55/45 shareholder split

[Timberltd]

Hi

I’ve just discovered that my father has left the family business as a 55/45 share split with myself and my brother. We have Both worked there for 15 years. I originally thought it would be 50/50.

He’s the managing director and I’m slightly more junior (10 years difference in age)

He’d have the final say in any decisions involving the business as he would have the lion share. Which I’m ok with.

If any dividends were taken he’d have to share them as per our shares I assume.

I’m just not sure if there is any major negatives about this?

We are close brothers and I’m certain he wouldn’t do anything against me

However is there anyway he could force me out? Or could he increase his wages significantly and not change mine? Or buy items like cars etc

I’m more of a operations/manual side of the
Business and not certain about these things.

Any help would be appreciated

 

[DontAsk]

Dividend are paid according to the class of shares. Do you both have the same class of shares?

 

[Timberltd]

Dividend are paid according to the class of shares. Do you both have the same class of shares?

Yes both will have the same

 

[Paul Kelly ICHYB]

GET A SHAREHOLDERS AGREEMENT!

It doesn't matter that you are brothers - you do not know what is going to happen in the future. Get a good SHA and remove some of the potential stress.

 

[Clodbuster]

Word of warning, My brother and I were left a business 50/50, - within 10 years we barely spoke and I walked away being unable to force a sale or get paid out. To this day (40 years ) we have nothing to do with each other.

 

[Paul Kelly ICHYB]

Word of warning, My brother and I were left a business 50/50, - within 10 years we barely spoke and I walked away being unable to force a sale or get paid out. To this day (40 years ) we have nothing to do with each other.

And a SHA would probably have prevented this unless there were underlying issues!

 

[Socio South West]

100% get a shareholder's agreement drawn up - but don't blindly accept the first document that the legal industry presents to you: Much as you and your bro get on, look at various scenarios - particularly the scenario that @Clodbuster went through. ( I have a brother with whom I have a similar relationship, largely (I believe) down to my father's poor management of the family partnership)

Make sure both parties are adequately protected by the agreement in the event of incapacity or sudden death of one or other - especially if your brother is the victim. What happens to control of his shares in this situation? You could be the loser if the wrong relative gets control of his shares.

 

[brucegreig]

To add to what others have said, one reason for using a shareholders agreement is that it makes sure both of you have thought through the difficult scenarios in advance, and have an understand of what the other thinks. A few examples:

For example, your brother might assume that if he wants to sell the entire business to someone else, he can decide this as he is the majority shareholder. He'd be wrong about that, unless there was a drag-along clause in the agreement.

On the other hand, you might expect that if your brother sells his shares, the buyer would have to buy your shares on the same terms. Again, you'd be wrong about that, unless there was a tag-along clause in the agreement.

More commonplace disagreement would be around salary. Your brother might pay himself what he quite reasonably believes is a sensible salary. You might think that is very high salary. Both reasonable points of view, no-one is trying to screw anyone over, but will cause great tension. You can put in the agreeement "salary no higher than £x," or some national benchmark like "top of teacher payscale" or grade 7 civil service or whatever you want.

None of these examples involve anyone deliberately being malicious or unreasonable. But if you haven't talked it through in advance, and written it down, you can just both bumble along happily for ages, complely unaware that you each have a different (but reasonable) understanding of what would happen under x / y / z scenario. Then it blows up, each of you comes to believe the other has acted maliciously and you don't talk to each other for 40 years and spend your children's inheritance on legal fees.

None of the parties that I see at mediations ever expected their business relationship to break down and end up heading to court. They all thought they were going into friendly business with their friend / brother-in-law / whoever. They are never friends by the time they come to me, unfortunately.