 shareholders to have a shareholders’ agreement in place to determine how to deal with deadlocks or ties between board members and also 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 B.C. 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 324 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 at section 227(3) of the Business Corporations Act. More information on Oppression Remedies is found in that section of this website.
The types of orders available under section 227(3) are quite broad and include, along with a variety of other forms of relief:
- directing or prohibiting any act;
- directing the company to purchase some or all of the shares of the shareholder;
- directing another shareholder to purchase the shares of the shareholder; and
- directing the company to compensate the aggrieved person.
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.
So if you are looking to:
- buy out a shareholder;
- resolve a deadlocked board;
- purchase 50% of a company, or
- dissolve a company
but the other shareholder refuses, you may wish to consider bringing an oppression remedy claim before the BC Supreme Court.