The sale had a closing date and a dividend nobody paid

The situation

The buyer's lawyer sent the email on a Tuesday: unless the company's share structure was clarified and confirmed in writing by the following Friday, the financing commitment backing the purchase would expire and the whole sale would need to be renegotiated from scratch. Sari had ten days. She had built the company from a one-person millwright operation into a twenty-employee fabrication shop doing close to three million dollars a year, and she was not going to let a paperwork question blow up the sale that would let her retire on her own terms.

The company had two classes of shares. Sari held the common shares and had run the business day to day since founding it. Two long-time friends, Dewi, a firefighter who had put money in during the company's early expansion, and Kostas, who had done the same a year later, each held Class B preferred shares issued to raise the capital that funded the shop's first major equipment purchase. Sari had always understood, and had told both Dewi and Kostas at the time, that the Class B shares carried no fixed dividend, just a right to share in profits if and when the board chose to declare one, the same as everyone else.

The buyer's diligence team pulled the original articles of incorporation and the amendment filed when the Class B shares were created, and flagged something Sari's own bookkeeper had apparently never caught either: the amendment, as filed, gave Class B shares a fixed cumulative annual dividend, payable whether or not the board declared one, accruing every year it went unpaid. It had gone unpaid for nine years.

Sari was certain that was not the deal. She remembered the conversation with Dewi and Kostas clearly, remembered agreeing on a discretionary dividend, not a fixed one. But the buyer's lawyer was not interested in what everyone remembered agreeing to over coffee nine years earlier. He was interested in what the filed articles said, because that was what would bind the buyer once the sale closed, and what the articles said was a fixed dividend, nine years unpaid, worth a meaningful sum if Dewi or Kostas ever chose to enforce it.

Sari's first instinct was to call Dewi and Kostas herself and sort it out over the phone the way the three of them had always handled disagreements. We advised against that. Once the buyer's lawyer had flagged the discrepancy formally, anything Sari said informally to either shareholder risked being read later as an admission about what the company actually owed, and a hurried, undocumented conversation was exactly the kind of thing that had created this problem in the first place. The fix needed to be as careful as the original mistake had been careless.

What the documents showed

We pulled the complete corporate record rather than relying on anyone's memory of the original deal, and the documents told a more complicated story than Sari's recollection. The original share subscription agreement Dewi and Kostas had each signed did, in fact, describe the investment in terms consistent with a discretionary dividend, using language about sharing in profits 'as and when declared by the board.' That matched what Sari remembered agreeing to.

The articles of amendment filed to actually create the Class B share class, however, used different and more specific language, granting a fixed cumulative annual dividend calculated as a percentage of the original investment, with any unpaid amount carrying forward year over year. That amendment had been prepared by a different lawyer than the one who drafted the subscription agreements, years apart, and nobody appeared to have caught that the filed rights did not match the earlier informal terms everyone thought they had agreed to.

This mismatch mattered enormously, because in a dispute over what a share actually entitles its holder to, the filed articles generally control over an earlier, less formal agreement about what the parties meant to do. Sari's account of the deal was not dishonest. It reflected what she and her friends had actually discussed. But the document that legally defined the shares said something different, and that document was the one the buyer's lawyer, and any court asked to resolve a dispute later, would look to first.

Nine years of accrued fixed dividends, calculated against the filed rate, worked out to an amount that was not trivial against a company this size, mid six figures in total between the two shareholders. Kostas, once he learned what the documents actually said, was in no rush to simply waive the difference. He had put money into the business in good faith, on terms that turned out, on paper, to be more generous to him than he had ever expected, and he had no obligation to give that up just because it did not match what Sari remembered.

The company's own bookkeeper added a further complication once we asked her directly what she had assumed all along. She confirmed she had never calculated or accrued the fixed dividend on the company's books in nine years of preparing the year-end statements, because nobody had ever told her the Class B shares carried one. That meant the company's financial statements themselves, which the buyer's accountants had already reviewed as part of diligence, did not reflect a liability that, on the filed articles, technically existed, adding a second document, the financial statements, to the pile that did not match what the share terms said on paper.

What we did

1. Pulled and compared every version of the share terms before advising anyone. We assembled the original subscription agreements, the filed articles of amendment, and every dividend resolution the board had ever passed, because the buyer's lawyer had correctly identified a real discrepancy and we needed to know its full scope, not just its headline number, before proposing any fix to Sari or to either shareholder.
2. Confirmed which document actually governed. We advised Sari plainly that the filed articles, not the informal subscription language, would control the shareholders' actual entitlement, which meant her recollection of the deal, however genuine and however consistent with what Dewi and Kostas separately remembered agreeing to, was not going to be the basis for resolving this with the buyer or with Kostas, whose lawyer would look at the same filed document we were looking at.
3. Opened direct conversations with Dewi and Kostas separately and early. We reached out to both shareholders before the buyer's deadline pressure became public knowledge among them, giving Sari room to negotiate calmly rather than have either shareholder feel cornered by a closing date they had no part in setting and no reason to make concessions around, and rather than let the two of them compare notes before we had a settlement to offer.
4. Reached a quick, cooperative resolution with Dewi. Dewi, consistent with Sari's account of the original conversation, agreed readily to waive the fixed dividend right and accept the discretionary terms everyone had always believed applied, and we documented that waiver formally within days, well ahead of the Friday deadline, giving the buyer's lawyer one half of the problem resolved before Kostas had even responded.
5. Negotiated a partial settlement with Kostas rather than a full waiver. Kostas agreed to give up the ongoing fixed dividend right going forward, converting his shares to the same discretionary terms as Dewi's, but declined to fully waive the value already accrued, and we negotiated a reduced lump-sum payment covering roughly half that amount in exchange for his signature, a compromise reflecting both the strength of his legal position and the reality that a full nine-year payout would have strained the company's cash on the eve of a sale.
6. Drafted and filed articles of amendment correcting the share rights. We prepared and filed a formal amendment converting both classes of Class B shares to the discretionary dividend terms the parties had actually intended, closing the gap between the filed record and everyone's understanding for good, so the same discrepancy could not resurface the next time the company changed hands.
7. Delivered a clean confirmation to the buyer's lawyer ahead of the deadline. We provided the amended articles, the signed waivers and settlement, and a clear legal opinion on the corrected share structure two days before the Friday deadline, giving the buyer's financing team the certainty they needed to proceed to closing without asking for an extension or reopening any other part of the deal.
8. Corrected the company's financial statements alongside the share terms. We worked with the company's accountant to properly document why no dividend liability had ever accrued on the books, tying that explanation directly to the corrected articles, so the buyer's accountants received a consistent, defensible record rather than statements that still appeared, on their face, to be missing a liability the company might later be forced to book.

The outcome

The sale closed on schedule, with the buyer's financing intact and no further questions raised about the share structure. That was the outcome that mattered most to Sari, who was able to retire from the business on the timeline and terms she had originally negotiated, without the deal collapsing over a documentation problem she had not known existed until the buyer's lawyer found it.

Getting there cost more than Sari had budgeted for. The settlement with Kostas ran in the low six figures, money that came directly out of Sari's proceeds from the sale, to resolve a dividend entitlement she genuinely had not believed the company owed. Dewi's cooperation limited the damage on one side, but Kostas's position, however inconvenient for the closing timeline, was legally sound, and the settlement reflected that.

This was a partial outcome, and an honest one. Sari kept her sale, her timeline, and her retirement plans intact, but she paid real money to correct a gap between what she believed the company had agreed to and what its own filed documents actually said. The lesson she has carried forward, and repeated to other business owners since, is that a founding document drafted years apart from the conversation it was meant to reflect needs to be checked against that conversation immediately, not discovered by a buyer's lawyer a decade later.

The bookkeeper's confirmation that the fixed dividend had never been accrued on the company's own books turned out to matter almost as much as the settlement itself. It gave the buyer's accountants a clean, documented explanation for the gap between the filed articles and the financial statements, rather than leaving them to wonder what else in the company's records might not match what its formal documents said. Sari has since made reviewing her own articles and share terms, alongside her financial statements, an annual exercise with her accountant and our office together, rather than something only a buyer's lawyer thinks to check.

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