Incorporating a Family Plumbing Business, Fairly

The situation

Nirosha had run the plumbing side of the family business for eleven years, growing it from a one-van operation into a company doing roughly $2 million a year in residential and light commercial work across Mississauga. Her brother Kajan, an IT support lead by day, had helped set up the original invoicing system and still handled scheduling software and the company's basic bookkeeping on evenings and weekends. The business had never been incorporated. It ran as a partnership registered under a business name, with Nirosha as the licensed plumbing contractor and the two siblings splitting profits by informal agreement.

By the time the company was turning down work because it could not take on larger commercial contracts without the liability protection and credibility that incorporation offers, Nirosha and Kajan came to Treadstone Law wanting to incorporate. What looked at first like a routine filing turned into something more complicated once a third name came up: Adaeze, a family friend who had put in early capital when the business was starting out and had, on paper at least, been treated as a one-third partner ever since.

What the review found

Before drafting articles of incorporation, our team asked to see whatever recorded the original partnership arrangement. There was no formal partnership agreement — just a two-page letter from eleven years earlier, signed by all three, describing an equal three-way split of profits in exchange for Adaeze's initial investment of about $45,000. Adaeze had stepped back from any involvement in the business roughly six years ago and had not worked a single job since, but had continued receiving a share of distributions until about eighteen months prior, when Nirosha quietly stopped sending payments after a disagreement over the business's direction.

This mattered because Ontario partnership law treats an informal arrangement like this one as a real partnership regardless of the absence of a written contract with all the usual terms. Under the Partnerships Act, a partner is entitled to a share of profits and, on dissolution, a share of the partnership's value — and incorporating the business without settling Adaeze's position first would not make that claim disappear. It would simply convert an unresolved partnership dispute into an unresolved shareholder dispute, with the added complication that Adaeze had never agreed to become a shareholder of anything.

There was a licensing wrinkle too. The plumbing contractor licence was held personally by Nirosha, tied to her individual qualifications, not to the business name. Incorporating would not automatically transfer that licence to the new corporation; the corporation would need to hold its own licence or operate under an arrangement where Nirosha's licence covered the corporate entity's work, which is common but needs to be documented correctly so the company is not doing licensed work without proper authorization in its own name.

What we did

1. Confirmed Adaeze's legal position before filing anything. We advised against incorporating first and negotiating later. Filing articles that gave Nirosha and Kajan sole ownership, while Adaeze's partnership claim remained outstanding, would have handed Adaeze grounds to challenge the transaction and potentially seek an accounting of the business's value going back years.
2. Opened a structured negotiation rather than a dispute. Our team drafted a proposal letter to Adaeze (through counsel Adaeze retained separately) that acknowledged the original partnership share and set out two paths: a lump-sum buyout of Adaeze's interest, or a minority shareholding in the new corporation with defined, limited rights. We recommended this framing specifically because litigating a partnership dissolution would have cost both sides more, in time and money, than either outcome on the table.
3. Commissioned an informal valuation of the business. To make either option credible, the company's accountant prepared a valuation based on recent financial statements. The business was valued at roughly $650,000, putting a one-third partnership share at close to $215,000 — far more than Adaeze's original $45,000 investment, but consistent with eleven years of growth the business had genuinely achieved.
4. Negotiated a structure both sides could live with. Adaeze did not want to walk away from a business that had grown substantially, but also did not want to return to active involvement. The parties settled on Adaeze receiving non-voting preferred shares valued at roughly $180,000, paid out over three years, with a fixed dividend during that period and a right to be bought out entirely at fair value after five years if either side chose to trigger it. Nirosha and Kajan retained full voting control and day-to-day decision-making throughout.
5. Incorporated under the Business Corporations Act (Ontario) with a share structure built for the deal. The articles created two classes of shares: voting common shares held by Nirosha and Kajan, and the non-voting preferred class issued to Adaeze with the negotiated dividend and buyout rights attached directly to the share terms, not left to a side agreement that could be forgotten or disputed later.
6. Drafted a unanimous shareholder agreement. This set out decision-making authority, what happened if Nirosha or Kajan wanted to sell their shares, how the company would fund the scheduled buyout payments to Adaeze, and what would happen if the company could not make a payment on schedule — including a default process rather than an automatic right to demand full payment immediately.
7. Resolved the licensing question separately. We confirmed with the relevant licensing body what documentation the corporation needed to operate under Nirosha's qualifications, and had the company's operating agreements updated so the corporate entity's licensed work was properly authorized before the transition closed.

The outcome

The incorporation closed roughly four months after the first meeting — longer than a straightforward incorporation, almost all of it spent on the negotiation with Adaeze rather than the filing itself, which took about two weeks once the terms were settled. Nirosha and Kajan got what they needed most: a corporation that could bid on larger contracts, hold proper insurance in its own name, and limit their personal liability going forward.

It was not a clean win for either side. Nirosha would have preferred to buy Adaeze out in a single payment and be done with it, but the company's cash position did not support that without straining operations, so the three-year payment schedule was the realistic compromise. Adaeze would have preferred to keep receiving open-ended profit distributions rather than accept a fixed buyout with an end date, but a court fight over the value of an informal eleven-year-old partnership arrangement carried real risk and real cost for someone who had not worked in the business for years. Both sides gave up something they wanted in exchange for certainty.

Eighteen months in, the company has made every scheduled payment to Adaeze on time and has since taken on two commercial contracts it could not have bid on as an unincorporated partnership.

Kajan has since stepped back from his IT role to work part-time in the business, handling contracts, scheduling, and the ongoing payments to Adaeze, while Nirosha continues to run field operations and hold the plumbing licence the corporation operates under. The relationship with Adaeze, once strained by the missed distributions, has settled into something closer to a straightforward business arrangement, helped considerably by having the terms written into share conditions rather than left to memory and goodwill.

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