Aminder Kaur Mangat Canadian BarristerTwo people start a company. They incorporate under the Alberta Business Corporations Act, file the articles, get the certificate, issue the shares 50/50 because that feels fair and equal and like the right thing to do when you are both putting in the same energy and neither person wants to seem like they are trying to grab control.
No shareholders agreement gets drafted because things are going well and spending three or four thousand dollars on legal paperwork when the company is barely generating revenue feels like a waste, honestly. There is always next quarter. Or next year. Or after the first big contract comes through.
Then something shifts. Maybe the revenue is growing but one founder is working sixty-hour weeks while the other is coasting. Maybe one person wants to reinvest profits and the other wants distributions. Maybe a third party offers to buy the company and one founder wants to sell and the other does not. Maybe a spouse gets involved and suddenly the personal relationship that used to hold the business together is pulling it apart instead.
And at that point everyone discovers what the ABCA defaults actually say, which is almost never what either person assumed.
The ABCA Has Default Rules for Everything You Did Not Write Down
The Business Corporations Act, RSA 2000, Chapter B-9, is not just a registration framework. It is a complete set of governance rules that apply to every Alberta corporation unless the shareholders specifically agreed to something different in writing.
No shareholders agreement means the ABCA decides how votes work, how shares get transferred, how disputes get resolved, how directors get removed, and what happens when someone wants out.
Why is that a problem?
Because the ABCA defaults were written for corporations generally. Not for your specific partnership. Not for two friends who started a tech company in a Calgary basement. Not for a family contracting business in Red Deer where the father owns 60% and the two sons split the other 40% and nobody has ever talked about what happens when dad retires.
The 50/50 deadlock that freezes everything
I keep seeing this one come up and it is probably the most common scenario in Alberta shareholder disputes. Two founders, equal shares, no tie-breaking mechanism. The ABCA requires a simple majority for ordinary resolutions and a two-thirds supermajority for special resolutions. When ownership is split exactly 50/50, neither partner can pass an ordinary resolution without the other’s consent and neither can block a special resolution alone.
So when they disagree on something fundamental, hiring a key employee, taking on debt, signing a major contract, the company cannot move forward. Neither person has enough votes to do anything. The business sits there paralysed while two people who used to be friends argue about whose vision should win.
A shareholders agreement with a deadlock-breaking mechanism, shotgun clause, mediation requirement, casting vote for the chair, anything, prevents this. Without one the ABCA does not give you a way out of a 50/50 standoff. It just sits there waiting for someone to blink or for someone to call a lawyer.
The Oppression Remedy Under Section 242 Is the Nuclear Option
When a shareholder dispute reaches the point where talking is not working and the defaults are not helping, Section 242 of the ABCA provides what Alberta lawyers call the oppression remedy. A shareholder can apply to the Court of King’s Bench for relief if the corporation or the directors have acted in a manner that is oppressive, unfairly prejudicial, or unfairly disregards the interests of a shareholder, creditor, director, or officer.
Sounds broad because it is broad. Courts have used Section 242 to order share buyouts, remove directors, set aside transactions, appoint receivers, wind up companies, and essentially restructure the internal governance of a corporation that the shareholders could not sort out themselves.
How often does this actually get used in Alberta?
Constantly. It is the go-to remedy in closely held private company disputes across the province. Family businesses where siblings cannot agree after a parent dies. Professional corporations where one partner stops showing up but will not sell their shares. Small operating companies where the majority shareholder starts running personal expenses through the business and the minority shareholder finds out from the accountant.
The standard the court applies is whether the complainant had “reasonable expectations” that were violated. In a small private company where the shareholders expected ongoing employment, participation in management, and a predictable return, the court asks whether those expectations were legitimate and whether the conduct complained about defeated them.
A corporate lawyer Calgary businesses bring in when these disputes surface will tell you the same thing nearly every time, the oppression application that costs $50,000 to $150,000 in legal fees could have been avoided by a shareholders agreement that cost $3,000 to $5,000 when the company was incorporated.
The economics of that comparison are brutal and straightforward.
The 2022 ABCA Amendments Changed Rules That Most Existing Companies Have Not Updated For
Bill 84 received Royal Assent in December 2021 and came into force May 31, 2022. Most of the attention went to the headline changes, electronic signatures, reduced shareholder approval thresholds for certain transactions, new corporate opportunity waiver provisions. Good changes, Alberta wanted to compete with the federal CBCA and other provinces for incorporations and these amendments moved in that direction.
But some of the quieter changes caught businesses that were already operating.
Directors’ duties got updated. The amended ABCA modified the statutory duties of care and loyalty that directors owe, bringing them closer in line with the CBCA. For companies incorporated before May 2022 that never revisited their bylaws or governance documents after the amendments took effect, there may be a gap between what the old documents assume and what the current statute requires.
Shareholder contact information requirements expanded. The amended Act now provides that if the Registrar requests it, the corporation’s securities register must include telephone numbers and email addresses for all securityholders. Not just names and addresses. Similar requirements now apply to director records and holders of debt obligations under trust indentures.
The indemnification and insurance provisions changed. The amendments to directors’ and officers’ indemnification rights and D&O insurance provisions affect the risk profile of every Alberta corporation with active directors. Companies that purchased D&O insurance before 2022 and have not reviewed the policy against the amended statute may have coverage gaps they do not know about.
How many Alberta businesses incorporated in 2018 or 2019 have gone back and checked whether their articles, bylaws, and shareholders agreements still align with the amended ABCA? Based on what corporate lawyers in the province report, not many.
The Shotgun Clause Everyone Talks About and Nobody Fully Understands
A shotgun clause, sometimes called a buy-sell provision, is the most commonly discussed mechanism for breaking deadlocks in Alberta shareholder disputes. The concept is simple. One shareholder names a price per share. The other shareholder either buys at that price or sells at that price. No negotiation. Take it or leave it.
Sounds clean. In practice it punishes the partner with less cash.
If one founder has $500,000 in personal savings and the other is living paycheque to paycheque, the wealthier partner can trigger the shotgun at a price they know the other person cannot afford to match. The cash-poor partner gets forced into selling because they literally cannot buy. The price may be fair on paper but the mechanism favours liquidity over fairness and most people do not think about that when the clause gets drafted.
Some agreements add refinements. A right of first refusal that gives the non-triggering party time to arrange financing. A fair market value floor set by an independent valuator. A requirement that both parties submit sealed bids.
The point is not that shotgun clauses are bad. They can work. But a generic template downloaded from the internet is not going to account for the specific financial imbalance between two particular partners in a particular Alberta company. The mechanism needs to fit the people, not the other way around.
What a Shareholders Agreement Actually Covers When Done Properly
Not every agreement needs to be forty pages. But a properly drafted one for an Alberta private company with two to five shareholders generally addresses:
Share transfer restrictions. Can a shareholder sell to anyone? Or do existing shareholders get a right of first refusal? What about transfers to a spouse or a family trust, do those require consent?
Deadlock resolution. What happens when the shareholders cannot agree on a major decision? Mediation first? Arbitration? Shotgun? Some other mechanism?
Exit and buyout. If a shareholder wants to leave, how is the price determined? Book value, fair market value, a formula, an independent valuator? What is the payment timeline, lump sum or installments?
Death, disability, and divorce. What happens to shares when a shareholder dies? Does the estate inherit voting rights or are the surviving shareholders obligated to buy the shares? What about a separation where a spouse claims a share of the business in a family law proceeding?
Non-competition and non-solicitation. Can a departing shareholder start a competing business? Can they take clients or employees with them?
Dividend and distribution policy. How are profits shared? Does the company retain earnings for growth or distribute them annually?
These are not hypothetical concerns. Each one of them has generated expensive litigation in Alberta courts involving private companies that thought they did not need a written agreement because the owners trusted each other. Trust is fine. Trust plus a written agreement is better. Trust without a written agreement is how oppression applications get filed.
References
- Business Corporations Act, RSA 2000, Chapter B-9 (ABCA). Default rules for Alberta corporations including voting thresholds, directors’ duties, and shareholder remedies.
- ABCA Section 242. Oppression remedy, application to Court of King’s Bench for relief where conduct is oppressive, unfairly prejudicial, or unfairly disregards interests.
- Bill 84 (Royal Assent December 2, 2021, in force May 31, 2022). Amendments to ABCA including corporate opportunity waivers, electronic delivery, reduced approval thresholds, directors’ duties updates.
- Norton Rose Fulbright, “Significant amendments to the Alberta Business Corporations Act have come into force” (June 2022). Analysis of Bill 84 changes including contact information requirements and indemnification amendments.
- Gusto Law, “Shareholder Agreements in Alberta: A Complete Guide” (March 2025). ABCA defaults, deadlock mechanisms, shotgun clause analysis.
- Verhaeghe Law Office, “Shareholder Disputes and Remedies in Alberta” (January 2026). Oppression remedy patterns in closely held Alberta companies.
- RMRF Law, “Shareholder Agreements in Alberta: Protect Your Business” (July 2026). Unanimous shareholders agreements as corporate prenuptial agreements.
