- with readers working within the Healthcare industries
The Supreme Court of British Columbia's September 2025 judgment in Yen v Ghahramani, 2025 BCSC 1778,1 illustrates the risks of relying on private, informal agreements in the governance of privately held companies.
In the Yen case, the Court refused to give effect to a disappointed co-founder's expectations about how the company would be governed (and about his role in its governance) going forward. The disappointed co-founder's expectations had been grounded in alleged understandings between himself and another co-founder. The other co-founder disputed these alleged understandings at trial. The disappointed co-founder relied on a series of written agreements between the two co-founders concerning the organization and governance of the company. But these agreements had been kept secret from the co-founders' fellow shareholders, and they only reflected the disappointed co-founder's expectations by implication. The result: one co-founder was permitted to obtain voting control of the company and removed the other co-founder from the board of directors and eliminated his employment and salary with the company.
A formal, universal shareholders agreement might have saved these parties years of litigation. So might have an insistence on fully documenting the parties' understandings of how they would each remain involved in the company. However, these steps — while advisable — would be out of sync with the informality and dynamism that often characterizes the governance of early-stage companies. The Yen case is a reminder of the potential downsides of keeping things casual.
The backstory & breakdown of airG
Three engineering students co-founded a mobile software business in 2000 which eventually became airG Inc. By 2004, only Vincent Yen and Frederick Ghahramani remained, having bought out the previous founders' shares equally. Until February 2021, Yen and Ghahramani owned and controlled 88.74% of airG's common shares equally between them. They had maintained their equal ownership through a number of share transactions over the preceding decades.
Yen and Ghahramani ran airG informally. They entered into a series of private agreements between 2009 and 2015. The co-founders concealed these agreements from airG and the other shareholders. The agreements governed their compensation, bonuses, and expense practices, and dealt with particular purchases of shares from angel investors, in which the co-founders participated equally. The terms of the agreements were not reflected in the constating documents of airG, nor were any shareholder agreements memorialized reflecting them.
Beginning in 2009, the co-founders' relationship soured. Each eventually attempted to sway the remaining angel investors to vote in their favor to oust the other from the company's board of directors.
In 2021, Ghahramani bought the airG shares held by two angel investors. This marked the first time the co-founders had unequal voting interests in the company. Ghahramani then called a special meeting of the shareholders of airG, at which a majority of the voting shareholders voted to remove Yen as a director. Yen then commenced litigation, bringing an oppression claim based on his expectation that he would remain a board member indefinitely, and the alleged existence of an equal share ownership agreement. He sought the remedy of liquidating airG by court order.
The court's decision
All of Yen's claims were dismissed.
The Supreme Court of British Columbia ruled that no binding agreement for equal share ownership existed. The Court rejected the secret agreements between the co-founders as support for Yen's alleged expectation that he would remain an equal shareholder with Ghahramani. According to the Court, Yen was not entitled to rely on the agreements because he and Ghahramani had kept them secret from airG's corporate counsel and other stakeholders and had used them to treat airG as a "personal banking machine", in breach of their fiduciary duties as directors.2 The Court further reasoned that it was not commercially reasonable for Yen to assume that he was entitled to employment and compensation forever by virtue of his share ownership,3 when he performed no regular or useful services for airG and was an employee in name alone.4
In dismissing Yen's claims, the Court also found that he lacked a reasonable expectation that he would remain a director of airG. The Supreme Court of Canada has made clear that fair treatment is what stakeholders are entitled to "reasonably expect",[5] and Yen had no reasonable basis to expect that he would remain on the board indefinitely. Any such expectation would have to have been objectively grounded in the company's legal framework — for example, the company's constating documents or a shareholders' agreement — in order to support an oppression claim, and there was no such grounding in this case. To quote the Court: "Mr. Ghahramani did not oppress Mr. Yen; he legally outmaneuvered him".6
Key takeaways
The co-founders' informal governance practices left them, and the company, exposed to litigation when their relationship faltered. The off-the-book arrangements between Yen and Ghahramani, though mutually agreed upon and memorialized in writing, were found to have undermined trust and breached fiduciary duties. This could have been avoided if the company's constating documents or a shareholders' agreement had addressed the issues that became the subject of the co-founders' dispute.
Informality can be an operational virtue in an early-stage company. Yet, as companies grow, persistent informality coupled with a lack of internal transparency entails risk. The Yen case teaches that informal, bilateral arrangements between co-founders may not support claims of oppression; reasonable expectations must be grounded in law, not wishful thinking, or in informal practice intended to subvert corporate governance. That said, Yen should not be taken to mean that inter-shareholder voting arrangements are improper per se, only that they should be entered into carefully, within the limits of corporate authority.
The Court's decision, and the lengthy litigation that preceded it, is also a reminder to founders and investors of the consequences of relying on informal governance arrangements in private companies. It is also a cautionary tale for potential acquirers about the importance of understanding the nuances of intra-founder relationships as part of the diligence process.
Footnotes
1. Yen v Ghahramani, 2025 BCSC 1778.
2. Yen v Ghahramani, 2025 BCSC 1778 at paras [129], [215]-[216].
3. Yen v Ghahramani, 2025 BCSC 1778 at paras [292]-[295].
4. Yen v Ghahramani, 2025 BCSC 1778 at para [296].
5. Yen v Ghahramani, 2025 BCSC 1778 at para [190], citing BCE Inc. v 1976 Debentureholders, 2008 SCC 69 at para [64].
6. Yen v Ghahramani, 2025 BCSC 1778 at para [15].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
