Buy-Sell Agreements: You Cannot Zero Out A Shareholder

Buy-sell agreements often hand one side the power to calculate the price. The company, or the controlling owner, gets to run the numbers, and the agreement says that calculation is “binding and conclusive.” It sounds like a tidy way to avoid fights over valuation. But a recent Illinois decision confirms what departing owners have long hoped and controlling owners sometimes forget: the power to calculate a buyout price is not the power to manipulate it to zero. Kazemi v. Maron Electric Co., 2026 IL App (1st) 250908 (Mar. 31, 2026).

The dispute arose from a shareholders’ agreement that governed the buyout of a departing shareholder’s interest. The agreement gave the company the authority to calculate the price per share and provided that the calculation would be binding and conclusive on the parties. When the time came, the controlling side produced a number that reduced the departing shareholder’s shares to nothing. He sued, contending that the company had breached the shareholders’ agreement—not by using the wrong accounting standard, but by manipulating the valuation to wipe out his equity.

Discretion is not a License

The evidence at trial painted a pointed picture. According to the plaintiff, the company pressured its accountants to adopt an absurd view of “contingent liabilities”—assuming, for example, that the company would incur every conceivable expense on every pending client contract, and would complete all of that contracted work, while never receiving a dollar of client payment. Loading the balance sheet with liabilities that had no reserves behind them drove the share value to zero. The plaintiff’s point was not that the calculation violated generally accepted accounting principles. It was that engineering an absurd result went beyond merely “directing” the accountants to compute the buyout—it was a breach of the agreement.

The jury agreed, finding that the company breached the shareholders’ agreement. The appellate court affirmed. The lesson embedded in the result is important for anyone who drafts or relies on binding-determination clauses: a contractual power to calculate a price carries with it an obligation not to exercise that power in bad faith. “Binding and conclusive” language protects a good-faith calculation from second-guessing; it does not immunize a deliberate effort to reach a predetermined, absurd outcome. A party entrusted with discretion under a contract cannot use that discretion to destroy the very benefit the other side bargained for.

“I didn’t do it” is not an Affirmative Defense

The company also tried to defend on what it labeled affirmative defenses—waiver, estoppel, and the theory that adhering to the agreement’s express terms could not be a breach. It asked the trial court to instruct the jury on those theories, and the court refused. The appellate court found no error, and its reasoning is a useful primer on a distinction litigants routinely blur.

An affirmative defense offers an excuse or justification—a reason the defendant should win even if it did what the plaintiff claims. A negative defense simply denies an element of the plaintiff’s case: “I did not do it.” The company’s real position was that it had not breached at all—that following the contract’s terms could not be a breach. That is a denial of the breach element, not an affirmative defense. Because a party is entitled to an instruction on its theory only when there is a sufficient evidentiary basis, and because it is error to instruct a jury on a principle unsupported by the evidence, the trial court properly declined to dress up a denial as a set of affirmative defenses. The jury heard the company’s denial and rejected it.

So What?

For closely held businesses, buy-sell agreements, and the owners who live under them, the decision is a caution and a comfort in equal measure.

Drafting a “binding” valuation clause does not license bad faith. If your agreement gives one party the power to calculate the buyout price, understand that Illinois law expects that power to be exercised in good faith. A calculation engineered to reach an absurd, predetermined result can be a breach, “binding and conclusive” language notwithstanding.

Build objectivity into the formula. The best protection against these fights is a valuation mechanism that limits discretion: a defined formula, a named independent appraiser, a baseball-style process, or agreed accounting conventions. The more the price turns on one interested party’s judgment, the more litigation you invite.

Departing owners: scrutinize the assumptions, not just the bottom line. If a buyout calculation zeroes out your interest, look at the inputs—especially aggressive “contingent liabilities” or reserves that lack any real-world basis. The manipulation is usually in the assumptions, and that is where a breach claim lives.

Know the difference between denying a breach and excusing one. “I complied with the contract” is a denial of the breach element, not an affirmative defense. Plead and prove your defense in the right posture; mislabeling a denial as an affirmative defense will not earn you jury instructions you are not entitled to.

Document the good faith behind your numbers. If you must exercise valuation discretion, create a contemporaneous record showing the calculation was reasonable and principled. That record is your best evidence that the result was a good-faith computation, not a manufactured one.

A buy-sell clause that makes one party the scorekeeper still requires that party to keep score honestly. The power to calculate a price is real—but it is not the power to decide, in advance, that the other owner gets nothing.

David Seidman is the principal and founder of Seidman Law Group, LLC. He serves as outside general counsel for companies, which requires him to consider a diverse range of corporate, dispute resolution and avoidance, contract drafting and negotiation, real estate, and other issues. He can be reached at david@seidmanlawgroup.com or 312-399-7390.