Turning a Handshake Investment Into a Round Everyone Could Live With

The situation

Arjun spent his weekdays behind the wheel of a long-haul truck, and Vikram supervised the front desk of a hotel on rotating shifts. In their off hours, the two cousins ran a small delivery and courier company out of Burlington that they had started three years earlier with a single cargo van. By the time they came to Treadstone Law, the company had grown to four vans and a handful of part-time drivers, billing somewhere between $250,000 and $1 million a year moving parcels and pallets for small businesses that could not justify their own fleet.

The company had been incorporated from the start, mostly on the advice of an accountant who set them up with a standard Ontario Business Corporations Act company and left it there. Arjun and Vikram were equal shareholders and the only two directors. What the company had never had was a real capital structure. When they needed money to add a third van in their second year, and then a fourth the year after that, they had gone the way many small, family-adjacent businesses go: they asked people they knew.

Three family friends put money into the company over about eighteen months, the largest contribution coming from Mai, a longtime family friend who had put in roughly $60,000 toward the company's equipment and working capital. None of it was documented beyond text messages and a shared spreadsheet Vikram kept of who had given what and when. Nobody had signed a promissory note, a share subscription agreement, or anything else establishing whether the money was a loan to be repaid, an investment in exchange for a piece of the company, or something in between. Everyone involved had simply trusted that it would sort itself out.

The problem

It did not sort itself out. Mai came to Arjun and Vikram wanting to formalize her position, and the conversation revealed that the three of them had never actually agreed on what her $60,000 was for. Mai's understanding, formed over a series of casual conversations, was that she had bought a meaningful ownership stake in the company — she remembered Arjun describing her, early on, as basically a partner in the business. Arjun and Vikram's understanding was that they had borrowed the money and always intended to pay it back with interest once the company's cash flow allowed, the way they had informally agreed to repay the other two family friends who had contributed smaller amounts.

Neither side was being dishonest. They had simply never put anything in writing, and eighteen months of casual conversation had left each side with a different, sincerely held memory of what was promised. That gap matters more with a corporation than it would between two people splitting a bill, because a company raising money from outside investors is not just settling a private disagreement — it is doing something Ontario securities law regulates closely. Selling shares to investors generally requires either a prospectus, a lengthy disclosure document most small companies cannot afford to produce, or reliance on a specific exemption. A private issuer exemption is commonly available to small, closely held companies raising money from people with an existing personal relationship to the business, such as close friends and family, but relying on it correctly still requires documentation showing who qualified for the exemption, what they were actually sold, and on what terms. Arjun and Vikram had none of that. If Mai's money had, in fact, bought shares, the company had issued them without a share register entry, a subscription agreement, or a shareholder resolution authorizing the issuance — meaning her claim to actual ownership was legally shaky even if her recollection of the conversation was accurate.

There was a second layer to the problem. If the arrangement was instead treated as a loan, the company had no promissory note fixing an interest rate, a repayment schedule, or what happened if the company could not pay on the timeline Mai now wanted. Mai, frustrated by the ambiguity and worried about her money, was pressing for either full repayment within a few months or a large equity stake reflecting what she felt the company was now worth — a valuation the cousins thought was unrealistic for a business their size, and a repayment timeline the company's cash flow genuinely could not support without threatening the vans and drivers Mai's own money had helped fund in the first place.

What we did

1. Reconstructed the actual history of the money. We reviewed Vikram's spreadsheet, the text messages between the cousins and Mai, and the company's bank records to establish exactly when each contribution arrived and what, if anything, was said about repayment or ownership at the time. This gave both sides a common set of facts to negotiate from, instead of competing memories.
2. Assessed the company's exposure under securities law. Because no shares had ever actually been issued to Mai or the other two contributors, the company had not made an unauthorized sale of securities requiring correction — the funds sat, legally, as unsecured loans to the corporation regardless of what anyone had hoped they would become. This gave the company a defensible starting position: the money was owed back as a debt, not held in trust as an ownership stake nobody had formally granted.
3. Advised against simply asserting that position and moving on. A legally defensible position was not the same as a fair or workable one. Mai had reasonably understood, based on what she was told at the time, that she was buying into the company's future, and treating her purely as a lender who happened to get nothing beyond her principal back risked a dispute the company could not afford to fight and a family relationship it could not afford to lose.
4. Negotiated a split resolution. We proposed, and after several rounds of discussion the parties accepted, a compromise: about $35,000 of Mai's contribution converted into a genuine minority equity stake, formalized through a share subscription agreement and an entry in the company's share register, giving her a real, documented ownership position reflecting the risk she had taken on early. The remaining $25,000 was documented as a loan with a fixed interest rate and a two-year repayment schedule the company's cash flow could actually support.
5. Drafted proper documentation for all three contributors. The other two family friends, whose contributions were smaller and always intended as loans, received formal promissory notes setting out principal, interest, and repayment terms, closing off the same ambiguity before it became a second dispute.
6. Prepared a shareholders' agreement. With Mai joining as a minority shareholder alongside Arjun and Vikram, the company needed a written agreement covering how decisions would be made, what happened if Mai wanted to sell her shares later, and what information she was entitled to receive as a non-operating investor who would not be involved in day-to-day decisions.
7. Set up basic corporate financing hygiene going forward. We advised the cousins to document any future capital contribution, from family, friends, or anyone else, before the money changed hands rather than after, using either a subscription agreement or a promissory note signed at the time.

The outcome

The compromise cost the company something real. Giving up a documented equity stake meant Arjun and Vikram now answered to a shareholder outside the family for major decisions, and the $25,000 loan repayment schedule tied up cash flow the business had been using to consider a fifth van. Mai, for her part, accepted less certainty than a straightforward equity stake would have given her — a fixed repayment obligation is worth less if the company struggles, and a minority stake in a small private company is hard to sell even when it is properly documented. Neither side got what they had originally pictured.

What the compromise did deliver was an end to a dispute that had been quietly damaging a family relationship for months, and a company whose ownership and debts were, for the first time, actually written down. Arjun and Vikram kept control of day-to-day operations and their majority stake. Mai kept a real, enforceable position in a company she had believed in early, backed by paper rather than memory. The two smaller contributors got clarity they had not previously had, and the company avoided the far more expensive scenario of a dispute escalating to the point where Mai felt she had no option but to pursue a claim against the corporation for money she could not otherwise prove was owed to her on any particular terms.

The cousins later said the hardest part was not the negotiation itself but recognizing, going in, that the ambiguity was theirs to fix. Nobody had lied to Mai. They had just never written anything down, and eighteen months of good faith had drifted quietly into three incompatible understandings of the same $60,000.

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