50/50 Ltd Company Buyout

[JR1984]

Hi,

I own a Ltd company with another partner both having equal 50/50 shares. The company has had to VAT register and unfortunately now it is only just breaking even meaning wages increases, dividends etc are out of the question, expanding the business isn’t an option for me - as I no longer trust my business partner due to circumstances arising recently - I feel the partnership has run its course.

I have expressed that I do not want to be in a VAT registered company with him and suggested him buying me out or vice versa - he declined both offers said he does not wish to leave and can not afford my fair asking price - my annual salary.

In this situation based on our agreement - I have only one option left to sell to a third party buyer which I doubt will be possible.

I would like to leave the company and set up my own - how can I do this without walking away from my business with nothing? Do I have any other options? Is taking half the stock/assets from the company allowed - what is your advice?

Thankyou John R

 

[Mr D]

The stock / assets belong to the company not you. So you cannot take them.

You can resign as a director then set up another company. Doing whatever.
You do not have to give up your shareholding when quitting as a director.

If the company is not making much then are your shares worth much?

 

[obscure]

....he does not wish to leave and can not afford my fair asking price - my annual salary.

Sorry but just because you thought up a number that doesn't mean it is "fair".

The value of your business has very little to do with what you get paid per year and, at the end of the day, the only fair price is the one that both parties agree to.

 

[JR1984]

Sorry but just because you thought up a number that doesn't mean it is "fair".

The value of your business has very little to do with what you get paid per year and, at the end of the day, the only fair price is the one that both parties agree to.

With respect, this amount was agreed & reached by both parties - it was less than the independent valuation provided by a third party. I would appreciate constructive advice with regard to the questions I’ve asked.

 

[JR1984]

The stock / assets belong to the company not you. So you cannot take them.

You can resign as a director then set up another company. Doing whatever.
You do not have to give up your shareholding when quitting as a director.

If the company is not making much then are your shares worth much?

I was under the impression if I set up a business of the same skill set that this would be seen as a competing business and therefore I would loose my stake in my original business? Also if I quit as director wouldn’t I loose my say as far as share holding distributions go.? Thanks for your help

 

[Mr D]

I was under the impression if I set up a business of the same skill set that this would be seen as a competing business and therefore I would loose my stake in my original business? Also if I quit as director wouldn’t I loose my say as far as share holding distributions go.? Thanks for your help

Yes if you were also a director of the current business.
Hence resign as a director and there isn't a conflict of interest.

No reason you would lose your stake in your original business unless your shareholder agreement specifies that.
Resign as a director and you lose the day to day running of the company. You don't lose your shareholding, that's separate from directorship (again unless your shareholder agreement specifies otherwise).
Shareholder meetings the shareholders vote their shares.

 

[Mr D]

With respect, this amount was agreed & reached by both parties - it was less than the independent valuation provided by a third party. I would appreciate constructive advice with regard to the questions I’ve asked.

The only value that counts is the one that the shares change hands for. Anything else is between a guess and an estimate.

 

[The Resolver]

You are in the stronger position in that you can leave and retain your shares thus giving your co-shareholder a major headache being that he now runs the company on his own yet has to share dividends with someone who does not lift a finger for the company. He also can't make any major decisions, not even approve the accounts, without your agreement. He can't sell or appoint another director without your agreement. He can't move the business into another company or try to divert funds by setting up his own unnecessary supplier without becoming personally liable to compensate the company, The only advantage he has is that he can award himself a larger salary rather than issue dividends. However this means he is effectively paying more tax this way. Also if the increase is unreasonably high he may be gifting a claim in law to you that his actions are causing unfair prejudice to another shareholder. But the overall prejudice is to himself in that by not issuing dividends he is increasing the value of the company and this the price he eventually negotiate with yourself.

If you really do want to run a competing business, then as has been said above you must not be a director when you do this else you can be sued by the company for business lost as a result. However once you resign as director your entitlement to financial and trading information about the company is significantly reduced. This information will be vital when negotiating your exit so you must ensure you have taken copies of up to date information including the banking before you resign.

These cases are best resolved through specialised mediation.Its about helping your co-shareholder to realise how bad is the situation he finds himself in and the gain for him in reaching an early agreement to buy your shares. You are welcome to call me for a free chat explaining how mediation works.




,

 

[Newchodge]

With respect, this amount was agreed & reached by both parties - it was less than the independent valuation provided by a third party.

Perhaps if you had stated that in the first place, it might have helped

 

[JR1984]

Perhaps if you had stated that in the first place, it might have helped

Yes perhaps?