Why This Matters

Incorporating a business is easy. Agreeing on how the owners will make decisions, share money, and exit the business is the hard part.

If there is no shareholders’ agreement, you are relying on basic default rules in the Ontario Business Corporations Act and the company’s articles. When priorities change or relationships break down, those defaults often do not solve the problem, and the tie-breaker becomes litigation.

1. The Common Problem We See in Practice

Many owner-managed companies start with trust and momentum. People incorporate quickly, split shares, and get to work, without a written plan for disagreement.

Later, one or more of the following happens:

• The owners disagree about reinvesting profits versus taking money out of the company.
• One owner wants to bring in a new investor or sell; another owner refuses.
• The owners disagree on salaries/bonuses.
• A personal relationship breaks down.
• One owner stops working (or is pushed out), but still owns shares.
• There is alleged misconduct and each side wants “control.”

Without a shareholders’ agreement, these disputes often escalate into lockouts, competing “director” decisions, frozen bank accounts, and court applications for oppression, buyouts, or winding-up.

2. A Real Case: What Happened in Court

Tari v Darolfi, 2025 ONSC 5104

In Tari v Darolfi, 2025 ONSC 5104, the Ontario Superior Court dealt with a multi-company family business dispute where there were no shareholders’ agreements. The plaintiff held a 50% interest in an operating company and minority interests in real-estate holding companies. After he was terminated and locked out, he claimed oppression and asked the court to force buyouts and to wind up the operating company.

The Court’s response shows what can happen when owners incorporate without a written exit plan:

• For the real-estate holding companies, the Court refused to order a buyout of the plaintiff’s minority shares. It emphasized that, absent oppression or an agreed exit right, the court will not create a buyout mechanism simply to address the inherent illiquidity of private-company shares. Minority ownership, on its own, does not entitle a shareholder to an exit.¹

• For the 50/50 operating company, the Court ordered a buyout rather than a winding-up. The business was viable and employed staff, and the court considered liquidation to be a drastic remedy. However, because there was no pre-agreed valuation formula or buy-sell mechanism, the court had to impose a neutral valuation process to determine the price.²

The important point for business owners is that the outcome was a court-crafted remedy. Even when the court intervenes, the solution is discretionary, evidence-driven, and fact-specific. Without a shareholders’ agreement, the parties effectively ask the court to design an exit structure after the relationship has already broken down.

3. Why This Happens

A corporation is a legal structure. It does not, by itself, answer the practical questions that matter most in a dispute.

When there is no shareholders’ agreement, key gaps appear:

• No clear decision rules (what requires majority vs unanimity).
• No deadlock solution (especially in 50/50 ownership).
• No exit rights or valuation method (how someone sells, when, to whom, and how shares are priced).
• No rules for funding
• No separation between shareholder rights and employee/manager roles.

In court, owners often discover that (a) their “understanding” is hard to prove, and (b) remedies may be narrower than expected; particularly where the dispute is really about wanting to exit an illiquid, private company. 

4. How These Disputes Are Prevented in Practice

From a litigation perspective, prevention is mostly about building a simple, workable plan for disagreement while everyone is still aligned.

A shareholders’ agreement (or unanimous shareholders’ agreement, where appropriate) typically addresses:

• Who controls day-to-day decisions, and what decisions require special approval.
• A deadlock mechanism.
• Exit rights and transfer restrictions.
• A clear valuation method and timeline for any forced purchase/sale.
• Rules for dividends and compensation (so money disputes do not become governance fights).
• Rules for shareholder loans and additional capital contributions.
• Dispute-resolution steps.

The goal is not to predict every future problem. It is to avoid the most common and expensive failure mode: a deadlocked or dysfunctional corporation with no agreed way out.

5. Practical Checklist (Use This Internally)

• Do a shareholders’ agreement early, ideally before the first shares are issued to multiple owners.
• If ownership is 50/50, build in a deadlock mechanism. 
• Decide what requires unanimity (e.g., issuing shares, borrowing, major purchases, selling the business).
• Include clear exit rights and a realistic share-valuation method.
• Document shareholder loans and when/how they are repaid.
• Keep corporate records up to date.
• Revisit the agreement when the business changes.

Final Thought

A shareholders’ agreement is the “operating manual” for owners. Without it, disagreement often means relying on default legal rules and asking a judge to solve a business problem after the relationship has already broken down.