Shareholder Agreements: What Happens When a Partner Wants Out?

Picture this: your business partner announces they’re leaving — suddenly, without warning. Maybe they want to retire. Maybe the relationship has broken down. Maybe they simply want to cash out while the business is doing well.

Whatever the reason, a partner wanting out can create uncertainty overnight. Questions about ownership, valuation, decision-making, and the future of the business surface immediately.

The good news? A well-drafted shareholder agreement gives you a roadmap.

When someone wants to exit a business, the shareholder agreement (or partnership agreement, if it’s a partnership) is the document that controls nearly everything that happens next.

A strong agreement answers questions like:

• Can a partner leave whenever they want?
• Are they allowed to sell their shares to outsiders?
• Do remaining owners get the first right to buy?
• How will the departing partner’s interest be valued?
• What happens to voting rights, dividends, and duties during the transition?

Without this agreement, owners default to provincial legislation — which is far less flexible and often leads to disputes.

In partnerships, withdrawal may dissolve the partnership unless the agreement prevents that.
In corporations, shareholders cannot just “walk away”: they must sell, transfer, or redeem their shares.

This is where many disputes begin. Agreements often specify valuation methods, such as:

• Fair market value
• Pre-agreed formulas
• Independent valuation
• Book value
• EBITDA multiples

Without guidance, valuation disagreements often end up in litigation.

Exits impact:

• Voting power
• Signing authority
• Board composition
• Profit distribution
• Strategic direction

A departure is not just financial: it is governance-changing.

We routinely see four types of exits, and each triggers different legal consequences.

This is the easiest scenario. The agreement sets the process; the parties follow it. A buyout is negotiated and the business continues smoothly.

Partners no longer trust each other. In these cases, agreements often include:

• Shotgun clauses
• Forced buyouts
• Mandatory mediation
• Restrictions on sales to third parties

If no agreement exists, litigation is common.

A partner wants to leave immediately – or stops participating without formal notice. Here, businesses must urgently manage:

• Access to bank accounts
• Contract obligations
• Clients and suppliers
• Intellectual property
• Employees

The business may need court intervention to stabilize operations.

Minority shareholders often struggle because:

• They cannot force others to buy their shares
• They may have no market to sell in
• The majority may block their exit

If they are treated unfairly, they may pursue an oppression remedy, seeking:

• Court-ordered buyout
• Compensation
• Governance adjustments
• In extreme cases, a corporate wind-up

This document determines:

• Exit rules
• Valuation
• Restrictions
• Rights and obligations

If there is no agreement, legal analysis is required to determine default rights.

Independent valuations reduce disputes and bring credibility to negotiations.

Update:

• Banking authority
• Access credentials
• Client communications
• Corporate resolutions

You must protect the business from disruption.

Options include:

• Share purchase by remaining owners
• Corporate redemption
• Buy-sell arrangements
• Instalment buyout schedules
• Restructuring ownership

The goal is to avoid litigation — unless unavoidable.

In contested exits, litigation tools include:

• Oppression remedy
• Derivative actions
• Dissolution or wind-up
• Injunctions to prevent interference
• Enforcement of the shareholder agreement

Each remedy addresses different types of breakdowns.

Partnerships and corporations are built on trust, but exits depend on rules. When those rules don’t exist – or are ignored – owners face:

• Valuation fights
• Governance disputes
• Loss of key clients
• Operational instability
• Years of litigation

Clear agreements prevent chaos. In their absence, courts step in.

When a partner or shareholder wants out, every decision matters — financially, legally, and strategically. Our commercial litigation team assists with:

• Shareholder exits and buyouts
• Partnership withdrawals
• Valuation disputes
• Oppression claims
• Dissolution and wind-up proceedings
• Enforcement of shareholder agreements

Contact Pinto Shekib LLP: 416.901.9984 or info@pintoshekib.ca.