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Tom B.
Tom B., Barrister & Solicitor
Category: Canada Business Law
Satisfied Customers: 2414
Experience:  25 years in legal practice and over 30 years in business.
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Currently in our Shareholder agreement we have a

Customer Question

Currently in our Shareholder agreement we have a shareholders loan of $400,000.
If the company pays this back to our investors (who did the shareholders loan for 400K) my founding partner and I get a 15% equity clawback. 300K we get 10% back and 200K we get 5% back.
Since this was signed we have had a new investor who is putting in $50K cash, also want to provide weekly and monthly operational involvement (in the form of creating marketing plans, create new revenue stream business plans, review analytics and make recommendations for improvements) in exchange for us switching the clawback to him and not my founding partner and myself.
We want to place a clause that says that he is inactive or dies the shares do not go to him to revert to us.
We have a draft inactive shareholder list of triggers (see below), however, for the part where he is supposed to be active and doing things for the company what type of mechanics can I put in place to ensure that he is active with respect to putting time and spending effort into the company each week and every month? If we put the terminated for just cause it implies that there is an employee agreement which would complicate things/involve tax etc. Is there another type of effort tracking that we could include in the in active shareholder clause rather than employment agreement?
Perhaps there such thing as an operational shareholder role/position that I could terminate him from for just cause? He could give a list of activities to be approved by the CEO monthly in this role. I see the inactive shareholder triggers below mention "position" but i am not certain i can terminate him from something other than a contractor agreement/employment agreement - which would prefer to stay away from if possible given it would complicate the deal with another document.
For this job to be marked as complete I would need you to create an inactive shareholder clause (using the triggers listed below with changes you recommend) that is only for the new investor (lets call him Mr. Blue) in our SHA and amend our Schedule C to consider if Mr. Blue comes inactive the clawback reverts to XXX and XXX getting the % back as it currently is:
SCHEDULE “C”
Equity Milestones
Pursuant to the terms and conditions of the Option Agreement, at such point as the Company pays down the Shareholder Loan(s) in the aggregate amounts as follows:
• $200,000 - XXX and XXX get 5% back for no additional consideration
• $300,000 - XXX and XXX get 10% back for no additional consideration
• $399,949 - XXX and XXX get 15% back for no additional consideration
Inactive Shareholders
(a) Triggering Event. A Shareholder shall be deemed to be an Inactive Shareholder immediately following the occurrence of any of the following events (each a “Triggering Event”):
(i) if a Shareholder dies or suffers a Disability;
(ii) if a Shareholder resigns his position or employment with the Corporation.
(iii) if a Shareholder is terminated from his position or employment for Just Cause;
(iv) if a Shareholder has its Shares become liable to seizure under any legal process, is declared bankrupt or makes a proposal in bankruptcy or becomes the subject of bankruptcy or other similar proceedings, makes an assignment for the benefit of creditors, or otherwise acknowledges its insolvency, or ceases paying its debts as they mature (other than those being contested in good faith and by appropriate proceedings);
(v) if an application has been made pursuant to the Family Law Act (Ontario) or other similar legislation in another jurisdiction with respect to the Shareholder seeking a division of property or any voluntary or involuntary transaction which would result in the Transfer of such Shares not expressly permitted by this Agreement;
(vi) if a Shareholder continues to breach the provisions of the Shareholder Agreement more than thirty (30) days following receipt of written notice from another Shareholder notifying such Shareholder of the details of such breach; and
(vii) if any Transfer of the Shares held by such Shareholder is made contrary to the provisions of the Shareholder Agreement.
Submitted: 1 year ago.
Category: Canada Business Law
Customer: replied 1 year ago.
see attached for better formatted text
Customer: replied 1 year ago.
give me a call if you need more info please Kyle - XXX XXX XXXX
Expert:  Tom B. replied 1 year ago.

Hi

Canadian regulations do not allow lawyers here to give specific legal advice without being retained directly so we are limited to general legal advice.

Does the existing shareholder's agreement allow for new shareholders to be added?

Is this person supposed to be a contractor or an employee with stock options or an investor? I sense a bit of all.

Will he be given shares immediately or options?

Without getting into all details, what essentially do you want to accomplish?
Thanks,

Tom

Customer: replied 1 year ago.
new shareholders can be added.I wouls preferthey are either emoyee or contractor but if they have to be something they could be a contractor, did you read my post which specifically asks that why I am asking you please read the my post. It specifically mentions is there another effort tracking role other than employee or contractor, did you not read it?they are purchasing 6.125% for 50k and this will be provided immediately.It's the clawback we are talking about
Customer: replied 1 year ago.
Read the post
Customer: replied 1 year ago.
Prefer they are neither* not eitherCall me at four one six six two seven two five four zero
Customer: replied 1 year ago.
I specifically state what I am trying to accomplish. For this job to be marketed complete...
Expert:  Tom B. replied 1 year ago.

Hi again.

Canadian lawyers are not allowed to take phone calls or give specific advice that you may rely upon to your peril without you becoming a direct client. Unlike USA lawyers (I guess) we are not allowed to provide additional services for a fee. I can only give general advice whereby you decide whether you pay something or not.

My instant concern is that you cannot do what you propose under the laws of most provinces. An option is a different thing than a share. A share is property while an option is an opportunity. Both can have buy back provisions however.

Such important decisions cannot be decided in a general legal forum and I am not allowed to become your personal lawyer. You need to hire your own lawyer who can sit down with you and fully understand.

I will opt out of this question and you can get a full refund of your deposit.

Good luck!

Tom

Customer: replied 1 year ago.
Ok opt out

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