shareholder

[jasonuk]

I am 60% shareholder director, there is one other 10% shareholder and 30% shareholder. The 30% shareholder is worrying me with his previous business ethics, we needed a new member of staff and he suggetsed that we paid someone cash in hand and advised that thay same person if it was a fmaily member could claim job seekers allowance from DSS, i was alarmed at this, this conversation happpened many months ago, but the same shareholder wants to get more out of the company in the way of rights and renumeration more becuase that have helped me at a personal level with debts I owed, this demotivates me in that they never said at the start when we formed the company that he wanted personal matters to be considered as a way of his input in this company. I am demotivated with this shareholder being in the company, at the last meeting with the accountant we agreed to put a shareholders agreement in place, but before this is finalised I wanted to know if I am able to pass a motion to dismiss him from being a shareholder, i know if he remains in the company I will be demotivated. Jason

[jholden]

No you can not dismiss him as a shareholder.

You can offer to buy his shares from him also the company can buy the shares back.

As your accountant has already correctly said put a shareholders agreement in place.

I am assuming, because your post doesn't say, that this other shareholder isn't a director.

If you are the only director then firstly it is reasonable that you are remunerated with a fair and just salary for your input in running the company, then after this, other expenses and taxes, and then if there is anything left the shareholders may if it is in the interests of the company (i.e. no future expenditure that requires the funds) distribute to the shareholders a dividend.

Hope this helps, it sounds like your accountant has it covered, speak to him again and explain to him how you feel.

Jason

[deniser]

I shouldn't think you can get rid of him as a shareholder unless you offer to buy his shares. He is after all a joint owner of the business.

If he is an employee or director then there is probably action you can take against him in that capacity but not great for business relations. Is he either of those?

Looks like buying him out - or he buying you out - may be the better option.

[The Dispute Resolver]

Jason

You cannot force a minority shareholder to sell his shares. However one, much used, old trick, if money was tight with the person you want out, was to seek to increase the share capital requiring him to contribute cash to preserve his percentage thus freezing him gradually out. This can work if trading is not brilliant and the alternative is to liquidate ie the company needs money but those who want to contribute require more percentage.

The problem however you have is that , to increase capital, you need to pass a special resolution yet you and the 10% man are 5% short (you need it passed by 75% plus - which is why I always advise minority shareholders to try to obtain 26% being much more valuable than 25%).

Maybe you should try to tempt him into selling part of his shares to give you and the 10% man a special resolution majority, say 6%-10%. But you refer to him lending you money so maybe he will not be tempted by cash

Try to get as much evidence as you can of his unethical suggestions. This may be helpful if you vote to dismiss him from the Board (which you can and, perhaps should , do).

Obviously my mantra here is 'think mediation'. I can't say any more on your rights or on mediation save with more details and privately - you are welcome to email me on g.ross@TheMediationRoom.com

[jholden]

Oppss,

Removed posting, just realised, the poster has the same name as me. Sorry Graham :-)

Jason (the other one)

[jholden]

Just picking up on a point raised by Graham, increasing share capital and then subscribing is a very good way of diluting someones shareholding, talk to your accountant about it.

You only need an Ordinary Resolution (not Special Resolution) to do it and this requires a simple majority (not 75%).

Jason (the other one :-))

PS You still have to offer the other shareholders a chance to increase thier shareholding in line with yours.

[The Dispute Resolver]

Jason (the other one) is right - an ordinary resolution is adequate unless the Articles restrict such to a special resolution - Regulation 32 of the 1985 Table A makes ordinary resolution OK by default unless excluded from the Articles and I was thinking of one in which this was the case.

[mahutchinson]

It is only necessary to offer the other shareholders shares in proportion if there are pre-emption rights on allotment in place. If pre-emption rights are excluded (either in the articles or by resolution (lasting typically for 5 year periods) then allotments can be made to whomsoever the directors resolve.

[jholden]

Most standard Articles of Association have pre-emption rights. Few pass this special resolution known as 'disapplication of pre-emption rights'.

Best to talk to your accountant who will look at your memo and arts with you.

Jason

[Moneyman]

The easier option is to pay yourself more.
He is entitled to 30% of the dividend no more no less. he is not entitled to any more rights. you have the controlling shares so just tell him to leave you alone. He can advise but he cant make you do anything. Watch out with the personal favours. You can get into a sticky position if you mix company finances and personal stuff.

[mahutchinson]

Actually many modern form articles do disapply pre-emption rights for 5 years from incorporation as they are not useful when trying to structure the company initially.