Ontario decision highlights potential perils of undeclared ownership stakes
In a significant ruling, the Ontario Superior Court has underscored the creation of equity interests in a corporation can occur despite incomplete agreements, missing share certificates, and share registers, and other legal deficiencies. The case, Shifrin v. LDF Frozen Foods Inc. (2025 ONSC 2095), involved a dispute over a 15% shareholding in the corporation.
Kai Sheffield, a Partner in the Corporate department based in Toronto, represented the applicant in the case. The dispute arose 10 years later when the corporation denied the applicant's shareholding status. The breach of the agreement was not discovered by the applicant until 2024, when the corporation denied in writing that the applicant was a shareholder.
The Court found a binding agreement for the applicant to receive 15% of the corporation's shares. Share certificates were never issued and the share register was not updated to reflect the applicant's ownership. However, the Court held that the two-year limitation period had not expired, allowing the applicant's proceeding to continue.
The written agreement was signed by the applicant and one shareholder, but it's unclear whether the second shareholder signed. The Court ordered the corporation's share register to be retroactively rectified to reflect the applicant's 15% ownership interest.
The ruling provides an important reminder about the flexibility in creating equity interests in a corporation, despite legal formalities. It also underscores the protection of the reasonable expectations of parties involved in contracts. The Court emphasized that the courts' role is to ensure the creation of equity interests in a corporation, even in the presence of incomplete agreements or missing documentation.
The decision underscores the importance of promptly and clearly documenting arrangements involving equity interests. Tina Mirzaei, an Associate in the Corporate department based in Toronto, commented on the case, saying, "This ruling serves as a significant precedent for future cases involving equity interests in a corporation, despite incomplete agreements or missing documentation."
The founders of LDF Frozen Foods Inc., Leon D. Friedman and David Friedman, were involved in the case. The Ontario Superior Court's decision underscores the courts' readiness to uphold the reasonable expectations of contracting parties and their willingness to accommodate flexibility in the creation of equity interests in a corporation. The ruling also highlights the importance of upholding the reasonable expectations of parties in contractual agreements, even in cases of legal deficiencies.
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