Removing a director

[sickofit27]

Hi all,

I have just found these forums and am looking for a bit of advice. I am director of a small company that has 4 equal director's and shareholders including myself. One of the directors has been disruptive & argumentative for a while now, to the point where the other directors cannot be bothered to speak to him. We are now at a point where we want to remove him and are looking for advice on -

1) What is the easist and quickest way to remove him?

2) How do we value his shares for buy back?


Any help would be appreciated

Regards,

Paul

[DuaneJackson]

If the other 3 own 75% between them then, assuming you all have equal voting rights, you can easily sack him from the directorship.

As for valuing the shares - good luck! You'll need to find a price that you're willing to pay and he's willing to accept. There's no other way I'm aware of.

You may be able to dilute his shares though. Speak to a good accountant - there are plenty here.

Best of luck with it all, and welcome to the forums!

[sickofit27]

Thanks for the advice.

We do all have equal voting rights, so we could vote him out. Would this be done by holding a shareholders meeting and them all voting to remove the director? Are warnings needed before hand or can shareholders just vote to remove a director at any time?

In terms of share values we have heard many valuation equations such as 3/4 times average profit for this year and the last 3 years. Our issue then would be that it would value his shares at a value the company could not afford to buy back and also I feel would value them a lot higher than we could expect from a private sale.

[DuaneJackson]

I'm pretty sure that if you have the majority oif the shareholders in favour, you can boot him out with no warning but perhaps should keep minutes of the meeting and decision.

It doesn't matter what method you use to value his shares. Unless there is a shareholders agreement stating otherwise, he's perfectly entitled to demand £10,000,000 for them. You can't force him to sell if he doesn't want to.

A good advisor with full sight of the facts + articles and memorandum of association could probably give better advice than some random bloke on a forum who may not know what he's talking about though :)

[Tungstone]

I posted on one of the other threads the procedure you follow
You have got to hold a shareholders meeting and vote

If he has a Bushell V Faith clause his shares are increased
Need to look at your Articles carefully

[Kent Accountant]

Do you have a shareholders' agreement? (SA)

Do you have director's service contract? (DSC)

This is one of the scenarios why we always witter on to everyone that they should have both :(

You have 3 separate issues

1. Removal as a director
2. Termination of employment
3. Acquisition of his shares

I am not a lawyer and you should not therefore rely on my comments.

1. If you do not have an SA or a DSC, he can be removed as a director by a majority of shareholders. You will need to give him notice of an ordinary resolution to remove him
2. If you do not have DSCs he has the same employment rights as any other employee. Many, but not all, of those rights do not apply until he has 2 years' continuous service
3. You cannot force him to sell you his shares unless you have an SA that provides for it, except in very limited circumstances that are unlikely to apply. You can possibly dilute his shareholding by issuing additional shares. A Bushell v Faith situation which provides for a director to have more votes on a resolution to remove him is only likely to be in place if you have an SA. Always difficult to value shares in these circumstances as realistically a 25% shareholding is not worth 25% of the value of the business as it is a minority holding. You need to speak to your accountant who will be best placed to advise you

Bear in mind that there is legislation contained within the Companies Acts relating to the "oppression of a minority shareholder" but his legal costs could be significant.

[sickofit27]

Thanks for all the advice.

It looks like we will be able to get rid of him with out an issue the only sticking point is going to be how much we have to buy the shares back from him for. We do have both directors & shareholders agreements. In the SA it says that if a director leaves or is removed they have to sell the shares back to the company at a value to be decided by an independant 3rd party. I guess the next thing is to speak to an account and get a share valuation.

Thanks once again.

[Kent Accountant]

Thanks for all the advice.

It looks like we will be able to get rid of him with out an issue the only sticking point is going to be how much we have to buy the shares back from him for. We do have both directors & shareholders agreements. In the SA it says that if a director leaves or is removed they have to sell the shares back to the company at a value to be decided by an independant 3rd party. I guess the next thing is to speak to an account and get a share valuation.

Thanks once again.

If you have a shareholders' agreement, it will almost certainly have a section about the removal of a director as that is normally one of the main issues. Check if there are any specific requirements in the agreement

Do the shares have a significant value? If they do, I could let you have details of suitable independent 3rd parties but they don't come cheap :(