Advice required on 50 50 shareholder

[abusinessowner]

Hi all, I started a company back in 2007 with another guy and he and our wives became 30/30/20/20 shareholders so each family has 50/50. He left the company in 2016 to set up another business (not competition) without any emails or confirmation, and his wife left in 2018 although I did get a resignation letter. He is now not a Director but wanted to make sure his wife still is although neither of them now have anything to do with the running of the company, neither did they put any money into it. The co turns over around 140k and shows a slight profit and he wants to sell it but I dont as I still run the business on my own and receive an income from it. We dont really get on and his behaviour is shall we say unpredictable. He and his wife do not reply to my offer of shareholder meetings and we have no contact now. I do give dividend payouts but only when I have to, and try and limit this. My offers of trying to buy him out are ignored, as he feels the company is worth far much more than I believe it actually is, so we are deadlocked. I am thinking of writing to him offering say £7k to buy the 50% shares but he will think its derisory. I dont want either of them returning to the company for reason I cant go into. Can I move new business to another channel?? or how is the best way to break this deadlock as I although I run the company now I cant really do what I want and it's pointless trying to build the business when he is still there.

 

[Mr D]

OK so you are a director and his wife is a director? Anyone else?

 

[abusinessowner]

OK so you are a director and his wife is a director? Anyone else?

My wife is - 20%

 

[Mr D]

My wife is - 20%

OK so 3 directors?

You cannot do things to negatively impact this business while you are a director of it.

 

[SteveHa]

There's no such thing as a "20% director". Don;t confuse directors with shareholders (whilst one person can be both, they are not the same thing).

And so, who are the directors, and are the shareholdings still 30/30/20/20?

 

[abusinessowner]

Sorry - to confirm - all 4 were directors and as shareholders myself and business partner 30% each and our wives 20%. shareholding hasnt changed but my bus partner and his wife has left. He is not a director and has nothing to do with the business and wife has left and has nothing to do with the business also, although at his request his wife remains as a director.

 

[Mr D]

Sorry - to confirm - all 4 were directors and as shareholders myself and business partner 30% each and our wives 20%. shareholding hasnt changed but my bus partner and his wife has left. He is not a director and has nothing to do with the business and wife has left and has nothing to do with the business also, although at his request his wife remains as a director.

A director has responsibilities.

The day to day running is down to the directors, shareholders only get involved when its a shareholder decision.
Presuming you don't have a shareholder agreement, what do you want to do?

Walk away from the business and leave it in the hands of the remaining directors? Run things so not doing dividends very often or very high?

 

[abusinessowner]

I'm already doing the latter. I want to buy him out but he has refused thus far, thinking we can get a load of money on the open market. I have been advised one option perhaps is to make him call the shots and for him to find a buyer if he thinks it worth that much. If not he may consider a smaller amount. But while they are still shareholders I cant really do what i want with the business

 

[Mr D]

I'm already doing the latter. I want to buy him out but he has refused thus far, thinking we can get a load of money on the open market. I have been advised one option perhaps is to make him call the shots and for him to find a buyer if he thinks it worth that much. If not he may consider a smaller amount. But while they are still shareholders I cant really do what i want with the business

You cannot force him to sell his shares for less than he wants. Perhaps offer to sell him your shares for the price he wants you to pay for his?

 

[Supercoach]

But while they are still shareholders I cant really do what i want with the business

What do you want to do and what makes you believe you can't do it under the present arrangement?

 

[abusinessowner]

I want him out of the company set up as he and wife no longer work for the company, and I dont want to have to keep paying him dividends!!

 

[Supercoach]

I want him out of the company set up as he and wife no longer work for the company, and I dont want to have to keep paying him dividends!!

As he is not paying any part in running the company or influencing its future as a shareholder I cannot see how this is hindering you or the company.
As for dividends: simply stop paying them as he cannot force you to pay them.

 

[Chris Ashdown]

What does the company do is it retail or services

Could you not resign and start your own company afresh, presumably you have the contacts and once you have left basically there is no company unless she runs it, and you can explain to your clients what went wrong

As you seem to be the only worker in the company then hard to sell without you staying on to hand over

I would make plans to start my own company, award a divi to the most the company can afford (to get as much out as possible) then about 6 weeks latter resign as both director and employee but keep the shares then start running the new company
Not the nicest thing to do but solves the problem

 

[abusinessowner]

What does the company do is it retail or services

Could you not resign and start your own company afresh, presumably you have the contacts and once you have left basically there is no company unless she runs it, and you can explain to your clients what went wrong

As you seem to be the only worker in the company then hard to sell without you staying on to hand over

I would make plans to start my own company, award a divi to the most the company can afford (to get as much out as possible) then about 6 weeks latter resign as both director and employee but keep the shares then start running the new company
Not the nicest thing to do but solves the problem

Hi Chris, it's business services. Thanks for your reply - interesting

 

[Supercoach]

I would make plans to start my own company, award a divi to the most the company can afford (to get as much out as possible)

Problem here is he has to pay an equal amount to the other shareholder.

 

[Mr D]

I want him out of the company set up as he and wife no longer work for the company, and I dont want to have to keep paying him dividends!!

As he's not a director he's already out of the company.
Shareholders generally don't run the company, they just decide shareholder things in a vote and receive dividends.
Does the company have to keep paying dividends? Is there sufficient votes to issue dividends?

 

[Mr D]

Problem here is he has to pay an equal amount to the other shareholder.

How is that a problem? Its what is legally payable?

 

[cjd]

Is there a shareholder's agreement?

Assuming not, then it's rather difficult, they have half the votes so you can't force anything that materially disadvantages them to happen.

You can stop paying dividends.

You could get a valuation from your accountant and negotiate from there. Bearing in mind that the company is likely to be worthless without you.

Somehow you need to get a deal done and move on or resign and watch it fall apart. There's a chap on here called The Resolver who does this for a living and is very good at it, if he doesn't pop in, PM him.

Don't delay this, the more work you do for the company, the more valuable it gets.

 

[Supercoach]

How is that a problem? Its what is legally payable?

The OP says he only pays dividends when he 'has to' and I suspect paying out of monies is a major reason to want to own all the shares.

 

[Mr D]

The OP says he only pays dividends when he 'has to' and I suspect paying out of monies is a major reason to want to own all the shares.

Yes may well want to. In which case has to meet requirements of the seller of the shares.
The dividends issue is decided by directors so the other guy has no impact there. If the directors decide to issue a dividend and how much, then all the shareholders will receive dividends based on shares.

 

[SteveHa]

He could always issue new shares of a different class.

 

[The Resolver]

This is the other side of the coin to the one I responded to here. I assume you do not have a Shareholders Agreement which could have included a standard term forcing them to sell. Classic example of the true cost of not having a Shareholders Agreement.

You need to sit down to agree a deal or, if can't yourselves, with the assistance of a shareholder mediator (like myself). First action though is to serve a 28 day notice of a General Meeting of shareholders to pass a Resolution to remove the other wife from the Board.

 

[Chris Ashdown]

As each family has 50% of the shares, how do you pass this vote to take her of the board

 

[Engage Legal]

As noted above - is there a shareholders' agreement? Also check the articles of the company.

Note that as a director you have duties to all shareholders so be careful trying any sharp strategies which might benefit you and not the other shareholder.

Also, (and subject to the above) you could stop paying divs and potentially pay yourself a salary as director/employee although note potential need for shareholder approval.