50/50 share ownership in 8 month old company...1 director/shareholder has to go!

[B1lko]

Hi everyone,

I'm new here and just need some simple advice before I get too carried away.

I am currently a 50/50 shareholder in an 8 month old ltd company that I am also Managing Director of.

My family has invested 140k into the business during what seems to be the worst possible year to start a busines ever.
Anyway, my co-director who was solely responsible for all things Sage/invoicing/supplier payments/PAYE and suchlike is just not in agreement with how the business should progresss.

As I mentioned earlier it has been a pretty dire year to start our business but after taking a good look at the financials myself (my co-director has offered no solutions to cash flow issues) I have decided to let the other director go.

Now the good news, he has already agreed to this but has sent me a letter dated a month prior to me issuing him notice saying he has resigned his directorship but intends to carry on with his duties as an employee.

This is untrue but he indicates that this is what he needs so that he may begin making a claim on his mortgage insurance. I have never mentioned that he is being made redundant but merely that we are parting company.

We have been seeking additional investment for the last few months and the truth is that he is the main reason that we have not secured any further investment, I have been told this by two of our potential investors!

The company is currently trading at a loss and wlll finish it's first year at a loss.

The share allocation is 1000 shares at £1 per share value.(500 each)

He has 'subbed' the company (his words)in the form of a single puchase of equipment on his creidt card (agreed by me), c£9k to cover a cashflow shortfall(not agreed by me and I only found out after the fact!)and also some deffered salary.

I have offered to pay him an amount each month to pay back these 'loans' and also to get his outstanding salary payments together for payment to him before the end of his 1 month notice.

My problem is this, he considers that the 'loans' that he has paid into the company (as mentioned above) cover the £500 investment that was required from him for his share allocation and he has recorded this in Sage Accounts (again without my agreement).

Bearing in mind that I am looking to ensure that he is not out of pocket in any shape or form and in as timely a manner as possible am I right to assume that I can 'force' him to sell his shareholding back to me.

I do not want him to have anything to do with the business going forward as he has put the business in a poor cashflow position by paying supplier invoices (in some cases) before they have even come through out letterbox!

I feel I need 100% of the shareholding to enable me to be able to continue to bargain with our potential investors.

What do I do? So far we are being quite reasonable and amicable about the situation but he has quite the temper and is likely to flare up if not handled correctly!

Thanks in advance for your replies!

 

[LawHound]

Unless you have a shareholders agreement in place or in your memo of articles on forming the company, a pre emption right ie on termination or retirement the shares are to be sold back to the company on X valuation it will be a negotiation. Normally, as there are so many areas of dispute here it makes sense to have the whole lot placed into a compromise agreement covering employment, pay due to termination and any other payments to box off the shares also.

You then have a legally binding document to show your new investors and this director goes out in a tidy and clean fashion with what he is entitled to.

Happy to advise further and most agreements of this nature once the figures are agreed, go well, its in the best interests of the outgoing director who will want to be sure there is no ongoing liability for them either.

The sticking point potentially is the future value of the company but currently it sounds like it is facing insolvency without him leaving so it should be laid out to him how precarious it is and this is his best chance.

 

[B1lko]

Thanks for the reply, the company was set up via one of the well known UK company setup companies so the MOA are pretty basic and we have no shareholders agreement in place....and neither of us have a Directors Service Agreement in place.

Do I need to put the compromise agreement together first or have a discussion with him first?

 

[B1lko]

Or to put it another way....how much is this likely to cost to get advice and possibly the compromise agreement?

 

[LawHound]

You need to talk to him and get an offer outlined as he will need to agree with it or you will have wasted money on sorting out the compromise agreement. There needs to be at least some figures discussed at this stage so you both can conclude this and move on. The costs with us will be between £65 for the compromise agreement alone to a ferw hundred depending on how much advice you need to conclude it.