Turning a Handshake Deal Into a Real Company in North Bay

The situation

Marek and a colleague named Winnie started an electrical contracting business in North Bay years earlier, back when it was two vans and a shared toolbox. There was never a written partnership agreement — just an understanding, sealed with a handshake, that they would split everything down the middle. Over time the business grew into a company doing commercial and industrial wiring work across the region, with a payroll of electricians and apprentices and annual revenue that had climbed past $2 million.

Marek's office manager, Kasia, had been keeping the books for the last several years. She was the one who first raised the alarm. The business was still operating as a general partnership, which meant Marek and Winnie were each personally liable for the full weight of the company's debts and any judgment against it — not just their half. It also meant every dollar of profit flowed straight onto their personal tax returns as partnership income, taxed at their individual rates, with no ability to leave earnings in the company to reinvest at the lower corporate rate. Kasia had flagged the exposure to Marek more than once. With a large multi-unit wiring contract about to close, he finally agreed it was time to incorporate.

What should have been a straightforward paperwork exercise — moving an existing business into a corporation and issuing shares — turned into something more complicated once the two partners actually had to put numbers on paper. Handshake partnerships are common among tradespeople who start small and never expect the business to reach the size this one had, and they tend to hold together fine for years precisely because nobody has ever had to write the arrangement down and defend it. Incorporation changes that: it forces an informal understanding into a formal document with legal consequences, and the questions it raises rarely have an obvious right answer.

The problem

Incorporation itself is routine: a lawyer sets up the corporation, transfers the business assets and contracts into it, and issues shares to the owners. But shares have to be issued in specific proportions to specific people, and that meant Marek and Winnie needed to agree, formally and in writing, on exactly what each of them owned. A handshake from years ago that said 'we're partners, fifty-fifty' was not enough to answer the questions incorporation forces into the open.

Once our team sat down with both of them, the fifty-fifty understanding turned out to be less settled than either had assumed. Winnie had provided most of the original startup capital and still held the equipment loan in his name. Marek, meanwhile, had been the one running day-to-day operations for the last several years, supervising the crews and holding the electrical licence the business operated under, while Winnie had shifted into a part-time, semi-retired role with the company. Both had a reasonable claim to a larger share, and neither was willing to simply defer to the other's version of history.

This is a common trap for informal partnerships that grow successful: the arrangement that felt fair at the small scale doesn't automatically feel fair once the business is worth incorporating in the first place. Under Ontario corporate law, once shares are issued, the share register — not a verbal understanding — governs who owns what, and the rights attached depend on the class of share issued. A share position can still be changed later, but only by everyone agreeing and doing it formally, through a transfer, redemption or repurchase, which can carry tax consequences. Getting the split wrong, or leaving it vague to avoid the argument, would have created a much more expensive problem down the road, at the exact moment the partners could least afford to be at odds: a sale, a falling-out, or one partner's retirement.

What we did

1. Separated the incorporation from the ownership dispute. With the multi-unit wiring contract on a tight timeline, we advised setting up the corporation on a standard structure first, with the shares held in trust temporarily rather than finalized in an unequal split neither partner had agreed to yet. That let the contract close on schedule under the new corporate entity, while the harder conversation about the actual percentages happened in parallel, without a looming deadline pressuring either partner into accepting numbers he hadn't really agreed with.
2. Valued the non-obvious contributions. Winnie's capital and the equipment loan he still personally guaranteed were real, quantifiable contributions. So was Marek's licence, without which the corporation could not legally operate, and his years of unpaid overtime building the client base while Winnie's involvement wound down. We laid both sides out plainly so the negotiation was about facts rather than resentment.
3. Negotiated an unequal share split tied to a buyout mechanism. The partners agreed Marek would hold 60 percent of the voting shares, reflecting his ongoing operational role and licence, while Winnie held 40 percent. To account for his capital contribution and the loan he still guaranteed, the shareholders' agreement gave Winnie a right to be bought out of his shares over several years at a formula tied to the company's book value, rather than a fixed dollar figure that would go stale as the business changed.
4. Drafted a shareholders' agreement to close the gaps the handshake left open. Beyond the share split, the agreement set out what happens if one partner wants to sell, becomes disabled, or dies — a shotgun clause letting either partner force a buy-or-sell offer if they reach an impasse, and a requirement that the company carry life insurance on each partner to fund a buyout if needed. None of this had existed before; it had simply never come up.
5. Formalized Kasia's role in writing. As office manager, Kasia had effectively been running the financial side of the business for years without a written employment agreement or any defined signing authority — the same informality that had let the ownership question drift for a decade. We recommended putting her role, reporting line and signing authority for company accounts in writing as part of the same transition, so the corporation's day-to-day finances rested on documented authority rather than the same handshake trust that had just cost Marek and Winnie six weeks of negotiation.

The outcome

Neither partner got exactly what he first proposed. Marek had initially wanted a 70/30 split, arguing the business ran on his licence and his labour; Winnie had initially wanted to hold onto 50 percent, pointing to the capital he had put in and never taken back out. The 60/40 split with a structured buyout was a compromise, and it took several rounds of negotiation to get there — roughly six weeks from the first conversation about incorporating to signed documents, longer than a straightforward incorporation would normally take, because the ownership question had to be resolved first.

The corporation was in place in time for the multi-unit wiring contract to be signed in the company's name rather than the partners' personal names, which mattered: a dispute or a workplace injury on that job would no longer expose Marek's or Winnie's personal assets the way it would have under the old partnership structure. The company also began retaining some earnings inside the corporation rather than distributing everything as partnership income, giving it room to reinvest in equipment at a lower tax rate.

Winnie was not entirely satisfied with holding 40 percent rather than half, and said so plainly during the negotiation. But he accepted the buyout mechanism as a fair trade — a defined path to being paid out for his stake on terms tied to the company's actual value, rather than an open-ended argument every time the subject came up. Marek, for his part, gave up the larger split he had first asked for, but gained something he valued more: clarity, in writing, about what happens if he and Winnie ever disagree about the future of the business, instead of relying on the same kind of handshake that had caused the problem in the first place. Kasia, watching the process unfold from the office, came away with the same lesson applied to her own position — a verbal understanding about her role had been fine while the business stayed small, but it was never going to hold up if the ownership itself ever changed hands.

What you can learn from this