Making a Handshake Promise to a Family Friend Enforceable

The situation

'Minh's practically family,' Aram said in our first meeting. 'Why do we need paperwork for this at all?' It was a fair question from where he sat, and the answer took the rest of the study to explain properly.

Aram, an anesthesiologist, and his sister Anahit, a specialist physician, had inherited their family's Dryden company from their parents several years earlier. The business, doing somewhere between $20 million and $60 million a year, supplied equipment and materials to industrial operations across the North, and neither sibling had ever worked in it day to day. Both had full medical careers of their own, built over years of training that left neither the time nor, honestly, much interest in running an industrial supply business alongside medicine. The person who actually ran the company, and had for close to twenty years, was Minh, a family friend since childhood who had started in an entry-level role under their father and worked his way up to general manager long before either sibling inherited anything.

Somewhere in those twenty years, their father had told Minh, more than once and never in writing, that he would 'share in what he built.' Nobody had ever attached a number to that. Minh had taken it to mean a meaningful percentage of the company's growth in value over his tenure, and he had, by his own account, turned down at least one other job offer years earlier partly because of it. Aram and Anahit, once they inherited the company and started asking Minh what their father had actually promised, realized they had no idea, and neither, in precise terms, did Minh.

They did not want to give Minh actual shares. Keeping the company fully family-owned mattered to both of them, for reasons involving their own estate plans as much as sentiment, and neither wanted to explain to their own children someday why a share of the family business had gone to someone outside the family. But they also did not want to lose the person who had run the business successfully for two decades, and they knew that continuing to operate on an undocumented promise was not sustainable for much longer, especially with Minh now asking directly what the arrangement actually was.

Where it went wrong

The trouble was not that anyone had lied. It was that a promise made in general terms, between two people who trusted each other completely, had been left general for twenty years, and the two sides had quietly built different pictures of what it meant.

Minh's understanding, built up over conversations he could recall clearly but not date precisely, was that he would eventually receive something close to a fixed percentage of the company's value, tied to how much it had grown since he started. Aram and Anahit's father, going by what they could piece together from his own notes and from conversations with him before he passed, appeared to have thought of it more loosely, as a discretionary bonus tied to performance in a given year rather than a running share of cumulative growth compounding over two decades. Both readings were reasonable given what each side had actually heard. Neither had ever been tested against the other while their father was alive to settle it, and there was no single document, not even an email, that leaned clearly toward one interpretation over the other.

The friendship had absorbed the ambiguity for years without strain, because nothing had forced the two versions into contact with each other. That changed once Aram and Anahit inherited the company and had to deal with its value directly, for their own estate and tax planning. Valuing the company meant confronting, for the first time, what a meaningful share of its growth over two decades actually came to in dollars, a figure large enough that an informal understanding could no longer just sit comfortably in the background the way it had while their father was alive to manage the relationship personally.

Minh, sensing the change, began asking more directly what the arrangement actually was, and the siblings realized they could not answer him with any confidence beyond repeating the same vague phrase their father had always used. The relationship stayed civil throughout, but the strain was real. Minh had built two decades of his working life around an expectation nobody could confirm, and Aram and Anahit had inherited an obligation they had not made and could not size. Left alone, that gap was more likely to end the working relationship than the plan they eventually built together, and losing Minh would have cost the company far more than any appreciation payout ever could.

What we did

1. Met separately with Aram and Anahit first, then with Minh to get each side's honest recollection of what had been said over the years without either version being shaped by the other in the room, which surfaced how far apart the two understandings actually were. Hearing Minh's account without the siblings present also let him speak candidly about what the years of uncertainty had actually cost him, which turned out to matter later when the siblings were deciding how generous the final percentage should be.
2. Confirmed the family's position on actual share ownership early, since ruling out real equity from the outset shaped every option that followed and avoided wasting time on structures neither sibling would accept once we understood how much the estate and control considerations mattered to them personally. Getting that answer in the first meeting meant every later conversation with Minh could be framed honestly around what was actually on the table, rather than leaving him to wonder whether shares were still a possibility.
3. Explained phantom equity as a structure that mirrors the economics of ownership, a cash payment tied to the company's value, without transferring any actual shares, voting rights or ownership interest, which let the siblings keep full control while still delivering real upside to Minh. Walking Minh through exactly how the payment would be calculated, in plain terms rather than legal shorthand, was what let him evaluate the offer on its merits instead of hearing 'no real shares' and assuming he was being offered less than he deserved.
4. Commissioned an independent valuation of the company as of the date the plan would begin, establishing a clean baseline so future growth could be measured against an agreed number rather than argued about later the way the original verbal promise had been. Using an independent valuer, rather than a number either side proposed, gave both the siblings and Minh a figure neither could later dismiss as self-serving, which mattered given how much the earlier ambiguity had already cost the relationship.
5. Drafted an appreciation rights plan that entitled Minh to a payment, on specific triggering events such as a sale of the company or his own retirement, calculated as a percentage of the increase in company value from that baseline, with the percentage negotiated directly between the siblings and Minh rather than imposed by us. Anchoring the payout to defined events, instead of an open-ended right to demand payment at any time, gave the company predictability over its own cash flow while still giving Minh a clear, documented path to eventual payment.
6. Addressed the tax treatment of the payout under the Income Tax Act, structuring the plan so that amounts paid under it would be taxed as income to Minh when received rather than triggering earlier or less predictable tax consequences for either side. Getting this structured correctly from the outset avoided a result where Minh could owe tax on phantom growth he had not yet actually received in cash, which would have undermined the entire point of the plan.
7. Built in a vesting schedule tied to Minh's continued service protecting the company's interest in retaining him while giving Minh a clear, documented timeline instead of the open-ended arrangement he had lived with for twenty years. The schedule credited Minh for the two decades he had already worked, rather than starting his vesting from zero, which was an important signal to him that the plan was meant to formalize an existing commitment rather than replace it with a lesser one.
8. Reviewed the final plan with all three together in a single meeting, so the document itself, not anyone's memory of a conversation from a decade earlier, became the shared reference point going forward. Walking through the plan line by line with everyone in the room, rather than sending it out for separate review, let Minh ask questions directly and let the siblings answer them without a lawyer relaying messages back and forth between two parties who actually trusted each other and simply needed the same document in front of them.

The outcome

Minh signed the plan, and by every account since, he was satisfied with it. The formula gave him a clear, calculable stake in the company's future growth, something more concrete than the promise he had lived with for twenty years, without requiring him to accept less than he believed he had been told. Aram and Anahit kept full ownership and voting control of the company, which mattered enough to both of them to have been worth the cost of a genuinely generous appreciation percentage, one that credited Minh for the full twenty years rather than only the years since the plan was signed.

The independent valuation that anchored the plan also turned out to be useful on its own, giving the siblings a defensible number for their own estate and tax planning that they had not had before, and one that will make their eventual estate administration considerably simpler than it would have been working from a company value nobody had ever formally established. What had started as an uncomfortable question about an old promise ended up producing a cleaner picture of the company's finances generally.

The working relationship between the siblings and Minh, which had been under real strain by the time they came to us, settled once the plan was in place. Minh has since told them, according to Aram, that having the number in writing was a relief rather than an insult, since it meant he no longer had to wonder whether his understanding of a decades-old conversation still matched theirs. The company continues to run under Minh's management, now with a documented answer to the question that had gone unasked for twenty years, and with a formula in place that neither side will have to reconstruct from memory the next time the company changes hands.

What you can learn from this