When one owner of an Ontario corporation leaves, three things have to happen. The shares are sold — to the other owners or back to the company. The departing owner leaves the board and any office. And both sides sign a release that actually ends their obligations to each other. Smutylo Law+ acts for departing shareholders and for the owners who stay.
If there is a shareholder agreement, it probably answers the first questions: whether you can be required to sell, whether the others must buy, how the price is set, how it is paid and over what period. It may include a right of first refusal or a shotgun clause. See shareholder agreements in Ontario.
If there is no shareholder agreement, the exit is negotiated. Nobody can be forced to buy your shares, and in most cases you cannot be forced to sell them. The Business Corporations Act (Ontario) gives shareholders a remedy if the company is run in a way that is oppressive or unfairly prejudicial to them, and that remedy sits in the background of most negotiations. See the minority shareholder with no way out.
A director’s resignation takes effect when a written resignation is sent to the corporation, or at a later time stated in it. The corporation must then file a notice of change with the province, within 15 days.
Resigning does not end every liability. Directors can remain personally liable for some obligations from their time in office — unpaid employee wages, and unremitted payroll source deductions and GST/HST, for which the Canada Revenue Agency can generally pursue a director for up to two years after they leave. The exit documents should deal with this through an indemnity from the corporation and confirmation that remittances are current.
If you guaranteed the company’s bank loan, credit line or lease, leaving the company does not release you. The lender or landlord has to agree. Getting that release, or a replacement guarantee from the remaining owners, should be a condition of your exit.
Directors and officers of an Ontario corporation owe a fiduciary duty to act honestly and in good faith in the company’s best interests. A director who starts a competing business, or pursues an opportunity the company was pursuing, while still in office is exposed to a claim. That exposure can continue after resignation where the opportunity was one the director was pursuing for the company.
If you have started or plan to start another business, raise it in the exit negotiation rather than leaving it for later. The usual tools are a disclosure of what the new business does, a negotiated non-solicit or non-compete, and a release that covers it expressly.
Most owner exits settle. When they stall, mediation is usually faster and cheaper than litigation, and it keeps the decision with the owners. See dispute resolution and mediation and resolving a business partner dispute without court.
Usually only if you agreed to it — most often in a shareholder agreement with a buy-sell, drag-along or shotgun clause. Without such a term, other shareholders generally cannot force a sale. A court can order a share purchase as a remedy under the oppression provisions of the Business Corporations Act, but that is a litigation outcome, not a starting point.
By the method in the shareholder agreement if there is one. Otherwise the owners negotiate, often with a valuation from a chartered business valuator. Questions to settle include whether a minority discount applies, what date the valuation is taken at, and how shareholder loans are treated.
For some things, yes. Directors can remain personally liable for certain obligations from their time in office, including unpaid employee wages and unremitted source deductions and GST/HST, which the Canada Revenue Agency can generally pursue for up to two years after resignation. An indemnity from the company and confirmation that remittances are current reduce that risk.
Generally yes, once you have left, unless you agreed to a non-compete or non-solicit that is enforceable. While you are still a director or officer, fiduciary duties restrict competing with the company or taking its opportunities, and those duties can extend past resignation for opportunities you were pursuing for the company.
Then the exit is negotiated from scratch: price, payment terms, resignations, guarantees and releases. The Business Corporations Act sets the background rules, including the oppression remedy. Mediation is often the fastest route when owners cannot agree.
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