Directors and money in company bank account
Discussion
Hi,
Question about company assets and how they can be divided.
Situation is thus:
- Company A exists which owns some properties and has some money in the company bank account
- Company A has a director who is a 60% shareholder, let's call her 'Z'.
- Company A also has a couple of other shareholders, one of whom is also a director. Total shareholding of everyone else is (not surprisingly) 40%.
- The properties owned by company A are being split, with some of them being taken off to a new company ('Company B') whose shareholders and directors will be those who don't have the 60% shareholding in Company A. They will give up their stake in Company A as part of the split.
Company A has a sum of money in the company bank account. Director 'Z' is trying to claim that the money should remain in the Company A bank account and not be split along the lines of the proposed division. The other director and the shareholders don't want this to happen - they want the money to be split in the same proportion as the property.
Put very simply, can the director dictate the split of the money in the company bank account? My understanding is that she can't as she is not the sole shareholder; the company assets are part of the company and the company is owned in shares by the shareholders. Therefore one single shareholder can't dictate what should happen in this situation, despite the fact that the director in question is a majority shareholder.
IF the director can't forcibly withhold the money from the split then how do the shareholders prevent this from happening?
This question will betray my naivity in many ways. I think this is probably a very simple question but it's a real situation and I don't know much about how this sort of thing works.
Thanks!
Question about company assets and how they can be divided.
Situation is thus:
- Company A exists which owns some properties and has some money in the company bank account
- Company A has a director who is a 60% shareholder, let's call her 'Z'.
- Company A also has a couple of other shareholders, one of whom is also a director. Total shareholding of everyone else is (not surprisingly) 40%.
- The properties owned by company A are being split, with some of them being taken off to a new company ('Company B') whose shareholders and directors will be those who don't have the 60% shareholding in Company A. They will give up their stake in Company A as part of the split.
Company A has a sum of money in the company bank account. Director 'Z' is trying to claim that the money should remain in the Company A bank account and not be split along the lines of the proposed division. The other director and the shareholders don't want this to happen - they want the money to be split in the same proportion as the property.
Put very simply, can the director dictate the split of the money in the company bank account? My understanding is that she can't as she is not the sole shareholder; the company assets are part of the company and the company is owned in shares by the shareholders. Therefore one single shareholder can't dictate what should happen in this situation, despite the fact that the director in question is a majority shareholder.
IF the director can't forcibly withhold the money from the split then how do the shareholders prevent this from happening?
This question will betray my naivity in many ways. I think this is probably a very simple question but it's a real situation and I don't know much about how this sort of thing works.
Thanks!
IANAL. A couple of questions...
What do your Memorandum and Articles allow for?
Is there a shareholders' agreement? What does it say?
On what basis is the split being done? Is there a contract?
I think you need to look much more closely into all of these before you (or anyone else) can answer the questions.
There's no clear answer based on the information you've given so far.
But then, IANAL...
What do your Memorandum and Articles allow for?
Is there a shareholders' agreement? What does it say?
On what basis is the split being done? Is there a contract?
I think you need to look much more closely into all of these before you (or anyone else) can answer the questions.
There's no clear answer based on the information you've given so far.
But then, IANAL...
W1bbles,
Thanks. That's helpful. Snag is that I have reached the limit of my understanding and I'd rather not give the company name as it will make everything very identifiable ....
Mems and Arts: Don't know, I've not read them. I must do so.
Shareholders Agreement: Would that be an agreement about the split or a more general thing?
Basis of the split / is there a contract: It's a family company and essentially the assets are being split along family lines. Z's sibling is the other director and the two sides want to do different things with the assets - Z wants to keep them, the other director wants to sell. The split is to allow the other side to sell up and take the cash. Everything is very amicable hence we're a little bit at a loss as to what to do with Z's request for the money.
I don't know of that helps at all.
Thanks. That's helpful. Snag is that I have reached the limit of my understanding and I'd rather not give the company name as it will make everything very identifiable ....
Mems and Arts: Don't know, I've not read them. I must do so.
Shareholders Agreement: Would that be an agreement about the split or a more general thing?
Basis of the split / is there a contract: It's a family company and essentially the assets are being split along family lines. Z's sibling is the other director and the two sides want to do different things with the assets - Z wants to keep them, the other director wants to sell. The split is to allow the other side to sell up and take the cash. Everything is very amicable hence we're a little bit at a loss as to what to do with Z's request for the money.
I don't know of that helps at all.
Being a director entitles you to absolutely nothing regarding splitting of the company assets or sharing of profits or cash reserves (dividends).
A director obtains money from a company due to his/her work as a director of that company. The normal reward for this is Director's Remuneration - usually in the form of a salary plus (perhaps) some benefits in kind.
On the other hand, SHAREHOLDERS are the people who are entitled to dividends and/or share or distribution of cash reserves. The amount each shareholder is entitled to is normally determined by the number and class of shares they own in the company and/or whatever is stated explicitly in the Memorandum and Articles of the company and/or whatever else is contained in the shareholders' agreement (assuming there is one).
A director obtains money from a company due to his/her work as a director of that company. The normal reward for this is Director's Remuneration - usually in the form of a salary plus (perhaps) some benefits in kind.
On the other hand, SHAREHOLDERS are the people who are entitled to dividends and/or share or distribution of cash reserves. The amount each shareholder is entitled to is normally determined by the number and class of shares they own in the company and/or whatever is stated explicitly in the Memorandum and Articles of the company and/or whatever else is contained in the shareholders' agreement (assuming there is one).
It does need qualified & insured advice - the movement of properties from one company to another is not a trivial event legally & financially
Absent a shareholders agreement that sets out the rules for such things, then the distribution of cash will come down to an agreement between the shareholders
The cash is an asset of the business and the shareholders, therefore, have some claim over it
The business will probably need some cash to carry on post split. Not all of the cash that is in the bank is 'free' cash usually - some is to cover tax for instance.
Is there an agreement on the valuation of the properties being hived off?
Lots to think about and seek advice about
Absent a shareholders agreement that sets out the rules for such things, then the distribution of cash will come down to an agreement between the shareholders
The cash is an asset of the business and the shareholders, therefore, have some claim over it
The business will probably need some cash to carry on post split. Not all of the cash that is in the bank is 'free' cash usually - some is to cover tax for instance.
Is there an agreement on the valuation of the properties being hived off?
Lots to think about and seek advice about
As others have said, you need professional advice. I demerged a business couple of years ago with virtually no assets (a consultancy), and it was seriously more complex / challenging than it sounded when we agreed it in the board room. We had to set up holdcos and all sorts to avoid triggering a tax event. The lawyers and accountants earnt high 5 figures for managing it for us.
I would imagine (but don't know) doing it with a company with valuable fixed assets would even more challenging.
I would imagine (but don't know) doing it with a company with valuable fixed assets would even more challenging.
Guys,
Thanks. Lots of really helpful stuff. Thank you.
Specialist advice has been taken and the process of moving property between companies is indeed complex. Part of the problem is that Z has been driving the process and liaising with the specialists and the other directors have taken their eyes of the ball slightly. Z is not clue-y about how companies work and doesn't really understand what is going on and there is much confusion about a lot of things. I am currently trying to get a clearer view on what is proposed, including the split of the cash in the company bank account. Z has the idea that the cash should be withheld to fund maintenance of the property that will remain in Company A, hence the question.
Thanks for your help.
Thanks. Lots of really helpful stuff. Thank you.
Specialist advice has been taken and the process of moving property between companies is indeed complex. Part of the problem is that Z has been driving the process and liaising with the specialists and the other directors have taken their eyes of the ball slightly. Z is not clue-y about how companies work and doesn't really understand what is going on and there is much confusion about a lot of things. I am currently trying to get a clearer view on what is proposed, including the split of the cash in the company bank account. Z has the idea that the cash should be withheld to fund maintenance of the property that will remain in Company A, hence the question.
Thanks for your help.
2Btoo said:
Guys,
Thanks. Lots of really helpful stuff. Thank you.
Specialist advice has been taken and the process of moving property between companies is indeed complex. Part of the problem is that Z has been driving the process and liaising with the specialists and the other directors have taken their eyes of the ball slightly. Z is not clue-y about how companies work and doesn't really understand what is going on and there is much confusion about a lot of things. I am currently trying to get a clearer view on what is proposed, including the split of the cash in the company bank account. Z has the idea that the cash should be withheld to fund maintenance of the property that will remain in Company A, hence the question.
Thanks for your help.
Without knowing the detail, my view would be that the cash should be split in proportion to the assets, I'm assuming the newco will also need some working capital / have dilapidations that need addressing at some point that may have already been accrued for.Thanks. Lots of really helpful stuff. Thank you.
Specialist advice has been taken and the process of moving property between companies is indeed complex. Part of the problem is that Z has been driving the process and liaising with the specialists and the other directors have taken their eyes of the ball slightly. Z is not clue-y about how companies work and doesn't really understand what is going on and there is much confusion about a lot of things. I am currently trying to get a clearer view on what is proposed, including the split of the cash in the company bank account. Z has the idea that the cash should be withheld to fund maintenance of the property that will remain in Company A, hence the question.
Thanks for your help.
My advice would be to set a up a meeting for all directors / shareholders and the advisors so they can walk you through the methodology of the split, and you can ask the question on the cash. Z, having decided unilaterally that's what she wants to do with the cash, has probably instructed the advisors accordingly. Time to flush that out
The directors are responsible for making day to day decisions for the running of the company on behalf of the shareholders. In so much Z is right.
If there are 2 directors and model articles with no Shareholder Agreement, at first glance I would have thought a resolution of the members to aportion the money one way or the other would get it done? Simple majority to carry it?
If there are 2 directors and model articles with no Shareholder Agreement, at first glance I would have thought a resolution of the members to aportion the money one way or the other would get it done? Simple majority to carry it?
I would have thought that the simplest method would be for the other shareholders to set up company B, Co B then buys the properties from Company A. The money gained by Co A is then used to buy back the shares of the minority shareholders. The sale of properties should realistically be at market value.
As in all things specialist advice should be sought especially around the tax liabilities arising for the company and the individual shareholders.
As in all things specialist advice should be sought especially around the tax liabilities arising for the company and the individual shareholders.
In simple terms, look at the balance sheet valuation (at todays value, not last year end) and split that value 60/40. Company A should have 60% of the value, Company B 40%.
That is a mix of Property value, Cash value, debtors, creditors etc etc. Ignoring tax implications let's say all the properties are worth 600k and the cash is 400k. Then A retains the properties and B gets all the cash without the hassle of having to liquidate the properties which is what you stated above they want to do. Obviously it won't be such a neat split, but hopefully gives you a nice simple example to explain to the whole family/Director.
That is a mix of Property value, Cash value, debtors, creditors etc etc. Ignoring tax implications let's say all the properties are worth 600k and the cash is 400k. Then A retains the properties and B gets all the cash without the hassle of having to liquidate the properties which is what you stated above they want to do. Obviously it won't be such a neat split, but hopefully gives you a nice simple example to explain to the whole family/Director.
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