Shareholder dispute

recovered · Feb 4, 2008

Hi

New on this site.

Apart from breaking my ankle on Saturday, I was also told by my business partner that he wants to dissolve the partnership. Great Weekend!

We are both 50/50 shareholders of a Ltd Co that wholly owns a separate trading co. The trading co has four Directors, including me, my business partner, his brother and one other.

He has outlined four options

Sell the business
Wind the business up
He buys me out
I buy him out

He wants to buy me out but I am angry and feel he is trying to force me out. Can I force him to consider mediation as the first option? I worry that a buy out by either party will eventually ruin the business anyway so neither party would win

Thanks for any help in advance

Recovered

shibs · Feb 5, 2008

Hi sorry to be negative, but your partner simply wants out or to dissolve the company. I can't see how he is "forcing you out" given the options he has given you. I would say he has been fair open and honest.

There is another thread in this forum where the partner is being forced out: he has offered to buy out the others concerned but they have declined. (His mistake was to give away his controlling interest for investment capital)

I really don't see why you feel "forced" when all options are open to you.

Again sorry for being negative here ,, but it is just my honest opinion.

Antonia @limeone.com · Feb 5, 2008

It is upsetting and hurtful when a business partner breaks up, some liken it to a divorce. The emotion involved clouds judgment, if someone wants out then they will go so consider the valuation option. You cannot force, unless there is a clear mediation only clause in your written partnership agreement to place this problem through mediation. You have the options now before you so you need to look at the pros and cons of each.

recovered · Feb 5, 2008

Thanks for your reply Shibs and I can see your point.

What I was trying to get a view on was wheher I could recommend/demand mediation between the shareholders as the other options will not have a good outcome.

Sell the business - will we get the right price in the time made available to market it?
Wind the business up - employees made redundant, contracts unfulfilled, future reputation damaged
He buys me out - Best option on the face of it but only if he can raise the money
I buy him out - I or the business become lumbered with a liability that could prevent future growth for many years.

In any case, as he wishes to dissolve the business, I feel I should do whatever is in my best interests

recovered · Feb 5, 2008

Thanks for your reply Antonia

We have no written partnership agreement so I know I cannot force this option.

Babylon · Feb 5, 2008

I think you only have two choices. Either sell the business to a third party or sell your stake to the other person.

The other two options are pointless as you are not going to get anything by winding up the business. You also say that without him the business will go to the wall - which means there is no point in you acquiring his shareholding.

In the absence of a shareholder agreement, which would have given you a clear steer on how to negotiate/value the business; I therefore suggest you appoint a reputable business selling agent to sell the business. The exercise will give you a guide on likely price.

Based on what you have said, I will take the money as something is better than nothing.

As a matter of interest, what sort of business is it anyway?

recovered · Feb 5, 2008

We are involed in the transport industry.

I think the reality is that either of us could probably run the business without the other especially as there are other directors too, but raising the cash to pay the other off would have a negative impact on the business for many years to come. As you might expect, we both have different skills - I run the financial side, he runs the sales side

shibs · Feb 5, 2008

Hi

I don't see why if "he is doing the buying out" and you are getting the cash that the impact on the business is going to affect you. It will no longer be your problem. Take the cash (best price you can; have the business valued) and run.

As it has been suggested previously there are only two options:

a) Sell the Business (negotiate more time to market if required). Split the proceeds.

b) You sell your share (as buying is not an option) having obtained a realistic market valuation. Anything that happens to the business after selling is not your concern, after all "they are forcing this" on you.

Think logically, not emotionally I am sure you can re-invest in another business (with or without a partner).

Good Luck ...

recovered · Feb 5, 2008

Thanks Shibs

I think Antonia hit the nail on the head when she said it is like a divorce. And nurturing this business together has been like raising a child. I know I should set the emotional to one side but it is easier said than done.

I do also accept that if I take a fair price, then the future operation of the business (good or bad) will not be my concern.

I would have to wait and see if that price will be offered and could be raised. He has indicated that he would prefer to make regular payments rather than a lump sum. The assumpton therefore is that he will draw this from the business cash flow and hope that profits will make it possible at the end of the financial year. Anyone care to comment? What if the business does not perform well enough to make payments to me?

I have discussed this with our Accountant and suggested we try and mediate before we make a final decision but my Partner is not prepared to mediate.

As I say, I do take on board the cold hard logic of making the best decision for my sanity as much as not wanting to go down the legal route but any split has got to be fair.

Jenni384 · Feb 5, 2008

I would be cautious about him buying you out gradually. Sounds like he wants to have his cake and eat it (yes I know thats a dumb phrase!). If he wants to buy you out, you need a lump sum and then you can walk away. You've already said this is emotionally distressing - having to be bought out piece by piece will not help, imo.

obscure · Feb 5, 2008

You have a 50/50 share... get everything you can and then walk away. If the debt kills the company so be it. Talk to an accountant and get help to ensure that you get the pay out in as tax efficient manner as possible.

brisum · Feb 5, 2008

Change the locks, and tell him if he wants to go then well go. Dont give him anything, in law partnerships are a strange and often costly way of going into business. What he owns so do you, if there are say two partners both own 100 per cent of all assets. Therefore quite simply whom ever gets there first takes first. Dont feel bad he or she wont.

Babylon · Feb 5, 2008

Brisum,

Your advice is dangerous. Read the OP please. It is a limited company and the two directors own 50% shareholding each. The Ltd company is a totally separate legal entity and a director/shareholder cannot take whatever he/she wants. As directors they have responsibilities for the company.

Please think before giving advice on open forums such as UKBF.

recovered · Feb 5, 2008

Thanks Babylon (Joel)
I think Brisum was being supportive in a sense and I appreciate that. As you rightly point out, the assets can't be seized even by a 50 % shareholder.
The business partner has relented a little as the day has gone on and I think he may consider mediation with a non-equity Director assisting us.
Nothing can be resolved without tallking and I realise the outcome has to be WIN WIN for both parties. Trying to be positive - hope it's not naive.

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