A Canadian Sole Shareholder Agreement is a governance document for a corporation that has only one shareholder. Unlike the United States, Canada does not have Limited Liability Companies (LLCs) as a business structure. The Canadian equivalent of a US single-member LLC is a corporation with a sole shareholder, and this agreement serves a similar function to a US single-member operating agreement.

Under the Canada Business Corporations Act (CBCA, R.S.C. 1985, c. C-44), section 146 provides that when a person who is the beneficial owner of all issued shares of a corporation makes a written declaration that restricts, in whole or in part, the powers of the directors to manage or supervise the management of the business and affairs of the corporation, the declaration is deemed to be a unanimous shareholder agreement (USA). This is a unique feature of Canadian corporate law that allows a sole shareholder to take direct control of corporate management while maintaining the corporate structure's liability protection.

The agreement establishes the corporation's governance framework, documents capital contributions, defines the management structure, sets out the share capital, and provides for dissolution procedures. Provincial equivalents exist under the Ontario Business Corporations Act (OBCA, R.S.O. 1990, c. B.16), the British Columbia Business Corporations Act (BCBCA, S.B.C. 2002, c. 57, s.137), and the Alberta Business Corporations Act (ABCA, R.S.A. 2000, c. B-9). Under CBCA s.146(5), when the shareholder restricts director powers through a USA, the shareholder assumes the corresponding directors' liabilities for those restricted powers, creating an important balance between control and responsibility.

A Sole Shareholder Agreement is needed whenever an individual or entity is the only shareholder of a Canadian corporation and wishes to establish clear governance rules. While not legally required, it is strongly recommended because it documents the separation between the corporation and its sole shareholder, which is essential for preserving the limited liability protection of the corporate structure. Canadian courts may pierce the corporate veil if the corporation and its shareholder are not operating as distinct entities.

This agreement is particularly important when the sole shareholder wants to restrict the powers of appointed directors under CBCA s.146, effectively creating a unanimous shareholder agreement that gives the shareholder direct control over specific corporate decisions such as share issuances, major contracts, borrowing limits, or dividend declarations. It is needed when the corporation opens bank accounts, as financial institutions often request documentation of the corporation's governance structure.

The agreement is also critical for tax planning purposes, as the Canada Revenue Agency (CRA) requires proper documentation of capital contributions, share structures, and dividend policies. When a sole shareholder corporation eventually brings in additional investors or partners, having a pre-existing shareholder agreement demonstrates good corporate governance and simplifies the transition to a multi-shareholder structure. It also provides essential succession planning documentation in the event of the shareholder's death or incapacity, ensuring the corporation can continue or be wound up according to the shareholder's wishes.

A valid Canadian Sole Shareholder Agreement must identify the corporation by its full legal name, incorporation number, and jurisdiction (federal CBCA or provincial). It must identify the sole shareholder by name and address, specifying whether they are an individual, corporation, partnership, or trust. The agreement must state the effective date and reference the applicable corporate legislation.

The share capital section must describe the class of shares held, the number of shares issued, and the initial capital contributions in Canadian dollars (CAD). The management section must specify whether the shareholder serves as the sole director and officer, or whether separate officers are appointed, and outline the officers' authority and powers. Under CBCA s.102(1), directors manage the business and affairs of the corporation, but this power can be restricted through a unanimous shareholder agreement.

If the agreement restricts director powers under CBCA s.146, it must clearly specify which powers are restricted and acknowledge that the shareholder assumes the corresponding directors' liabilities under s.146(5). A copy of the agreement must be kept at the corporation's registered office and provided to any prospective director or transferee of shares under CBCA s.146(3). The fiscal year end must be specified for CRA tax filing purposes. Dissolution provisions must comply with CBCA Part XVIII or the equivalent provincial legislation, including settling all debts before distributing remaining assets. The agreement should include a governing law clause specifying the applicable province.