Shareholder won't accept deal

[billybob99]

Hey there,

Me and my friend started a Ltd company last June, we gave an investor 5% for £1k and it was spent very quickly and we tested the idea and decided it didn't have legs.

A few months ago I told my friend my new idea and we decided to pivot the idea, the new idea is in the same industry and involves the same aspects as the first idea so I thought we can keep the same Ltd company etc, today we raised £500k investment from a well known VC in London. ,

Our idea was to give £2k back to the investor in return for the 5% back, but he says he wants £10k?

Last December when I told him it looks like this idea isn't going anywhere, instead of saying oh well, would you accept your £1k back and we dissolve the company he was well up for it.

Any ideas, or is dissolving the company the only way? Can a shareholder object to dissolving a company?

Me and my friend are both directors.

Thanks for any advice.

 

[MASSEY]

I presume the answer will be 'what does your shareholders agreement say' and you don't sound like you have one.

Me and my friend started a Ltd company last June, we gave an investor 5% for £1k and it was spent very quickly and we tested the idea and decided it didn't have legs.

I don't think it matters what you spent it on, you could have spent it on beer, you still gave the guy 5% of your company for a grand at the end of the day.

Any ideas, or is dissolving the company the only way? Can a shareholder object to dissolving a company?

I felt sorry for the VC when i read that

 

[billybob99]

I presume the answer will be 'what does your shareholders agreement say' and you don't sound like you have one.



I don't think it matters what you spent it on, you could have spent it on beer, you still gave the guy 5% of your company for a grand at the end of the day.



I felt sorry for the VC when i read that

The shareholders agreement is the template one that was provided when the company was formed, I should say this "investor" is also a family member

And yes, the it will not go down well with the VC, that is why we want to do this ideally without dissolving the company.

I am just annoyed that in December they were okay and ready to accept their money back, which I thought was morally correct to give them their money back, because in the real world as an investor if the idea flops then your money is gone?

But now after finding out we have VC backing, they want to cash out 10 x investment, the company is in the same position as it was back in December so there is no value that warrants 10 x return.

 

[andygambles]

Let him keep the 5% and carry on. What's the problem?

 

[billybob99]

Let him keep the 5% and carry on. What's the problem?

They add no value and the VC would like to see only core people involved with the idea on board. 5% sounds like a small amount now but this idea will probably go through another 2 more rounds of funding in the future.

There is no real problem apart from the fact someone has invested £1k done nothing for over 1 year and then found out a VC has invested and wants 10 x return.

 

[Chris Ashdown]

Even if you desolve the company now you would I imagin be charged with fraud, he ownes 5 percent of a company and its been offered a large investment, which makes his investment a good investment, mainly due to your sloppy management in running the company

Your best bet will be to make the company a success and every one will benifit

 

[andygambles]

They add no value and the VC would like to see only core people involved with the idea on board. 5% sounds like a small amount now but this idea will probably go through another 2 more rounds of funding in the future.

There is no real problem apart from the fact someone has invested £1k done nothing for over 1 year and then found out a VC has invested and wants 10 x return.

Other than risking £1k of his own money with no certainty that he would get it back. Now you want to screw him over. If the VC has offer £500k then that does make his share worth much more. You either need to pay him or let him keep the 5%. If you dissolve the company to kick him out as a shareholder than I would be extremely concerned as the VC offering £500k might think these are pretty dishonest people what if they do the same to us?

Investing is a risk. He took a risk with you and now you plan to screw him.

 

[Ste Hughes]

He made a good investment (because of your incompetence), now you want to screw them over by the looks if it.

Man up and let him keep the 5% he does not have to sell.

 

[billybob99]

Even if you desolve the company now you would I imagin be charged with fraud, he ownes 5 percent of a company and its been offered a large investment, which makes his investment a good investment, mainly due to your sloppy management in running the company

Your best bet will be to make the company a success and every one will benifit

I very much doubt that is fraud. I can easily set up a new company and the VC's will invest into that one, this way it just makes things easier, and no it is not a good investment as this idea is DIFFERENT to the idea he invested in.

The idea he invested in has no legs, hence nearly 1 year of no progress. Only after some research and a lot of sweat did I think of a new twist and pivoted.

He simply invested into a Ltd company that had nothing.

 

[billybob99]

He made a good investment (because of your incompetence), now you want to screw them over by the looks if it.

Man up and let him keep the 5% he does not have to sell.

Can anyone here read what I said? I said this idea is different, although in the same industry, he did NOT invest in this idea, you need to look up the word pivot to get a better understanding.

I know he does not have to sell, that is why I'm giving him the option to get his money back, otherwise that Ltd company can just sit there and his investment is basically lost.

 

[billybob99]

Other than risking £1k of his own money with no certainty that he would get it back. Now you want to screw him over. If the VC has offer £500k then that does make his share worth much more. You either need to pay him or let him keep the 5%. If you dissolve the company to kick him out as a shareholder than I would be extremely concerned as the VC offering £500k might think these are pretty dishonest people what if they do the same to us?

Investing is a risk. He took a risk with you and now you plan to screw him.

I've already offered him double what he invested? He wants out, but only for 10k which is ridiculous.

Yes I think dissolving the company and starting again is actually the best way, the VC actually suggested starting a new Ltd company in the meeting, but I said I've already registered one so they said we can go ahead with that, but I might have to call them up on that idea and start a new one.

 

[andygambles]

Can anyone here read what I said? I said this idea is different, although in the same industry, he did NOT invest in this idea, you need to look up the word pivot to get a better understanding.

I know he does not have to sell, that is why I'm giving him the option to get his money back, otherwise that Ltd company can just sit there and his investment is basically lost.

I understand what pivot is. I've done it many times. The fact is he invested in a company not an idea. If you want to screw over a family member go right ahead.

 

[warren cass]

Hi BillyBob

I understand your question. This is effectively a different business, different idea and I actually think you are trying to act with integrity. It is convenient to use the same Ltd co and you have offered your family member a return vs no return by starting a new Ltd co.

A couple of questions

Does your VC know the history?
Have they already parted with the cash?
Are they aware of the Ltd company you wish to use?
Who has ownership of the new idea?

One advantage of a new co is it is clean and you can start with a SHA which actually does the job.

 

[warren cass]

Andy there is no screwing over here. The company hasn't been trading. This is essentially a new idea for a company with new stakeholders. He wants to use the Ltd co for convenience and is prepared to give ROI where there wouldn't be.

IMHO you can do a new company formation for less than £20 online. As long as old co doesn't own the idea, just start clean.

 

[Ste Hughes]

Can anyone here read what I said? I said this idea is different, although in the same industry, he did NOT invest in this idea, you need to look up the word pivot to get a better understanding.

I know he does not have to sell, that is why I'm giving him the option to get his money back, otherwise that Ltd company can just sit there and his investment is basically lost.

He invested in the company, the same company which got a 500k investment meaning its much more valuable.

 

[sirearl]

There is no real problem apart from the fact someone has invested £1k done nothing for over 1 year and then found out a VC has invested and wants 10 x return.

Thats how most business is run.

By my calculations his share will be worth 25k of the 500K.

Investing money does not mean one has to do anything to earn.

 

[andygambles]

The person (a family member it seems) gave you £1k early on which will have clearly helped you out even though a return was uncertain. That to me is not exactly doing nothing.

You now have an offer of £500k and rather than let him keep his share, remember you might be somewhere completely different now without his initial investment, you want to remove him from the business in one way or another. You are clearly going to benefit massively from this £500k investment but you want to deny him benefiting from it? Just because he did nothing but believe in you and give you cold hard cash.

 

[billybob99]

Thats how most business is run.

By my calculations his share will be worth 25k of the 500K.

Investing money does not mean one has to do anything to earn.

That's a fair point. He has not done anything since investing the 1k, again since it was a family member I didn't really go down the "official" route as I have done with my other businesses, again I did not think it would come to this.

I should of treated this new ideas as a "new" idea and started a new Ltd company.

 

[billybob99]

The person (a family member it seems) gave you £1k early on which will have clearly helped you out even though a return was uncertain. That to me is not exactly doing nothing.

You now have an offer of £500k and rather than let him keep his share, remember you might be somewhere completely different now without his initial investment, you want to remove him from the business in one way or another. You are clearly going to benefit massively from this £500k investment but you want to deny him benefiting from it? Just because he did nothing but believe in you and give you cold hard cash.

Yes I agree with what you are saying, the 1k he invested was used up in developing the idea, a mobile app for iOS, the app was developed and launched and it didn't take off, me and my friend spent £5k on marketing etc. but it just wasn't happening.

2-3 months went by and we thought of giving the investor their money back as it was a family member and they were up for it, this is when I should of handed it back and it would be game over.

Only recently did I have a brainwave and decide to start a new idea. It makes sense what everyone is saying, he invested in the company, so whatever the company does he will benefit from, even though that is how it works, it is not really what we had in mind.

 

[billybob99]

Hi BillyBob

I understand your question. This is effectively a different business, different idea and I actually think you are trying to act with integrity. It is convenient to use the same Ltd co and you have offered your family member a return vs no return by starting a new Ltd co.

A couple of questions

Does your VC know the history?
Have they already parted with the cash?
Are they aware of the Ltd company you wish to use?
Who has ownership of the new idea?

One advantage of a new co is it is clean and you can start with a SHA which actually does the job.

Hey Warren,

Pretty much, yes that is what I am trying to say, in our eyes it is a different business altogether.

Basically, if you ask this investor, what have you invested in? They will simply roll their eyes, because they do not even know what the idea is. All they know is that is it good enough to get VC funding.

1. Does your VC know the history? No, all they know is that there is a Ltd company already formed
2. Have they already parted with the cash? No, the paperwork is due to be signed next week
3. Are they aware of the Ltd company you wish to use? Yes they are aware of the current Ltd
4. Who has ownership of the new idea? I would say me, I thought of it, ran it past my friend and we went for it

 

[beasty]

They add no value and the VC would like to see only core people involved with the idea on board. 5% sounds like a small amount now but this idea will probably go through another 2 more rounds of funding in the future.

There is no real problem apart from the fact someone has invested £1k done nothing for over 1 year and then found out a VC has invested and wants 10 x return.

Sorry but that is a pretty dumb statement, you invest to get a return, the higher the better, if you did not want their investment you should not have accepted it, fact is you have got to where you are due to in some part this investment.

Company the family member invested in is the one that has attracted the VC money

Your investor owns 5%, the end

 

[billybob99]

Andy there is no screwing over here. The company hasn't been trading. This is essentially a new idea for a company with new stakeholders. He wants to use the Ltd co for convenience and is prepared to give ROI where there wouldn't be.

IMHO you can do a new company formation for less than £20 online. As long as old co doesn't own the idea, just start clean.

Yes, nobody is being screwed here.

This company hasn't traded whatsoever. This all boils down to it being a family member, I felt it was morally correct to give them their money back, they have invested in ALOT of ventures in the past and present, coffee shops to restaurants etc. most have flopped so they understand the risks, but I wanted to be fair and say you gave us a shot, we spent the money on the idea but even then I'm prepared to give you all your money back since you are family.

Pretty much just wanted to use it for the convenience and also the Ltd company is called the exact same name as our brand, i.e. OurBrand Ltd, that's the only reason.

 

[billybob99]

Sorry but that is a pretty dumb statement, you invest to get a return, the higher the better, if you did not want their investment you should not have accepted it, fact is you have got to where you are due to in some part this investment.

Your investor owns 5%, the end

I wanted their investment, I used their investment and it did not go anywhere. Their investment has no bearing whatsoever on this new idea and the stage we are at with it.

The only dumb statement is yours; fact is you have got to where you are due to in some part this investment.

1. it is not actually a fact
2. and no, their investment played no part in getting to where we are today
3. creating a new Ltd company will still attract the same investment from the same VC... the VC does not care what the Ltd company is, maybe they are interested in the idea...

 

[UK Contractor Accountant]

Thats how most business is run.

By my calculations his share will be worth 25k of the 500K.

Investing money does not mean one has to do anything to earn.

He only owns 5% of £20K issued share capital at the moment. If a further 500K share capital is issued to the VC his shares are still worth £1K as his shareholding will be diluted. Only by trading, making profits, developing a product etc will value be added to his shareholding.

Of course he/she may be entitled to further shares under the pre-emption rights clause which they may or may not take up.

 

[warren cass]

Hi BillyBob

If the IP is with you and not the company, I would start fresh with a new clean company. I would imagine the VC will have a pretty robust SHA anyway.

The point missed by everyone above is that this does not relate to the previous business idea.

I would not feel obliged to include an ex investor (Of a failed business) into a new venture and nor should you.

Best of luck with it all.

 

[billybob99]

Thanks Warren,

There was never any IP with the Ltd company anyway. If starting again, the VC would create a new Ltd company and take care of it all from there anyway.

A few messages up the only reason I wanted to continue was like you said convenience and also because the Ltd company was called the exact same as our brand, i.e. OurBrand Ltd, I am just a bit picky I guess with matching names

Yes, everyone seems to think you invest in a company and you get the fruits no matter what it does, you could go from a bad idea to a good idea several years later and you get the rewards - which is true to a point I guess, but it is not what we had in mind as their investment was already used up in the original idea and they don't want to put anymore money into it.

Thanks for the advice.

 

[MikeJ]

This isn't anything to do with this post, is it?

http://www.ukbusinessforums.co.uk/threads/shares-really-stupid-question.330367/

 

[billybob99]

He only owns 5% of £20K issued share capital at the moment. If a further 500K share capital is issued to the VC his shares are still worth £1K as his shareholding will be diluted. Only by trading, making profits, developing a product etc will value be added to his shareholding.

Of course he/she may be entitled to further shares under the pre-emption rights clause which they may or may not take up.

Interesting!

 

[billybob99]

This isn't anything to do with this post, is it?

http://www.ukbusinessforums.co.uk/threads/shares-really-stupid-question.330367/

No this was me asking in August, if you go to the top you will see I created the Ltd company in question last June 2013.

 

[beasty]

Nothing is being missed, read the original post, it says
The person invested in a company, it went nowhere, the OP did not start afresh and attracted a 500k investment
What part of this is not correct?

You can have 1 million ideas in your single ltd company, it is not the investors problem that you were not working on the idea that did not pan out.

It seems like you want to be told, yes it is ok just give him his 1k back and get on with your life.

How can the company not have traded when you took an investor and say that the idea failed and now that same ltd company has had 500k investment

This thread is getting pretty stupid, you have either done the above or not, either way this is what you stated an the investor is 5% owner, what the company is worth WHO KNOWS but I do know they own 5%

 

[beasty]

Nothing is being missed, read the original post, it says, I paraphrase

The person invested in a company, it went nowhere, the OP did not start afresh and attracted a 500k investment
What part of this is not correct?

You can have 1 million ideas in your single ltd company, it is not the investors problem that you were not working on the idea that did not pan out.

It seems like you want to be told, yes it is ok just give him his 1k back and get on with your life.

How can the company not have traded when you took an investor and say that the idea failed and now that same ltd company has had 500k investment

This thread is getting pretty stupid, you have either done the above or not, either way this is what you stated an the investor is 5% owner, what the company is worth WHO KNOWS but I do know they own 5%

 

[beasty]

Nothing is being missed, read the original post, it says, I paraphrase

The person invested in a company, it went nowhere, the OP did not start afresh and attracted a 500k investment
What part of this is not correct?

You can have 1 million ideas in your single ltd company, it is not the investors problem that you were not working on the idea that did not pan out.

It seems like you want to be told, yes it is ok just give him his 1k back and get on with your life.

How can the company not have traded when you took an investor and say that the idea failed and now that same ltd company has had 500k investment

This thread is getting pretty stupid, you have either done the above or not, either way this is what you stated an the investor is 5% owner, what the company is worth WHO KNOWS but I do know they own 5%

 

[beasty]

Oops mobile broadband on the side of erupting volcano.. .!

ahahaha

 

[billybob99]

Nothing is being missed, read the original post, it says, I paraphrase

The person invested in a company, it went nowhere, the OP did not start afresh and attracted a 500k investment
What part of this is not correct?

You can have 1 million ideas in your single ltd company, it is not the investors problem that you were not working on the idea that did not pan out.

It seems like you want to be told, yes it is ok just give him his 1k back and get on with your life.

How can the company not have traded when you took an investor and say that the idea failed and now that same ltd company has had 500k investment

This thread is getting pretty stupid, you have either done the above or not, either way this is what you stated an the investor is 5% owner, what the company is worth WHO KNOWS but I do know they own 5%

Do you want to post this once more?

That is pretty correct. I do not want to be told because, I don't have to give them their 1k back, the company can sit there forever if it wants. I said it felt morally correct to give it back as its a family member, if they don't want it then they can keep it invested in that Ltd company, but that company isn't going anywhere fast soon.

Of course it hasn't traded, it was created, the mobile app was launched and it hit the pan after 1 month. Then from September to now its not done anything. I am not sure what defines "trading" but there have been no sales and no other income.

This 500k is seed capital to get the idea, the new idea, developed and tested and then launched as a MVP.

 

[billybob99]

Seems now they want 7k and they will call it a day, not sure if they are reading this thread

Is that you uncle.

 

[simon field]

No, not me.

 

[billybob99]

No, not me.

Thank god for that, would of had to avoid you at the wedding on Sunday otherwise.

 

[simon field]

I can't wait!

What time you getting there? I'm wearing my crimson cowboy shirt - don't wear that tight little orange gilet of yours, we'll clash awfully.

 

[billybob99]

Early as usual. Crimson cowboy shirt! That brings back some terrible memories for me

 

[cjd]

This isn't making a lot of sense, investors put their money into companies and the very, very first thing they do is check the structure of the company - who owns how much of it.

Is your investor investing in newco or oldco?