The Trust Deed Nobody Had Reread Before Promising Employees Shares

The situation

Yuki called our office on a Tuesday morning with a question that sounded, on the phone, like a formality. She ran a small but growing company out of Port Hope, and she wanted to set up a payroll-deduction share purchase plan so that two of her longest-serving employees, Naomi and Kumari, could start buying into the business instead of just working for it. 'I just need the paperwork,' she said. 'We've already agreed on the numbers.'

The company had grown quickly over the previous two years. Naomi had joined originally in an operations role after years as a call-centre representative and had become, in practice, the person who kept the business running day to day. Kumari, a hairdresser by trade, had come on to manage client relationships for the company's retail side and had a talent for it that Yuki credited with a meaningful share of the company's recent growth. Revenue had climbed toward the low six figures, and Yuki wanted both of them to have a real stake going forward, deducted gradually from their pay rather than requiring a lump sum they did not have.

What Yuki mentioned almost in passing, near the end of the call, was that the company's shares were held through a family trust her parents had set up years earlier, back when the business was smaller and the structure was mainly about income splitting within the family. She described it as a formality that would not affect the plan. 'It's basically just me,' she said. 'The trust is just how the shares are held.'

We asked her to send over the trust deed and the company's minute book before drafting anything. She agreed, mostly, she told us later, to move things along quickly.

Yuki had never actually met the lawyer who drafted the trust for her parents. She knew it existed, she knew it held the shares, and she had signed whatever paperwork was put in front of her over the years without reading it closely, the way many people do with documents a family accountant or an older relative arranges on their behalf. Naomi and Kumari, for their part, knew nothing about the trust at all. From where they sat, the plan was simple: a percentage of each paycheque would go toward buying shares, at a price the three of them had already discussed and felt was fair.

The problem

The documents told a different story than the phone call had. The trust deed named Yuki as a beneficiary alongside two siblings who had no involvement in the business at all, and it gave the trustee, not Yuki personally, the authority to direct how the company's shares were dealt with. More importantly, the deed included a restriction on the trustee issuing or transferring any interest in the underlying company shares without the consent of all named beneficiaries, a clause that had clearly been included to prevent exactly the kind of unilateral decision Yuki was now planning to make.

Yuki's account of the company's ownership, in other words, did not match what her own family's trust document actually said. She was not wrong that she ran the business day to day and made every operational decision. But she was not the person, under the trust's own terms, with the legal authority to issue new shares or approve a plan that would bring Naomi and Kumari in as shareholders. That authority sat with the trustee, and any exercise of it required sign-off from siblings who had not been part of a single conversation about the plan.

Layered on top of that was a second issue specific to payroll-deduction share plans: because the company was privately held, offering shares to employees, even gradually and through payroll deductions, needed to be structured to fit within the exemptions that allow a private company to issue shares without the disclosure obligations that apply to a public offering. Doing that properly meant getting the share terms, the payroll deduction mechanics, and the trust's own restrictions to line up correctly from the start, not retrofitting them after employees had already begun contributing.

Had the plan gone ahead the way Yuki first described it on the phone, the company would have issued shares that the trustee had no clear authority to approve, with two beneficiaries who had never consented and might reasonably have objected once they learned about it. Unwinding a share issuance after the fact, once employees have already had money deducted from their pay in expectation of ownership, is a far harder and more expensive problem than pausing before it starts.

What made the mismatch striking rather than merely technical was how confidently Yuki had described the structure before anyone looked at the actual paperwork. She was not being careless or evasive; she genuinely believed the trust was a formality that changed nothing about her day-to-day authority. It took the deed itself, read line by line, to show that the arrangement her parents had set up years earlier for a modest tax purpose still carried real legal weight over decisions she assumed were entirely hers to make.

What we did

1. Requested the trust deed and full minute book before drafting anything. Yuki's description of the ownership structure was clear and confident, but a share plan changes who owns the company, and we do not draft that kind of document from a client's summary alone. The underlying paperwork, not a client's recollection of it, needed to confirm what the ownership structure actually allowed before a single clause of the plan was written.
2. Identified the consent restriction in the trust deed and flagged it immediately. As soon as we read the clause requiring all beneficiaries to consent to any dealing with the shares, we called Yuki to explain that the plan as described could not proceed without her siblings' involvement, even though neither of them had any role in running the business or had ever been consulted about it before.
3. Explained the practical difference between running a company and owning it through a trust. Yuki had not fully understood that day-to-day authority over the business and legal authority over the trust's shares were two separate things. We walked through what the trustee could and could not do without full beneficiary consent, using plain examples rather than the deed's own language.
4. Facilitated a conversation with the trustee and the other beneficiaries before drafting the plan. Rather than proceeding and risking an objection later, we helped Yuki prepare a short written summary explaining the plan, why the two employees were being offered shares, and what the new class would and would not touch, to send to her siblings and the trustee, so their consent, once given, would be informed and clearly on the record.
5. Restructured the plan to route the new shares outside the restricted trust holding. Once consent was in hand, we set up a small new class of shares issued directly by the company rather than through the trust's existing holding, which kept Naomi and Kumari's stake separate from the family trust structure entirely and avoided touching the restricted shares at all.
6. Drafted the payroll-deduction plan documents to fit the private company exemptions. We set the per-employee purchase limits, vesting schedule, and deduction mechanics to stay within the terms that let a private company offer shares to employees without triggering the disclosure obligations meant for public offerings, then confirmed the structure with the company's accountant before finalizing it so the numbers reconciled with payroll.
7. Delivered the finished plan only once every consent was documented. Naomi and Kumari began their payroll deductions only after the trustee's consent, the siblings' written agreement, and the new share class were all properly in place and recorded in the minute book, so nothing about their ownership, now or later, was ever open to question.
8. Confirmed the final structure in writing with all three parties before the first deduction was processed. We circulated the completed plan documents to Yuki, Naomi, and Kumari together, walking through what each of them was agreeing to and how the vesting schedule would work in practice, so no part of the arrangement rested on an informal conversation the way the original plan had.

The outcome

Naomi and Kumari now hold a small ownership stake in the company through payroll deductions that began roughly two months after Yuki's original call, once the structure was corrected. The plan works exactly as Yuki originally described it to us on the phone, gradual purchases, no lump sum required, and both employees say it has made a real difference to how invested they feel in the company's growth.

What changed was not the outcome Yuki wanted but the path to it. Her siblings, once they understood the plan, consented without objection, though the conversation took longer than Yuki had hoped and required more explanation of the business than she had previously given them than she was initially comfortable giving. One sibling asked several questions about how the new share class would affect the value of the trust's existing holding over time, questions Yuki had not anticipated and could not have answered confidently without the work we had already done to separate the two structures. Nothing was lost in the delay beyond a few weeks, and no shares had to be unwound or clawed back because none had been issued before the structure was corrected.

The company's minute book now includes the beneficiary consents, the trustee's written approval, and a clear record of how the new share class sits outside the original family trust holding. If Yuki decides to expand the plan to other employees later, or if a sibling's circumstances change, the structure is already documented in a way that will not require reopening the trust question from scratch. Yuki also asked us, once the plan was finished, to do a short review of the trust deed's other terms, something she said she would never have thought to do before this happened.

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