Services · Shareholder Disputes
Valuation and forensic accounting for shareholder disputes
When business owners fall out, the hardest question is usually what the shares are worth. Amir Rosenthal, CPA, CA, LPA, CBV, CFF, provides independent valuation and forensic review for shareholders and their counsel across Ontario.
Common situations
- One owner wants out, or the owners are deadlocked and someone has to buy the other out.
- A shotgun or buy-sell clause in the shareholder agreement has been triggered, or is about to be.
- A minority shareholder says they have been shut out or treated unfairly and is considering an oppression claim.
- A shareholder has dissented from a major corporate change and is entitled to be paid fair value.
- There are concerns about how money has moved through the company.
Start with the agreement and the statute
Before any numbers are run, the valuator needs to know what question is being answered. A shareholder agreement may already say how value is measured, as of what date, and whether a discount applies. If it is silent, or the matter is in court, the statute matters:
- Oppression remedy. Section 248 of the Ontario Business Corporations Act (OBCA) lets a shareholder and certain others ask the court for relief where the company’s conduct is oppressive, unfairly prejudicial, or unfairly disregards their interests. One of the orders the court can make is for the company or another person to buy the complainant’s shares. The court decides the valuation date and approach on the facts. Federally incorporated companies have a similar remedy in section 241 of the Canada Business Corporations Act (CBCA).
- Dissent rights. For certain fundamental changes, section 185 of the OBCA lets a shareholder who follows the required steps be paid the fair value of their shares, determined as of the close of business on the day before the resolution was adopted. The CBCA equivalent is section 190.
From dispute to a supportable value
- Define the questionAgreement terms, statute, valuation date, and whether discounts apply.
- Gather recordsFinancial statements, tax returns, ledgers, bank records, and the shareholder agreement.
- Forensic reviewTrace unusual payments and related-party items; adjust earnings where needed.
- Value the sharesApply the agreed or required basis and show the effect of key assumptions.
- Use the resultSupport negotiation, mediation, or a report for court.
Fair value and fair market value
Fair market value is the price in an open market between informed, willing parties acting at arm’s length. Fair value, the term used in the dissent and some oppression contexts, is decided by what is fair to the shareholder on the facts. One practical difference is the minority discount: a buyer in the open market might pay less for a minority block, but courts have often declined to apply that discount where a shareholder is being bought out against their will. The report sets out the basis used so its effect is clear.
Where forensic accounting comes in
Disputes between owners often include questions about how the business was run: management fees, personal expenses, payments to related companies, or business that went elsewhere. A forensic accountant can trace those items and adjust the earnings used in the valuation. When the claim is about lost profits rather than share value, see damages quantification and expert reports.
This page is general information about Ontario and federal corporate law, not legal advice. Remedies, deadlines, and procedures depend on the facts and the documents; speak to a lawyer about your situation.
Related pages: business valuation, selling a business, buying a business, and family-law valuation.
Shareholder dispute questions
What is the oppression remedy?
Section 248 of Ontario’s Business Corporations Act lets a shareholder (and certain others, such as a creditor, director, or officer) ask the court for help where the corporation’s conduct is oppressive, unfairly prejudicial to them, or unfairly disregards their interests. The court can make any order it thinks fit, including ordering the corporation or another person to buy the complainant’s shares. Federally incorporated companies have a similar remedy in section 241 of the Canada Business Corporations Act.
What are dissent rights?
For certain major changes, such as some amalgamations, some amendments to the articles, or a sale of all or substantially all of the company’s property, section 185 of the OBCA lets a shareholder who follows the required steps dissent and be paid the fair value of their shares. The Act fixes the date: the close of business on the day before the resolution was adopted. The federal equivalent is section 190 of the CBCA.
What is a shotgun clause?
A shotgun (or buy-sell) clause in a shareholder agreement lets one shareholder offer a price per share; the other must either sell at that price or buy at that price. Because the offeror may end up on either side, an informed view of value before making or answering an offer is important.
Will a minority discount apply to my shares?
It depends on the purpose and the wording. A shareholder agreement may set out how value is measured. In court-ordered buy-outs and dissent cases, courts look at what is fair on the facts and have often declined to apply a minority discount. The valuator sets out the basis used so the parties and the court can see its effect.
Where does forensic accounting fit in?
Disputes often include allegations about how the company was run: unusual payments to one owner, related-party dealings, or diverted business. A forensic review can trace transactions and adjust the company’s earnings, which can change both the claim and the value of the shares.
Can you act for both shareholders?
Sometimes the shareholders jointly retain one valuator to reach a negotiated buy-out. Where the matter is contested, each side usually has its own adviser. Independence and conflicts are considered before any engagement.
Complimentary discussion
If there is a shareholder agreement, have it handy when you call or write. Its terms often decide how value is measured.