Share Charge Agreement Template for Canada

A Share Charge Agreement is a security document that creates a legal charge over shares to secure lending obligations or other financial commitments. Under Canadian law, this agreement establishes a security interest that allows a lender or creditor to enforce their rights against the charged shares if the borrower defaults on their obligations. The document must comply with complex provincial and federal legislation to ensure the security interest is valid and enforceable.

When do you need this document?

You need a Share Charge Agreement when shares are being used as collateral for loans, credit facilities, or other financial obligations. This commonly occurs in corporate finance transactions where a company's shareholders provide their shares as security for the company's borrowing. The agreement is also essential in acquisition financing where the target company's shares are charged to secure the purchase price financing. Private equity transactions frequently require share charges when portfolio companies or their shareholders provide security for leveraged buyouts. Additionally, you'll need this document in syndicated lending arrangements where multiple lenders require security over the borrower's or guarantor's shares, and in cross-border transactions where Canadian shares form part of an international security package.

Key legal considerations

The agreement must clearly define the charged shares, including specific share certificates, classes, and any future shares that may be acquired. You need to address voting rights, as the chargor typically retains voting control unless an event of default occurs. Dividend and distribution rights require careful consideration, including whether the chargee can collect dividends directly or whether they remain with the chargor. The document must specify the secured obligations, which may include principal debt, interest, fees, costs, and contingent liabilities. Enforcement provisions should detail the chargee's rights upon default, including the ability to sell shares, exercise voting rights, and appoint directors. You should also consider restrictions on share transfers, additional charges, and requirements for the chargor to maintain the shares in good standing.

Legal requirements in Canada

Under Canadian law, share charges must comply with provincial Personal Property Security Act (PPSA) legislation for creation and perfection of security interests. You must file a financing statement with the appropriate provincial PPSA registry to perfect the security interest and establish priority over other creditors. Federal corporations governed by the Canada Business Corporations Act (CBCA) may require specific notice procedures and compliance with share transfer restrictions. Provincial business corporations acts impose additional requirements depending on the incorporating jurisdiction. The Securities Transfer Act in various provinces governs the transfer of securities and establishment of security interests in financial assets. For bank lenders, the federal Bank Act provides additional rights and requirements. You must also consider corporate law requirements such as director and shareholder approvals, share transfer restrictions in articles of incorporation or shareholder agreements, and necessary corporate resolutions authorizing the charge.