50/50 Shareholder Dispute - Advice kindly warranted

[tentribeproj]

Hello,

I'm currently a 50% shareholder and Managing Director of a company which I previously set up in 2015. My Business Partner who had 50% shares of the company had resigned after a year and retained their shares. They did not contribute to the start-up cost; but due to my unfamiliarity with the sector at the time; their expertise was needed. However, due to an unexpected failed business partnership, their expertise which was expected was provided in limited amounts. They have remained an inactive shareholder since 2016.

They have refused to give up their shares and refused to be brought out when they had resigned. This has limited my ability to raise capital for expansion of the business due to my limited ability to give up my shares.

I have not been in a position to sell the company at present as this is my main source of income. I am starting up a new business in the same industry that I plan to re-start afresh, however due to financial constraints - I'm not able to completely take my hands off the former business that has the on-going 50/50 dispute. A critical mistake I made at the start of my company was not having a Shareholders Agreement signed. I had previously been a novice to the world of business and I am still learning.

What are the legal options possible to still be able to move forward with this business if they continue to refuse to be bought out other than expecting this to be a complete deadlock? And what options would I need to consider if this is to be a complete deadlock.

Many thanks,

 

[japancool]

Paging @The Resolver

 

[Frank the Insurance guy]

Hi @tentribeproj ,

Our member @The Resolver is the best person on this forum for advice as this is his area of expertise.

I see the other person is a shareholder only and doesn't work in the business any longer? If so, make sure you are paying yourself a reasonable Commercial Rate salary for your role through PAYE - this would eat up into any profits and therefore reduce dividend payments to shareholders.

 

[WaveJumper]

Welcome to the UKBF @tentribeproj sound advice from both our members above, especially the part about making sure you are paying yourself what you're worth.

@The Resolver it the way to go, hopefully get this sorted and move on, best of luck.

 

[The Resolver]

Yet another great example of why a Shareholders Agreement is so vital. In a company like this you would want a provision requiring a shareholder to sell his shares to his co- shareholder
once he ceased to work for the company or be a Director.

Where here there is no SHA one “not in the book” tactic is to force removal of the other from the Board through transferring a nominal shareholding to a family member/ trustworthy friend and then relying on ( fairly widespread) ignorance of the voting system. Now I know that is a bit vague but i don’t want a full reveal here. I do explain to clients even on the free 30 mn call.

There is a court option ( ‘just and equitable’ rule ) but by far the wiser solution is to reach agreement. Mediation will show that it is just as much not in his interest as not in yours for the current situation to continue. Helping people to see the benefits is why mediation works. We are at an age where courts around the world are including mediation as part of the judicial process ( it’s shortly going to be mandatory here in claims up to£10,000.) I spent last week in Vilnius, Lithuania giving a talk on online and technology assisted mediation as well as judging law students from around the world as they conducted mock mediations. A welcome surprise that an increasing number of law schools these days now include mediation in their courses.’