A Guest Blog by Joanne McPhail
When shareholders are negotiating the terms of a Shareholders Agreement, often we will discuss whether to add their spouses as parties. The reason for this is that for sections of the agreement, like the death buy/sell or the marital breakdown provisions, we often want to have the spouses of the shareholders agree on terms ahead of time so we don’t end up trying to enforce an agreement against a spouse who doesn’t feel obliged to cooperate. This issue is always a bit sticky because, of course, issues like death and separation are often tough things to talk about. To avoid the whole discussion, some shareholders opt not to add the spouse as a party and take their chances on enforceability down the road.
For those who do add their spouses in, it is then recommended that, once the Agreement is finalized, each spouse make an appointment with their own lawyer for “ILA” or independent legal advice. If we don’t have the spouse get their own advice (and often a certificate proving they received it), the shareholders run the risk of the Agreement being unenforceable down the road, as against the spouse. A spouse could argue that they did not understand what they signed and, if they only received advice from the corporation’s lawyer, there was a conflict of interest. Going to all the trouble of negotiating and preparing an agreement like a Shareholders Agreement, and then having some of it be unenforceable, is not likely the result most shareholders are looking for. Certainty is the name of the game. Thinking about these issues ahead of time, makes good business sense.
Joanne practices in the areas of business law and real estate and is certified by the Law Society as a specialist in corporate/commercial law. For more business-related articles by Joanne, visit her blog at http://gettingbusinessdone.blogspot.com