Business partner selling his share to direct competitor - help please!

[poppydan79]

My business partner of eight years has decided he wants to leave the company. It is a limited company and we own 50% of the company each. He has been in discussion with a direct competitor, who is prepared to pay an over inflated price for my partners half, but has no interest in purchasing the whole company (which is suspicious in itself). The potential buyer has a string of failed and failing businesses and i believe he wants to make a quick purchase of our profitable company to asset strip it (his companies have not made a profit in a long time). In particular he loses a competitor and gains the client base discounted at my expense. He has not proposed any plans to move the company forward, just stripping out the best employees and assets for his own gain.

Obviously I would prefer the company to continue trading but not with this prospective buyer. a buyout would be an option but is obviously difficult given that the guy is essentially going to be able to remove a primary competitor for half price. As such he can inflate the value quite a bit so that a business loan to match the offer will load myself/company with crippling debts. Any advice gratefully received

 

[OldWelshGuy]

Do you have a shareholders agreement? does this allow him to do that?

Also as a director he has to act in the best interests of the company. This could get messy as LTD co shares can't just be traded like PLC shares.

 

[poppydan79]

thanks for the reply. no shareholder agreement currently we agreed verbally in a meeting what would be the process and then again in front of a solicitor, but never got further.

 

[Big Pete]

hmmmm sounds worrying for sure .. unusual for them to only want 50% just to asset strip as with 50% you have to ok stuff.

i will be interested to see when any legal experts come on what they think ?

 

[The Resolver]

I will assume for now you are both directors. Please clarify.

If you send me the Articles of Association, I will do a quick check but the likelihood is they require share transfers to be approved by the Board so you can block the transfer. The Articles may also require the shares to be offered to you first of all.

Even if the shares can be transferred, the buyer cannot appoint himself as director without you voting for his appointment (needs a voting majority). A non-director, no matter how many shares he holds, cannot dispose of the assets.

Of course people sometimes try to apply their own rules as in walking into the office and
acting as a director in the eyes of the outside world (shadow director) so you must begin to formalise the running of the company (eg call an urgent EGM to discuss these developments) and make it clear to your co-shareholder you know the rules and he doesn't.

You can download a copy of the Articles from www.companieshouse.gov.uk when you search for your company .

OWG is right about him having a duty in law to act in the best interests of the company, so whatever he does end up doing , within or without the rules, exposes him personally to compensate the company for all damage that results (you can take out the legal action in the name of the company even though you do not have a voting majority).

 

[poppydan79]

The Resolver - many thanks for your helpful reply. Yes, we are both directors. I was had read from the sample memorandum on companies house, but couldnt find how to download the original. Very useful to know that that its not the same a plc share. I was more concerned that in the real world this would be difficult to implement in practise if it went ahead as the buyer is intent on producing a marketing campaign pronouncing us "part of the group". our principal value is our customer base, relationships, skills and systems. with full access to this it would be very difficult to stop a gradual disintegration.

ill talk to the other director and see if he can be persuaded towards a leveraged buyout or business angel approach that fits with both our and the companies goals. Given the good performance of the company of ther last 8 years hopefully i can find someone more suitable or arrange a loan.

thanks ever so much again for your advice.
really useful and appreciated.

 

[mahutchinson]

Also, the transaction would be a conflict of interest which would need to be declared by your business partner at the board meeting considering the share transfer. This would almost certainly (unless the articles allowed conflicted directors to vote on any subject) prevent him on voting on the share transfer.

 

[The Resolver]

Mike - the shares are balanced 50/50 so the OP just blocks the transfer anyway.

The other shareholder simply needs to be told he cannot progress with his plan and why. Then proper informed negotiation can take place.

 

[Clintini]

No one seems To have considered that the purchaser has to first apply to the board for regsiaion / entrely on to the register of shareholders and that he may not even get to become registered. more fool the purchaser if he pays good money for a non controlling interest. He has no right to a job, income, directorship etc.

 

[The Resolver]

No one seems To have considered that the purchaser has to first apply to the board for regsiaion / entrely on to the register of shareholders and that he may not even get to become registered.

I made this point in message 5.