Protecting a Minority Seller When Earnings Numbers Were Disputed

The situation

Bilal worked as an administrative assistant for a school board. His cousin Imran drove buses for a regional transit authority. Neither had ever run a business, but both held minority shares in one: a precision parts manufacturer in Woodstock that their late fathers had built together over three decades, starting with a single leased bay and growing it into a supplier with contracts across the automotive sector. When the fathers passed the company to the next generation, day-to-day control went to the children who worked in it full time, drawing salaries and sitting on the board. Bilal and Imran inherited shares — five percent and four percent of the company, respectively — but no operating role and no vote in how the business was actually run day to day.

That arrangement suited everyone for years, until the family decided to sell. A buyer had made an offer to acquire the entire company for roughly $11 million, and the majority family group, who ran the business and controlled the board, began negotiating the deal directly with the buyer's team. As minority shareholders, Bilal and Imran had the right to be bought out alongside everyone else once a deal closed, but they had no seat at the table shaping how that price would actually be calculated, and no financial background to evaluate the drafts being circulated. They came to Treadstone Law to make sure the deal being negotiated on their behalf treated them fairly, and to have someone review the paperwork on their side of the family before they signed anything.

What the review found

The draft agreement priced the company using a common approach in private company sales: a multiple applied to normalized earnings, meaning the company's actual profit adjusted to remove one-time or discretionary items that would not recur under new ownership. Add back a family member's above-market salary, and normalized earnings — and the price — go up. Leave it in, and they go down. Every private company sale involves judgment calls like this, and reasonable accountants can land in different places on the same set of books.

The problem was not the concept. It was that the draft agreement gave no one a way to settle a disagreement about it. If the buyer's finance team, led by an accountant named Kasia, disputed an adjustment the family's accountant had made, the agreement simply said the parties would negotiate in good faith. Good faith is not a mechanism. If both sides dug in, the options were a stalled closing, a unilateral price cut imposed by whichever side held more leverage, or a lawsuit — and none of those outcomes protected a nine percent minority stake that had no seat in the room where the real argument would happen.

This mattered because the family's own compensation was the largest source of adjustment. The majority owners had, for years, paid themselves a combined salary well above what the roles would cost on the open market — a completely normal choice in an owner-run business, but exactly the kind of number a buyer's accountant scrutinizes hardest during due diligence, the financial and legal review a buyer conducts before agreeing to close. If that fight broke out after signing, with no referee, Bilal and Imran's payout would be decided by people with far more at stake in the outcome than they had leverage to influence.

What we did

1. Joined the deal team as counsel for the minority sellers specifically. Rather than relying on the majority family's lawyers to represent everyone's interests, we represented Bilal and Imran directly through negotiation and closing, with our own review of the financial statements and the draft purchase agreement.
2. Identified the missing dispute mechanism before signing. We flagged that the purchase price adjustment clause — the section of the agreement governing how normalized earnings would be calculated and verified after signing — had no process for resolving disagreements, and pushed to fix that before our clients committed to anything.
3. Negotiated a neutral accountant provision. The revised agreement named an independent accounting firm, agreed by both sides in advance and with no prior relationship to either the family or the buyer, to determine any disputed normalization adjustments. Its determination would be binding on both parties, avoiding a drawn-out court fight over accounting judgment calls.
4. Set clear rules for how the neutral accountant would work. The clause specified what each side could submit, a firm timeline for a decision, and how the costs of the review would be split — details that prevent the mechanism itself from becoming a new source of delay.
5. Kept our clients informed as the sale progressed. Because Bilal and Imran were not involved in daily operations, we gave them plain explanations of each financial adjustment being debated and what it meant for their eventual payout, so they could make informed decisions rather than simply deferring to the majority family.

The outcome

The dispute the clause was written for actually happened. During the closing adjustment period, the buyer's team challenged roughly $150,000 of the compensation add-backs the family's accountant had claimed, arguing that part of that amount reflected ongoing management value the buyer would still need to pay for after closing, not a one-time cost that would disappear. At the deal's agreed pricing multiple, that disagreement alone represented close to $750,000 of swing in the total purchase price — a meaningful sum on an $11 million transaction and one that would have moved Bilal and Imran's combined payout by tens of thousands of dollars had it been resolved unilaterally rather than independently verified.

Because the neutral accountant clause was already in the signed agreement, neither side had to choose between capitulating and litigating. Both submitted their position with supporting documentation within the agreed window, and the independent firm issued its determination on schedule: about $90,000 of the disputed amount was allowed back into normalized earnings, and about $60,000 was not. The final price landed at roughly $10.75 million, close to $250,000 below the family's original ask but resolved without a single court filing or a delayed closing date.

For Bilal and Imran, the outcome was the deal working exactly as it should. Their combined payout adjusted proportionately and predictably, based on a number an independent professional had actually verified rather than one negotiated behind closed doors by parties with more at stake than they had. The dispute that could have derailed the sale, or quietly cost the minority shareholders more than their share, was resolved in about three weeks. Nothing about that resolution made the news inside the company or strained the family relationships involved, because the mechanism did its job before the disagreement had the chance to become personal.

The real result of this case is what did not happen. There was no lawsuit over accounting judgment calls, no stalled closing while lawyers exchanged position letters, and no scenario where two minority shareholders with day jobs unrelated to the business had to accept whatever number the people running the company decided was fair. That protection existed only because it was negotiated into the agreement months before anyone knew a dispute was coming.

What you can learn from this