Removing a director from a LTD company

[liller]

If a joint director of a company wishes to leave the company how would one go about organising this legally?

The joint director is a minority shareholder and has decided that they no longer want to continue working on the business so I need to put plans in place to make sure I am covered.

What could I do if they refuse to give up their directorship?

thanks in advance

[VX Foxy]

Do you have a shareholders agreement?

[s2kjock]

Have you looked at the company's articles of association on director appointment?

[liller]

I actually don't know, which sounds awful, but it's a small family business and I didn't expect this to happen.

[VX Foxy]

Is it worth anything?

[liller]

the business is worth something but it doesn't have the funds available to buy the other director out.

[Du1point8]

Can you loan the company the money to buy out the director? This is assuming you are a director yourself.

Or if they dont go quietly can you issue more share to dilute theirs down to a level which makes them worthless?

[liller]

Hopefully they will agree to transfer their stock over to me but I am trying to understand what the worst case scenario would be.

[VX Foxy]

Du1point8 said:

Or if they dont go quietly can you issue more share to dilute theirs down to a level which makes them worthless?

Is this really possible?

[Du1point8]

VX Foxy said:

Du1point8 said:

Or if they dont go quietly can you issue more share to dilute theirs down to a level which makes them worthless?

Is this really possible?

Eric will be able to say the ins and outs of how its done, but I do believe its possible and Im not talking out my arris.

[darreni]

Du1point8 said:

VX Foxy said:

Du1point8 said:

Or if they dont go quietly can you issue more share to dilute theirs down to a level which makes them worthless?

Is this really possible?

Eric will be able to say the ins and outs of how its done, but I do believe its possible and Im not talking out my arris.

It is possible, but you run the risk of treating a minority shareholder unfairly. We were advised that the courts are likely to take a dim view of this, so you need to tread very carefully.

If you are not familiar with your mem & arts & the procedures/ implications, get professional legal advice.

Also note that directors of ltd companies will be employees & therefore have employees rights regarding dismissal/ unfair dismissal etc.

Again, specific professional advice required.

[johnfm]

You seem to be conflating two separate issues:

Removal of a director: and

Transferring the shareholding of another member if the company to another shareholder

The first issue is simple enough if the person is voluntarily wishing to resin as a director. Simple board minutes where the meeting is presented with letter of resignation of the director, and use a TM01 form to notify Companies house. You should be able to find an appropriate format directors resignation letter for this purpose on line (though I recommend using your company's solicitors(.

The second part is trickier and depends a lot on the situation with the shareholder. Whether the departure is amicable, their shareholding, what the articles say (if anything) about leaved provisions etc.

If you don't have a solicitor I think realpigdog on here does this sort of thing.

[therealpigdog]

Where to start?

You wanted the worst case scenario - well, that pretty much involves everyone falling out, the company being liquidated, everyone losing their livelihood, all cash generated by the business (and then some) being spent on legal fees, and then your wife leaving you for the other shareholder. That's the worst one I've seen so far, but there's probably a worse one coming along anytime now.

It sounds like the exiting director is willing to go, so that makes it easier. If that is the case, then it's just down to seeing how much he wants to:

• transfer his shares to the existing shareholders (or the company); and
• compromise any and all claims he may have against the company.

Once/If you have a figure that you have agreed on, then you can work out the most tax-efficient method for everyone concerned. If you can't agree a figure, then budget a fair amount on lawyers' fees (on both sides) to get roughly somewhere in the middle of the two valuations.

If you don't have a shareholders' agreement then you probably can't force him to sell (again assuming that you have pretty standard articles) - equally, he can't force you to buy. Try to keep it amicable, and be prepared to accept that:

• you will think you have paid too much for the shares;
• he will think you have paid too little for the shares; and
• it's worth spending a few quid on proper legal advice to get the whole process documented - but you'll both think the legal fees were too much and unnecessary.

OP - send me a PM if you want me to chat through the process with you.

p.s. - Please don't consider going down the route of diluting shares unless you want to make your lawyer very, very rich (I'll happily take on that job if you are happy to ignore my initial advice of don't do it).

p.p.s. - for anyone with shares in a company with other shareholders SHAREHOLDERS' AGREEMENT!! makes this process so very much easier and cheaper.

[liller]

Thanks for all the advice/posts, it's really appreciated.

Yes, I am going to want the director to be removed plus, in an ideal scenario, I would like to take control of all of the shares.

I really hope that it isn't going to end up in the hands of solictors as I think that will destroy our relationship (we are siblings) My main concern is that someone will egg her on to try and squeeze cash from me even though she is leaving through her own accord and it is not being forced.

If they want paying off then the tricky part will be valuing their shares (30%)

[johnfm]

There are sensible ways to structure a gradual buy back so that she doesn't feel ripped of and so you or the company can afford to buy the shares.

Valuation should be simple enough as there are generally accepted methods for doing this already.

A good solicitor will advise.

Involving solicitors in a non-confrontational way will save falling out in the long run.

[Jasandjules]

If they want to leave then it is far easier...

In your shoes a nice pleasant chat over drinks one evening to discuss what they want to happen, with the emphasis on your being happy to do all the running about and making sure it is all tied up.... Keep it all polite and friendly as much as possible.

[VX Foxy]

therealpigdog said:

p.p.s. - for anyone with shares in a company with other shareholders SHAREHOLDERS' AGREEMENT!! makes this process so very much easier and cheaper.

Do you have any pointers on where to start with a shareholder's agreement ? Any golden rules ? Is there an online template/guide to use as a starting point?

[therealpigdog]

VX Foxy said:

therealpigdog said:

p.p.s. - for anyone with shares in a company with other shareholders SHAREHOLDERS' AGREEMENT!! makes this process so very much easier and cheaper.

Do you have any pointers on where to start with a shareholder's agreement ? Any golden rules ? Is there an online template/guide to use as a starting point?

Online template and guide eh? There will be one sometime in June (probably just after I get back from Le Mans) when my new site launches - but see my caveat below.

The basic premise is the same as most contracts:

1. Get a sheet of paper and write down exactly what is happenening;
2. Get a bigger sheet of paper and write down everything that could go wrong;
3. Get a bigger sheet of paper and write down everything that you want to happen for each of the points listed in 2 and how they would be resolved;
4. Have a cup of tea, pint, or hoon in your car to clear your mind and then get some more paper and repeat processes 2 and 3;
5. Ask each of the other participants to do the same process;
6. All of you repeat step 4;
7. Compare notes and then try to agree one set of papers;
8. Take the collated set of agreed notes to a solicitor who knows what they are doing () and ask them to write a shareholders' agreement for you, together with a set of matching articles of association and any necessary directors' service contracts;
9. Pay the solicitor promptly upon receiving their very reasonable invoice. Expect to pay £1k-1,750 plus VAT - anything less and you'll just be getting shoe-horned into a standard template which almost certainly won't fit what you want - anything more, and unless you have devised some very complex arrangements (e.g. put and call options on death covered by life insurance to be held on trust) then they're probably over-charging. Beware anyone who gives you a price before they find out what it is that you want.

I've got a checklist of common issues to consider which I'll send you if you want to zap me a PM. If you can wait a month or so then I'll be in a position to send you the full guidance notes (or point you in the right direction to download them for free).

Essentially you can do whatever you want - there is no right or wrong way of doing a shareholders' agreement, and remember that if you all agree, then it can be changed at any point. Businesses rarely stay the same as envisaged at the outset, and you should be reviewing the arrangements at least every couple of years to ensure that it still accurately reflects how you want the business to be run.

Whilst I have a personal interest in promoting the use of template documents, this is one of the situations where I really do believe you should take proper bespoke advice. The main benefit of a template in this situation is to give you an idea of the sort of things that are often included, and solutions to problems, before you go to see a solicitor - I can't honestly put my hand on my heart and say that it is a viable alternative, no matter how good the guidance notes are. I've probably done at least a hundred shareholders' agreements and I'm pretty certain that no two are exactly the same. The driver should always be what you and the other shareholder(s) actually want, and not the standard wording that the solicitor is using.

[VX Foxy]

Very useful RPD. Expect a PM from me in the very near future

[therealpigdog]

VX Foxy said:

Very useful RPD. Expect a PM from me in the very near future

No worries, but catch me quick - I'm on my hols from Friday next week and probably won't resurface until after La Sarthe.