Shareholder Agreements 101: Key Tax Clauses to Include (Buy-Sell, etc.) — CPA Firm Near You, Montreal

Introduction

A shareholder agreement is one of the most important legal documents for any Quebec corporation with more than one owner. It governs how decisions are made, how disputes are resolved, and — critically — how shares can be bought, sold, or transferred. Without a proper agreement, owners face major tax risks, valuation disputes, and potential CRA or Revenu Québec reassessments when shareholders leave, retire, die, or disagree. This guide explains the essential tax-related clauses every shareholder agreement needs and how a CPA near you in Montreal can help ensure tax compliance and long-term protection.

Legal and Regulatory Framework

Under the Quebec Business Corporations Act (QBCA) and Canada Business Corporations Act (CBCA), corporations may create shareholder agreements to govern share ownership, management, and transfer rules. The Income Tax Act contains tax rules affecting share transfers, redemptions, buyouts, divorces, deaths, freezes, reorganizations, and sale transactions. Shareholder agreements must coordinate with corporate minute books, share registers, articles of incorporation, and tax planning structures such as estate freezes, Section 85 rollovers, or holding companies. Improper drafting creates major compliance issues or unintended tax consequences.

Key Court Decisions

Courts have ruled that lacking a shareholder agreement often leads to valuation disputes, unfair buyout terms, or invalid share transactions. Judges have confirmed that improperly structured buyouts trigger deemed dividends, shareholder benefits, and denied LCGE eligibility. In several cases, courts rejected agreements that contradicted corporate law, lacked valuation mechanisms, or enabled tax avoidance without commercial purpose. Courts emphasize that shareholder agreements must reflect genuine commercial arrangements and be supported by corporate records.

Why CRA and Revenu Québec Scrutinize Shareholder Agreements

Tax authorities review shareholder agreements during audits, reorganizations, buyouts, and LCGE claims. CRA assesses whether agreements were used to manipulate income splitting, avoid TOSI, undervalue shares, or circumvent capital gains rules. Revenu Québec examines whether buy-sell transactions follow fair market value, whether dividends or redemptions were properly authorized, and whether the agreement aligns with corporate records. Poorly drafted agreements create audit exposure.

Essential Tax Clauses to Include in a Shareholder Agreement

Buy-sell provisions

Rules for buying and selling shares on death, disability, retirement, or dispute. Prevents valuation conflicts and ensures tax-efficient exits.

Valuation method

Share value should be determined by agreed formulas or independent valuation to avoid CRA challenges.

Right of first refusal

Ensures shares cannot be sold externally without offering them to existing shareholders first.

Shotgun clause

Allows forced buyout when owners cannot agree — must be structured to avoid unfair tax consequences.

Dividend policy

Outlines when and how dividends are paid to avoid disputes and TOSI risk.

Funding mechanisms

Life insurance, corporate redemption, or personal purchase must align with tax goals.

Drag-along and tag-along clauses

Facilitate corporate sales while protecting minority shareholders, ensuring tax-efficient exits.

Restrictions on share transfers

Prevent shares from being transferred to non-family members or non-active parties without approval.

Treatment on death or disability

Ensures tax-efficient redemption, capital gains treatment, and proper funding mechanisms.

Tax Planning Clauses

LCGE planning

Ensures corporation remains eligible by purifying passive assets when needed.

Estate freeze integration

Coordinates freeze shares, preferred shares, and trust structures with ownership rules.

TOSI compliance

Protects against punitive tax rates by ensuring dividends follow labour or capital contribution rules.

Shareholder loan rules

Prevents improper loans that trigger taxable benefits.

Documentation Requirements

Resolutions

Approving share transactions and key decisions.

Share registers

Recording ownership changes.

Buy-sell agreements

Detailing pricing, timing, and conditions.

Updated minute book

Documenting all transactions for legal and tax compliance.

Mackisen Strategy

At Mackisen CPA Montreal, we review and design shareholder agreements from a tax perspective, ensuring clauses support LCGE eligibility, dividend planning, freeze structures, buyouts, and long-term ownership goals. We coordinate with lawyers to draft agreements that align with tax rules, valuations, and corporate governance requirements. Our approach protects owners from costly tax surprises.

Real Client Experience

A Montreal business lacked a shareholder agreement, leading to a dispute during a partner exit. CRA challenged dividend payments and valuations. We reconstructed corporate records, implemented a new agreement, and resolved tax exposure. Another client had an outdated agreement that contradicted freeze structures; we redesigned the agreement to match corporate reorganizations and protect future LCGE access.

Common Questions

Do I need a shareholder agreement if my partner is family?

Yes. Family disputes often create the biggest tax issues.

Can a shareholder agreement override tax law?

No. It must comply with the Income Tax Act.

Should lawyers and CPAs collaborate on the agreement?

Yes. Legal drafting must align with tax planning.

Does an agreement help during a CRA audit?

Yes, if properly documented and consistent with corporate records.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps corporations structure shareholder agreements that protect tax positions, support long-term planning, and maintain compliance. We ensure that buyouts, dividends, freezes, and reorganizations are coordinated with legal and tax requirements.