Canada: TransPerfect: Litigation Highlights Importance Of Shareholders' Agreement For Start-Ups

Last Updated: December 5 2017
Article by Allan Goodman and Sophie Langlois


A shareholders' agreement or, at the very least, a written understanding of the arrangements upon a potential break-up between the founders of TransPerfect could have prevented protracted conflict and costly litigation that has plagued the founders and the company for years. In an unprecedented decision, the Court of Chancery of Delaware in TransPerfect Global, Inc. v. Elting (In re Shawe & Elting LLC) ordered the appointment of a custodian to sell the company and distribute the proceeds without shareholder consent. This ruling was recently upheld on appeal by the Delaware Supreme Court in Shawe v. Elting and stands as a stark reminder of the importance of having certain shareholder arrangements in place at an early stage.

Background to the TransPerfect Decision

Elizabeth Elting and Phil Shawe founded TransPerfect in 1992 in their New York University dorm room. The company grew into a global powerhouse with annual revenues in 2016 exceeding $500 million. The company has three shareholders: Elting (50%), Shawe (49%) and Shawe's mother, Shirley (1%). The shareholders never entered into a written agreement governing their relationship and Elting and Shawe act as the only directors.

Elting and Shawe share a turbulent past. Once engaged to be married, they broke off romantic ties in the 1990s, subsequently impairing their ability to effectively co-manage the company. Shawe accused Elting of assaulting him and she accused him of breaking into her office to steal confidential emails. They consistently critiqued each other's performance and disagreed on how to manage the company. In 2014, Elting filed a petition against Shaw in the Court of Chancery seeking the appointment of a custodian to sell the company, arguing that such an order would be in the best interest of the company and its stockholders.

Court of Chancery's Decision and Eventual Sale to Shawe

Despite the company's impressive financial performance, the Court of Chancery found "the state of management of the corporation has devolved into one of complete dysfunction between Shawe and Elting, resulting in irretrievable deadlocks over significant matters that are causing the business to suffer and that are threatening the business with irreparable injury." The Court of Chancery acknowledged that while it is unusual to grant such relief, it was appropriate to do so in the particular circumstances. Under Delaware corporate law, the Court of Chancery may appoint a custodian to authorize the sale of a company when facing financial default or severe division among either its directors or shareholders. Shawe appealed and, in 2017, the Delaware Supreme Court affirmed the Court of Chancery's decision in a 4-1 split, upholding the decision to appoint a custodian to sell the business. On November 21, 2017, the custodian announced that Shawe and Elting reached an agreement whereby Shawe will buy Elting's shares in a deal requiring court approval and other ordinary closing conditions.

In the Canadian context, federal and provincial corporate legislation provide for even broader remedies against corporations and give shareholders the right to apply to a court for, among other things, an order liquidating and dissolving a corporation to rectify conduct that is oppressive, unfairly prejudicial or which unfairly disregards the interests of any security holder, creditor, director or officer. Under such legislation, Canadian courts have broad discretion to make any interim or final order they deem fit, including the appointment of a receiver or receiver-manager or the ordering of a buy-out.

Key Lessons

This case highlights some of the benefits of having shareholder arrangements in place early on. The Court of Chancery found that Elting and Shawe participated in "mutual hostaging" over hiring decisions, employee compensation, outside counsel payments, office leases and other routine matters as they each sought to advance different agendas within the business. Elting and Shawe also confessed to their inability to elect successor directors, and that there was no prospect of being able to do so in the future. A shareholders' agreement would have outlined procedures for dealing with these types of disagreements. Deadlock provisions in a shareholders' agreement – including arbitration, mediation, the temporary addition of a third board member to operate as a "tie-breaker" or triggering of buy-sell provisions – could have established various ways to resolve stalemates and avoid an unfortunate ending such as this.

The Court of Chancery's decision and the Delaware Supreme Court's affirmation of the decision to sell the company without shareholder consent are unprecedented and highly contentious, and the combined legal and custodian-related expenses to the company are estimated to be significant. While every corporation is governed by its articles of incorporation, by-laws and applicable corporate legislation, it is often recommended shareholders enter into some form of shareholders' agreement at the time of incorporation or as soon as possible thereafter, to help prevent protracted conflicts and decrease the likelihood of costly litigation. Appreciating that early stage companies may not have the time and resources or need to negotiate a comprehensive agreement, founders should turn their minds to a simple form addressing at least the possibility of a future dispute. Working with counsel who can highlight these issues and assist in drafting these fundamental provisions in a highly efficient manner is very important. An ounce of prevention in this case would have been priceless.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions