Lessons from Tari v. Darolfi on Governance, Ownership, and Risk

Founder relationships often start with trust, shared effort, and the assumption that issues can be worked out later. A recent Ontario court decision is a reminder of what happens when that trust is never formalized.

In Tari v. Darolfi (2025 ONSC 5104), a closely held, family-run business operated for years without shareholder agreements or formal governance. A senior executive and shareholder was terminated for cause following a serious fraud. He then sought relief as a shareholder, including oppression claims, buy-outs, and even the winding up of an operating business.

The Court was required to spend extensive time untangling basic questions that should never have reached litigation, including:

• Whether shares issued years earlier were conditional or unconditional
• What the shareholder’s reasonable expectations actually were
• Whether a buy-out was ever contemplated
• How governance had functioned in practice when, for years, it functioned informally—or not at all

The Court ultimately dismissed many of the claims, but only after a long, costly, and deeply disruptive process. Employees, family members, and the business itself were all caught in the fallout. The absence of a shareholder or founder agreement did not “keep things flexible.” It shifted decision-making to the court.

Why Founder Agreements Matter

Founder agreements are not about distrust or over-lawyering. They exist to:

• Set clear expectations early;
• Define what happens when roles, relationships, or contributions change;
• Keep disputes inside the business rather than in litigation; and
• Protect value built over time.

When agreements are missing, courts rely on hindsight, informal practices, and competing narratives. That process is costly, disruptive, and unpredictable, regardless of who ultimately “wins.”

Informal Governance Works, Until It Doesn’t

Many founder-led and family businesses operate successfully with informal governance:

• No formal boards
• Limited documentation
• Decisions made by a small group based on trust

That approach can work for years. But when conflict, misconduct, or transition arises, the lack of structure becomes a risk.

Good governance isn’t bureaucracy. It’s protection.

The Role of Legal Advice Early, Not After the Fact

The purpose of early legal advice is not to slow founders down. It is to:

• Translate trust into durable arrangements
• Put proportionate governance in place
• Anticipate future pressure points
• Reduce the risk that disputes become existential threats

If a business has more than one founder or shareholder, the question is not whether founder agreements and governance are needed—it’s when.

SIL Consult works with founders and leadership teams to put practical, proportionate legal and governance structures in place, before disputes arise.

This article is for general information only and does not constitute legal advice.