Buy-Sell Agreements: What Lawyers See Go Wrong

By Friday, Their Spouse Is Your Business Partner

Your 50/50 partner dies on a Tuesday. By the end of the week, the person holding their half of the company is a grieving spouse who has never set foot in the building. That isn’t a horror story — if there’s no shareholder agreement, it’s simply what the law does.

In Episode 11 of Keep What You Build, Martin Ochwat and Greg Rozdeba sit down with Karol Pawlina, Barrister & Solicitor at Pawlina Law — a corporate lawyer who sets up and unwinds these agreements for a living — to walk through what actually happens when a partner dies, leaves, or wants out and nothing is in writing.

About a Third of Partnerships Still Skip It

Karol’s estimate is that roughly a third of the multi-shareholder businesses he sets up never sign the agreement. When there’s nothing on paper, the gap gets filled one of three ways: negotiation between people who are grieving, a court, or a default nobody chose. All three are slower and more expensive than the document would have been.

If you don’t have the money to set up a shareholder agreement on day one, you don’t have the money to set up a business.

The Shotgun Clause — and Where It Breaks

The buy-sell or “shotgun” clause is the mechanism most agreements lean on: one partner names a price, the other chooses whether to buy or sell at it. It’s elegant when the partners are evenly matched. Karol walks through what happens when they aren’t — when one side simply has more cash than the other, the clause stops being a fair-price mechanism and becomes a way to take the company.

When the Agreement and the Funding Drift Apart

This is the failure the episode keeps returning to. The agreement gets signed, insurance is put in place to fund it, and then the business grows. Five years later the coverage still reflects a company that no longer exists. Karol also covers what a real business valuation costs, and the cheaper alternative most owners have never been offered: an annual valuation table written into the agreement itself.

Two Things Owners Get Wrong

The Legal Half of the Buy-Sell Conversation

This episode is the companion to Episode 2 with Ben Corriveau, which covers how these agreements actually get funded. Watch them together for the full picture: Karol handles whether your agreement is properly drafted, Ben handles whether it’s properly paid for.

What to Do This Month

If you’re in business with a partner and there’s nothing signed, the episode closes on the practical version of this: what to actually do in the next few weeks, and roughly what it costs. It is dramatically less than the alternative.

This episode is general information, not tax or legal advice. Karol Pawlina’s comments are general in nature and do not create a solicitor-client relationship. Costs and figures discussed are illustrative and vary by situation and province. Speak with your own lawyer, accountant and advisor before acting.