Protecting a Minority Stake When the Family Business Split in Two

The situation

Dimitri worked as an early childhood educator. His sister Sophia worked as a factory technician on a shop floor two towns over. Neither had ever drawn a salary from the manufacturing company their father had co-founded outside Owen Sound decades earlier, and neither had planned on becoming shareholders of anything. But when their father died, his estate left them a combined minority stake in the company — just under a fifth of the shares between them — with the rest held by his longtime business partner, Alejandro, who had run daily operations for years and continued to after the death.

The company had two distinct sides: a contract-manufacturing division that made custom metal components for industrial clients, and a smaller specialty-coatings division that had grown into a business worth pursuing on its own. Alejandro, now in his sixties and looking to simplify what he managed, began negotiating to sell the coatings division to an outside buyer while keeping the contract-manufacturing side running under the existing company. On paper the whole enterprise was worth somewhere in the $8 million to $15 million range; the coatings division alone represented a meaningful slice of that.

A transaction like this — where one part of a company is separated out and sold while another part continues on — is generally called a carve-out. Dimitri and Sophia received a letter summarizing the proposed sale and asking for their consent as shareholders. They had no experience evaluating a corporate transaction of this size, and no clear sense of what a carve-out would mean for the value of shares they had never expected to hold. They came to us before signing anything.

What the review found

The company's founding shareholder agreement required approval from holders of a defined majority of shares for any sale of a substantial part of the business — a threshold Alejandro could meet on his own given his ownership percentage. Dimitri and Sophia's consent was not strictly required to approve the sale itself. But the agreement also gave minority shareholders the right to be consulted on transactions materially affecting the company's assets, and under Ontario corporate law, shareholders whose interests are unfairly disregarded can, in some circumstances, seek a remedy from the court for oppressive conduct. That gave them a seat at the table, even without a veto.

The more immediate problem was practical rather than legal. The coatings division and the contract-manufacturing division shared far more than a corporate name. They ran on the same shop floor, split the same payroll and bookkeeping staff, used the same enterprise software, and in several cases relied on the same skilled machinists who moved between product lines depending on the week. The draft sale agreement Alejandro had negotiated with the buyer said almost nothing about how those shared functions would be untangled. If the coatings division walked out the door with its equipment and its share of the staff on closing day, the contract-manufacturing division — the part Dimitri and Sophia would still hold shares in — could be left short-staffed and short of systems it depended on to keep operating.

That mattered directly to the value of their stake. A minority interest in a company that could not function smoothly after closing was worth considerably less than one in a company that could. Their consent was not legally required, but their cooperation was practically useful to Alejandro — a shareholder dispute or an oppression claim filed after closing could cloud the buyer's title to the assets it had just purchased and complicate financing for the deal. That gave the clients real leverage even without a formal veto.

What we did

1. Reviewed the shareholder agreement and corporate records first. Before responding to Alejandro or the buyer, we confirmed exactly what rights the agreement gave minority shareholders, what approval thresholds actually applied, and what corporate records existed showing how the two divisions' assets, employees and contracts were held. This told us where the clients had genuine standing and where they did not, so we never overstated a position we could not back up.
2. Pushed for an independent valuation of both divisions separately. The original sale price had been negotiated by Alejandro alone with the buyer, based on figures the buyer's own advisors had prepared. We arranged for an independent business valuator to assess what the coatings division was actually worth and, separately, what impact its departure would have on the remaining contract-manufacturing division. The valuator's report became the factual basis for everything that followed.
3. Insisted on a transition services agreement as a condition of the clients' cooperation. A transition services agreement, often called a TSA, is a contract under which the seller and buyer agree that certain shared functions — payroll, software systems, use of equipment, even specific employees' time — continue to be provided across the two businesses for a defined period after closing, usually for a fee. We proposed one covering the specific shared payroll processing, the shop's enterprise software, and access to two pieces of equipment the contract-manufacturing division could not immediately replace, running for twelve months with an option to extend.
4. Negotiated pricing and exit terms for the TSA, not just its existence. A transition services agreement with vague terms or open-ended pricing can become its own source of dispute. We negotiated a fixed monthly fee for the shared services, a defined process for either side to wind down a specific service early if it became unnecessary, and a requirement that the buyer give the remaining company a real notice period before cutting off any shared system, so operations were not disrupted without warning.
5. Negotiated a modest cash adjustment for the minority shareholders directly. Given the valuator's findings that the carve-out would reduce the remaining company's near-term earning capacity, we negotiated a one-time payment to Dimitri and Sophia from the sale proceeds, reflecting that reduced value, in exchange for their written confirmation that they would not pursue a claim over the transaction once the protections were in place.
6. Kept the clients out of the operational weeds. Neither Dimitri nor Sophia wanted, or was equipped, to manage the details of shop-floor logistics. We handled the negotiation directly with Alejandro's and the buyer's counsel so the clients could review and approve terms in plain language rather than sit through technical back-and-forth about equipment schedules and software licensing.

The outcome

The sale of the coatings division closed roughly four months after Dimitri and Sophia first came to us. It was not the outcome either side would have designed from scratch. Alejandro had wanted a clean, fast sale without conditions attached by minority shareholders who held no operating role in the business; the buyer had wanted the coatings division free of ongoing obligations to a company it was no longer part of. Both had to give ground.

What Dimitri and Sophia secured was real: a twelve-month transition services agreement with defined pricing and notice requirements that gave the remaining contract-manufacturing division time to rebuild its own payroll and software capacity rather than losing it overnight, and a cash payment reflecting the independent valuator's assessment of the impact on their shares. What they did not get was a say in the sale price itself, or any right to block the transaction outright — the shareholder agreement never gave them that, and no amount of negotiation was going to manufacture a veto that did not exist on paper.

Roughly eight months after closing, the remaining company had transitioned its payroll and software off the shared systems and was operating independently, a few months ahead of the TSA's expiry. Dimitri and Sophia still hold their minority stake in the contract-manufacturing business. Neither expects to be more involved in it than they are today, but both now understand, in a way they did not before the letter arrived, what their shares actually entitle them to and what they do not.

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