51:49 split, can I remove the other director?

Discussion in 'Legal' started by spunko2010, Sep 25, 2012.

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  1. spunko2010

    spunko2010 UKBF Regular Free Member

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    I know a similar question gets asked every day on here, but if I own 51% of the shares in a 2 director company (i.e. he has 49%), can I hold a general meeting (with myself) and fire the other director for gross misconduct reasons?

    I will obviously need to seek legal advice if I go further, but just trying to get a heads up first. We don't have a shareholder agreement etc in place, FWIW.
     
    Last edited: Sep 25, 2012
    Posted: Sep 25, 2012 By: spunko2010 Member since: Oct 22, 2008
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  2. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

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    I would assume the other director is also a employee of the company so normal acas dismissal procedures would be required

    Removing him as a director would also need prior notice of the meeting with all directors and a vote given

    You still have the problem that he ownes nearly half the company, which gives him certain powers and in normal cercumstances cannot be forced to sell his shares unless in shareholders agreement
     
    Posted: Sep 25, 2012 By: Chris Ashdown Member since: Dec 7, 2003
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  3. spunko2010

    spunko2010 UKBF Regular Free Member

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    Thanks. The backstory is mentioned in this thread if interested: http://www.ukbusinessforums.co.uk/forums/showthread.php?t=264767

    To paraphrase, we were looking to sell the business. The other director wanted 49% of the business (his share), I initially took exception to this as I do most of the work, I started the business, I put in the initial money, etc etc. I have sat on it since then, and starting paying myself more as per the advice in that thread. However since then the other director has (imo) tried to sabotage the business, failing to respond to customers, very distant and snarky, gone on holiday without letting me know, etc. I believe this might be an attempt to get me to sell the business , i.e. to make the atmosphere unbearable. I now do not want to sell the business, so wondered what my options were in removing this director as I believe his position is (potentially) untenable.

    EG: Winding up the business , dissolving the assets, renaming it, buying him out, sacking him, etc. If anyone has experienced such a thing before, I would massively appreciate any advice you might have as it is making me ill.
     
    Last edited: Sep 25, 2012
    Posted: Sep 25, 2012 By: spunko2010 Member since: Oct 22, 2008
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  4. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

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    If you can prove he has damaged the company and the key word is prove then he has broken company law by not working in the companies intrests

    If you get rid of him he still ownes the 49%

    Buying him out is the only simple solution, he will obviously want more than the true value of the company, but you should look at it as who much it means to you to be 100% owner and how soon can you make up the amount paid to him

    I think you need 75% of votes to wind up the company but that could well not be the case, you will need to check

    You can of course resign as a director and employee but keep the shares and call a vote of no confidence at any time

    I guess bluff and double bluff is the way it would go so best for both to talk to a independant person at the same time and try and sort it out
     
    Posted: Sep 25, 2012 By: Chris Ashdown Member since: Dec 7, 2003
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  5. spunko2010

    spunko2010 UKBF Regular Free Member

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    OK, thanks. It does seem rather ludicrous that despite owning majority shares I don't have as much power as I'd have thought. Oh well, next time eh?!

    What about resigning as the director/shareholder and transferring assets to a new Ltd co with me as the only director? The bank account in the current Ltd company will need to have the funds split I assume, there are no premises / stock etc. Our fixed assets are minimal.

    Note that, this is all only a what-if situation. I am confident it can be resolved prior to anything drastic happening but it will certainly give me more leverage.
     
    Posted: Sep 25, 2012 By: spunko2010 Member since: Oct 22, 2008
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  6. kulture

    kulture UKBF Legend Staff Member

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    If you resign as director, you loose much of your negotiating power. You could also be considered in breach of company law if you immediately set up in competition and tried to take customers away.

    You can remove the other person as director, so long as you go through the necessary steps. There is no way it can be stopped as you own 51%. After that as a shareholder they are entitled to 49% of any dividend. BUT as the majority shareholder you can decide to pay yourself a salary ( and pay more tax) rather than pay dividends (and loose 49% to the other shareholder). Then if there is not sufficient profit, the company will not be able to pay dividends. A few years of this and the other party may welcome any sensible payment for the shares.

    Remember, the value to you of owing 100% is that you remove a headache, and you get to properly distribute profits in a more tax efficient way. The longer the situation carries on, and the bigger the company gets, the harder it will be to sell up 49% and the harder it will be to not give a dividend.
     
    Last edited: Sep 25, 2012
    Posted: Sep 25, 2012 By: kulture Member since: Aug 11, 2007
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  7. spunko2010

    spunko2010 UKBF Regular Free Member

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    OK, that's a definite avenue to explore. Is there anything stopping me - again only potentially at this point - from paying 100% of the profits to myself as PAYE and absolutely no dividends to either myself or the ex-director? Obviously not tax efficient at all, but it's better than nothing.
     
    Posted: Sep 25, 2012 By: spunko2010 Member since: Oct 22, 2008
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  8. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

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    Thats one thing you could do, but is the other director also a employee?, you could remove him as a director, but as an employee(if he is) then you must follow acas procedure to get rid of him

    You also need to read up on shareholders powers with certain % of shares
     
    Posted: Sep 25, 2012 By: Chris Ashdown Member since: Dec 7, 2003
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  9. spunko2010

    spunko2010 UKBF Regular Free Member

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    I have looked at the ACAS procedures - thanks. Looks like a 2 week notice is necessary.

    How would one go about giving someone notice who is overseas and unreachable?
     
    Posted: Sep 26, 2012 By: spunko2010 Member since: Oct 22, 2008
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  10. webgeek

    webgeek UKBF Big Shot Full Member - Verified Business

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    Registered mail to their address as provided for tax purposes?
     
    Posted: Sep 27, 2012 By: webgeek Member since: May 19, 2009
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  11. spunko2010

    spunko2010 UKBF Regular Free Member

    130 6
    OK, good idea, thanks.
     
    Posted: Sep 27, 2012 By: spunko2010 Member since: Oct 22, 2008
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  12. The Resolver

    The Resolver UKBF Big Shot Full Member

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    Before you give him notice of dismissal as an employee- are you sure he is an employee? You don't want to gift him employee rights if he does not have them.

    Quite separate from his shareholder rights, you may have a claim in contract against him if he has breached the terms under which you agreed to give him the 49%. Complex and risky to pursue but the principle of contract law still applies even though the agreement was in relation to the formation of a company.Constructing such a claim may aid the negotiating hand.

    Once you have dismissed him as a director (giving him 28 days notice of an EGM with reasons for the dismissal and he having an opportunity to attend to argue against dismissal) his rights thereafter to financial information becomes very limited (basically just the annual accounts).I would keep it to that minimum. You can then consider other ways to draw down the revenue to yourself other than via a salary eg supplying a service it needs that you may currently do personally (say web marketing or whatever) through a separate company you set up (being careful to ensure they are at rates no greater than market rates).

    More detailed advice on strategy requires knowledge of the nature of the business.That should be kept off the Forum in case he finds it. I advise in these situatiosn ( I did advise on your earlier thread) and you can PM me to discus sprivately.
     
    Last edited: Sep 28, 2012
    Posted: Sep 28, 2012 By: The Resolver Member since: Mar 31, 2006
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