Director leaving company

[prostang]

Hi we are a small company with just 3 directors and no staff. we have no debts and cash in hand one of the directors is leaving to go work for the company we do work for therefore loosing us 80% of our work.
Where do I legally stand refusing to give him his share of assets of the company considering we will probably loose money till we can replace this work.

[MrLizard]

Was there no non-competition clause in the contracts? If not then If I were you - assuming its ltd and the liability is £1 split 100 ways, close and reopen under another name.

If the company has assets and the shares are worth more due to liability then you have no real choice but to give him his share, but surely even then it would make more sense to dissolve the company and you each take your cut?

[HenryJM]

Him being a director is not so much the issue, that's a choice of honouring his employment contract.

Assets belong to the company which is owned by shareholders, of he is one then the question is whether you have a shareholders agreement, that may govern the situation.

If not then you can offer to buy his shares or you can retain him as a shareholder, he can sell the shares but is unlikely to find a buyer.

So I would expect, absenting any specific agreement on this, that he has no call on the assets but would retain his shareholding unless you come to an agreement with him.

[Pit Pony]

So he has a 1/3 share in a business ? Give him 1/3 of the dividend you pay out the next time you make a profit. He is free to sell his shareholding to anyone, or you.

And you are free to offer to sell him your shareholding. Or hold a shareholders meeting and vote on the dissolving the company.

Personally I'd put the remaining two directors SALARIES up, so that you post a loss at the end of the year, and go from there.

[prostang]

Thanks for the reply we all own 33 £1 shares each , we don't have any agreements just 3 people that set a company up , don't want to close the company down as we have a good reputation and have been trading for 5 years , just not sure what to do really just tell him he can stay as shareholder and he will get a dividend if we make any money in future or pay him off

[bigandclever]

prostang said:

Hi we are a small company with just 3 directors and no staff. we have no debts and cash in hand one of the directors is leaving to go work for the company we do work for therefore loosing us 80% of our work.
Where do I legally stand refusing to give him his share of assets of the company considering we will probably loose money till we can replace this work.

With my misery hat on, is he leaving because you and the other director only do 20% of the work? Doesn't help answer your question, just nosey!

[HenryJM]

prostang said:

Thanks for the reply we all own 33 £1 shares each , we don't have any agreements just 3 people that set a company up , don't want to close the company down as we have a good reputation and have been trading for 5 years , just not sure what to do really just tell him he can stay as shareholder and he will get a dividend if we make any money in future or pay him off

It's your choice decided in many ways by how much he wants. There is no way of valuing that, you agree a price and it happens, don't agree and he remains a shareholder,

As a 33% holder he has limited rights, your own remuneration can be by salary and not dividend although you then need to pay NI. He could remain a shareholder for years and make nothing from it but it is best rid if you can get him to agree a reasonable price.

[prostang]

bigandclever said:

With my misery hat on, is he leaving because you and the other director only do 20% of the work? Doesn't help answer your question, just nosey!

Nope we all do equal amount of work

[prostang]

HenryJM said:

prostang said:

Thanks for the reply we all own 33 £1 shares each , we don't have any agreements just 3 people that set a company up , don't want to close the company down as we have a good reputation and have been trading for 5 years , just not sure what to do really just tell him he can stay as shareholder and he will get a dividend if we make any money in future or pay him off

It's your choice decided in many ways by how much he wants. There is no way of valuing that, you agree a price and it happens, don't agree and he remains a shareholder,

As a 33% holder he has limited rights, your own remuneration can be by salary and not dividend although you then need to pay NI. He could remain a shareholder for years and make nothing from it but it is best rid if you can get him to agree a reasonable price.

Thanks for the reply probably try to negotiate with him but in his eyes he wants a 1/3 of everything

[Pit Pony]

prostang said:

HenryJM said:

prostang said:

Thanks for the reply we all own 33 £1 shares each , we don't have any agreements just 3 people that set a company up , don't want to close the company down as we have a good reputation and have been trading for 5 years , just not sure what to do really just tell him he can stay as shareholder and he will get a dividend if we make any money in future or pay him off

It's your choice decided in many ways by how much he wants. There is no way of valuing that, you agree a price and it happens, don't agree and he remains a shareholder,

As a 33% holder he has limited rights, your own remuneration can be by salary and not dividend although you then need to pay NI. He could remain a shareholder for years and make nothing from it but it is best rid if you can get him to agree a reasonable price.

Thanks for the reply probably try to negotiate with him but in his eyes he wants a 1/3 of everything

I own 100 £1 shared in my Ltd Company, There is £XXXXX in the company account. IF my wife (who owns no shares in my company, divorced me, she'd expect 50 of my shares. Instead I would have to give her £XXXXX/2 instead.

Basically, give the bloke a 1/3 of what the company owns after tax and other debts are calculated, in return for his 1/3 of the shares.

If he's going to work for someone in the industry, you want to keep him on side and supportive towards you.

[anonymous-user]

Pit Pony said:

Basically, give the bloke a 1/3 of what the company owns after tax and other debts are calculated, in return for his 1/3 of the shares.

Why would you want to do that? The bloke is leaving and must surely know he is decimating the business.

You need a decent commercially minded lawyer to look at your documents. The remaining directors would almost certainly be well within their rights to want to keep all assets within the business to see it through these times.

Definitely worth seeing a proper adviser - even if it will cost a few £££.

[Martin4x4]

The face value of the shares is immaterial. They are worth the accumulated capital/ number of shared, plus a premium or minus a discount.

You basically have to buy him out at an mutual agreedable value or you are in a world of painful legal trouble potentially up to false accounting charges if you follow some of the 'advice' in this thread to just cut him out.

Going forward with two equal shareholders is risky, you either need to determine a senior member to have a majority share or get some body else to carry one golden share to decide any deadlocked issue.

[HenryJM]

The value of the shares is whatever anyone wishes to exchange them at. Legal trouble? Not really, I've seen plenty of examples of this happening, of course if you do account incorrectly then you may have problems but not of you behave correctly.

Meanwhile there is nothing wrong with two directors or two shareholders, of that's what you get to. I've done that for many years, you do something if you both agree to it, if you don't agree you don't do it. I'd go so far as to say that two shareholders and two directors is the optimal number, you can't be outvoted but you can't do much without agreeing. The last thing we'd do is have a golden share or any form of seniority of one over the other.

[andyb28]

Well to be honest, I think it sucks. What kind of ass dumps on his business partners like this. How would he have felt to have his loyalty betrayed if the roles were reversed?

I realise everyone here is giving the correct professional reply, but sometimes its just nice to be an ass yourself. Make it as difficult as possible for him.

[gregf40]

andyb28 said:

Well to be honest, I think it sucks. What kind of ass dumps on his business partners like this. How would he have felt to have his loyalty betrayed if the roles were reversed?

I realise everyone here is giving the correct professional reply, but sometimes its just nice to be an ass yourself. Make it as difficult as possible for him.

Welcome to the real world.

[TheJelley]

oOne other possible consideration.

His new employers will want him to declare any conflict of interest, and would not be happy with a major shareholding in another industry company. So he may have to sell his interest.

May give you some collateral on the negotiation.

[andyb28]

gregf40 said:

andyb28 said:

Well to be honest, I think it sucks. What kind of ass dumps on his business partners like this. How would he have felt to have his loyalty betrayed if the roles were reversed?

I realise everyone here is giving the correct professional reply, but sometimes its just nice to be an ass yourself. Make it as difficult as possible for him.

Welcome to the real world.

Well for sure.
My company has been running for 10 years now, but I remember well talking to an old wise dog about my plans and he told me not to do it with a business partner and to go it alone.

Perhaps the best advice I was ever given?

[Rude-boy]

andyb28 said:

Well for sure.
My company has been running for 10 years now, but I remember well talking to an old wise dog about my plans and he told me not to do it with a business partner and to go it alone.

Perhaps the best advice I was ever given?

How many times in the last 10 years have you disagreed with yourself?

How many times have you seen a decision start to look like it wasn't going the way you thought and then had to spend weeks talking yourself round to seeing this and changing tack?

etc...

[JustinP1]

prostang said:

Hi we are a small company with just 3 directors and no staff. we have no debts and cash in hand one of the directors is leaving to go work for the company we do work for therefore loosing us 80% of our work.
Where do I legally stand refusing to give him his share of assets of the company considering we will probably loose money till we can replace this work.

Did you have an agreement that if someone wants to leave that the others automatically buy their shares and the assets split?

If not, then regardless of whether he is an employee, he is still a director of your Ltd Co and also, separately, a shareholder.

He has no right to rip any cash out of the company at all.

In fact, lets say there's £50k in the company bank account, and over the next year you lose £50k - then that's his tough.

What I suggest is that you come to an amicable agreement. The money in the company bank account is not 1/3 his - it's 100% owed by the Ltd Co.

The correct transaction here is how much you two will buy his share for. That might be for an amount equal to 1/3 of what's in the bank, or, if he is leaving an unprofitable company, the value of his shares may be less.

[Mr Pointy]

Is there no general/legal requirement for a Director to not act against the interests of the company? If he's going to your biggest client & you will lose 80% of your business, that's surely not in the interest of your company.

I'm asking as a general question, it's not an area I have knowledge of.