Problem Shareholder / Director that needs to go

[leameg]

Hi all, I am hoping to get advise from people in the know or who have gone through a similar experience, in a nutshell my business is owned 65% by myself and 35% is owned by a separate business. They charge a management fee on a monthly basis and for this I am supposed to receive a variety of services. They are both a shareholder and director and as such there is a shareholders agreement in place which is actually very biased towards the other party in terms of what they can and cant do, for example there is no real SLA in place in terms of what the service they provide and to what level.

The problem is that they do not actually provide any level of service which is deemed useful, they no longer turn up to board meetings that are supposed to be a minimum of 6 weekly interludes not that I wish them to even if they did. The shares are actually in a company that according to Companies House is no longer trading. In a nutshell I need to get rid of asap as they drain the business of fees on a monthly basis for nothing in return. My problem lies in the very one sided agreement and the fact they 'own' A shares so there is a danger they could forgo the 'fees' and instead claim a dividend although the shareholder agreement does state they are only entitled to this over and above a specified 'ring fenced amount'

I would love to give notice on the service level side but am worried about them 'switching' their fees to a dividend but am also confident that the share transfers have never been done correctly and are in fact held with a company that no longer really exists so ideally would like to know how these shares would ultimately be taken back.

Any advise greatly welcomed and yes I have seeked legal advise but it all seems a little whooly in terms of the potential outcome.

[TooLateForAName]

How do they come to own 35% of the business?

If they are no longer trading are they dormant or struck off?

What does the shareholders agreement say about buying them out ?

What does it say about them ceasing to exist?


TBH I cant see how anyone can give meaningful advice on such a partial story.

If lawyers have seen the agreements and articles what do they say?

[anonymous-user]

I am sorry to say without an amicable agreement between both parties it will be very difficult to settle without involving a decent commercial lawyer.

You really should sit down with one for a couple of hours so he can review all the documents and then run through your options.

It will cost money, but this sort of situation can be very tetchy.

[leameg]

TooLateForAName said:

How do they come to own 35% of the business?

If they are no longer trading are they dormant or struck off?

What does the shareholders agreement say about buying them out ?

What does it say about them ceasing to exist?


TBH I cant see how anyone can give meaningful advice on such a partial story.

If lawyers have seen the agreements and articles what do they say?

Thanks yes this is a tricky one, they originally acquired 25% as an investment company but didn't actually pay anything for the shares as they were supposed to add value and help with exit this has never happened. There is nothing in the shareholder agreement to say what happens if they were to cease trading etc. I have offered to buy them out but they are not willing to budge and what they require is quite frankly disgusting, bit of a pickle really but the amount I am paying right now it feels like I could afford to roll the dice legally and see what happens. The paid advise received leaves me thinking I could be entitled to cease the service side but the danger as mentioned is that they can switch their payment to a dividend which would be an even worse situation for me.

[vcm]

how did they get from 25% to 35%?
how can switching to dividends make you worse off? if no dividend is declared,
they then get nothing.
you presumably set the salaries. it'll just cost you a bit more tax.
(unless the agreement says otherwise)
dormant,struck-off, or just late with accounts.
I think there is more to this tale, without which the collective will
struggle to advise. best of luck.

[RWX3L]

Hi.

I'm not going to make any comments or suggestions regarding your predicament. However with less than 5 minutes investigation I have located your company and the agency you refer to. Will they stumble upon this post and make things more difficult?

mod note: no URL's please

Edited by eybic on Wednesday 10th December 10:35

[MrTickle]

Hi,

Indeed, you need to be careful - it took 3 minutes to find you, your company, the investment company, their holding company and the associated director!

Given the nature of your business, assuming you are in control of your clients etc. Could you not set up another limited company and start to trade through that?

[foliedouce]

MrTickle said:

Hi,

Indeed, you need to be careful - it took 3 minutes to find you, your company, the investment company, their holding company and the associated director!

Given the nature of your business, assuming you are in control of your clients etc. Could you not set up another limited company and start to trade through that?

I would guess there are restrictions in the shareholders agreement to cover this. There are also protections for minority shareholders within company law.

OP - get a lawyer involved and get proper advice, I was in a similar situation to you when I started my business and in the end managed to buy the shares back (only 18% I hasten to add), cost me £50k which was a lot for an 18 month old company but they are worth a lot more than that now.

The way I positioned it was that I wasn't prepared to keep driving the business to benefit them, so I'd take the hit on winding the business down to zero then restart in the future when restrictions are off. Or we can do a cash deal now. After much fighting, they went for the cash deal. They held the shares 9 months, didn't pay for them, then got £50k back. What a mug I was and I learnt a lot, as have you, so do a deal, and move on.

Also, I think there is a problem on your website, I cant get it working on IE

I feel for you, and good luck, let us know how you get on.

[andyb28]

A friend of mine was in a similar situation, where a 3rd party that was meant to add value owned 35% of his business.

Basically, they got him down to a 5% holding of a new company setup that everything was going to be moved to.
The 3rd party ends up with a choice of 35% of nothing or 5% of something.

[Cheib]

I really don't understand how they can decide to switch to paying themselves a dividend unilaterally.

As others have said clearly a lot more to this than meets the eye.

[StevieBee]

An immediate action would be the cessation of paying them fees. If they are not providing the services then they are not entitled to payment regardless of the shareholding. At the very least, this will be a means to open dialogue and help the bottom line in the short term.