business partners salary

[john9999999999]

Hi
Was wondering if anybody has the same problem as me or can help.
I am a 27% shareholder, and company director,my business partner has the rest. I want to give myself a better salary as I work hard in the business full time, he also works but only when he wants, and when he can! When asking about giving myself a better salary, the reply was the money is not there. I don't see the accounts as he gets temperamental every time I ask about it. So I am I right to suspect that something is not right. He does the books and the relationship is based on trust. But I now want to see some evidence on how the business is performing. How can I go about this without breaking the trust barrier? Do I have a right to give myself a better salary, I am not even entirely sure what my business partner takes.!

 

[kulture]

Its not a matter of trust, it is a matter of law. As a director you have a legal obligation to ensure that the business is not trading whilst insolvent. You have a legal right to see the accounts. Look up a directors duties/obligations and approach it with him in that way. Say its nothing to do with not trusting him, its what you need to do to fulfil your legal obligations.

 

[Psl]

Just simply ask him to see the books and the bank statements. If he has nothing to hide you he will let you see them. If he has something to hide then he won't and you can then act accordingly.
Btw, any trust you had seems to have gone by asking the question on here.

 

[Alan R Price]

John

As kulture says, it's a matter of law: a director has a duty to keep himself informed, at all times, of the company's financial position. Failure to do so is a breach of that duty and if the company were to go bust or become subject to an investigation by HMRC all the directors would be equally on the hook. The other director has a duty to give you access to the books and records and failure to do so is a breach of his duty. If he is so secretive, what is he going to do when it's time to file the annual accounts? Tell the accountants they can't have the records?

The practicalities of the matter are however somewhat different from the legalities. The bank should give you access to the company's accounts, even if you are not on the mandate. As a director you are entitled to see the statements but they are only an indication of the cash position. Presumably you have no wish to become involved in expensive litigation to try to resolve the matter, so you need to persuade your co-director that he is acting unlawfully and unreasonably. How important are you to the business? If you were to resign, could he replace you? What would the effect be on the business? Would the threat of your resignation have any effect on him? If you were to resign, would it be feasible for you set up again in competition or go and work for somebody else?

From what you say, it sounds as though there is no formal shareholder agreement and you probably don't have a written director's service agreement either - this is in some ways a shame because there is no formal mechanism for dealing with a dispute such as this but it could work in your favour. In the absence of a formal agreement there is nothing to prevent you resigning and going and working for somebody else or setting up in competition.

Clearly the best way forward would be for him to open up to you and grant you the access you require. As directors you should be meeting regularly to discuss the company's performance so if he refuses it seems to me you should be thinking about either excluding him from the business (change the locks and prevent him access) or resigning. After all, you are both equally responsible for the company's affairs so if you cannot be certain it is being run in the best interests of the creditors and shareholders, you could be opening yourself up to action by a liquidator or HMRC if things all go horribly wrong.

 

[Import Expert]

"I don't see the accounts as he gets temperamental every time I ask about it. So I am I right to suspect that something is not right."

This sounds slightly alarming and as a business partner you need to be aware of what is going on and what financial situation your company is in.

 

[john9999999999]

Thanks for all your reply's.
The annual reports are due soon. So, should I automatically get a copy of these?

 

[Chris Ashdown]

They will be abreviated accounts and not tell you much unless you have a large company definatly not tell you all you want to know

 

[Moneyman]

You need full accounts and cashflow as you are legally liable if the company is trading insolvently.

 

[businessfunding]

. He does the books and the relationship is based on trust. But I now want to see some evidence on how the business is performing. How can I go about this without breaking the trust barrier? Do I have a right to give myself a better salary, I am not even entirely sure what my business partner takes.!

The relation isn't based on trust, it is based on blind faith.

You are part of the business and to be part you need to understand it - which means being up to speed with the figures - above and beyond the legalities mentioned above

And you need a shareholders' agreement PDQ!

 

[Alan R Price]

You need full accounts and cashflow as you are legally liable if the company is trading insolvently.

I hate to disagree but it's not as straightforward as that. There are plenty of companies that go through a period of insolvency but come out the other side through a combination of good advice, a willingness to change, hard work, cooperation of creditors and sometimes, further investment - oh, and probably a little luck.

The definitions of insolvency are inability to pay one's debts as they fall due or one's liabilities exceeding one's assets. Only one of these conditions has to be satisfied. If a company's directors realise their company is insolvent they must take "every step with a view to minimising the potential loss to creditors" (s214 of the Insolvency Act 1986 - wrongful trading) or they face having to contribute to the company's debts if it goes into liquidation. Only a liquidator can bring a wrongful trading claim and it will be for a specified amount. The directors do not become liable for the debts per se and the creditors cannot usually sue them personally - which is a common misconception.

A director who concludes his company is insolvent has a limited window of opportunity in which to put together a rescue plan. You are absolutely right that this must include cash flow and profit and loss forecasts but it goes a lot further than that. The directors must decide what is going to change, or what has changed about the business that will prevent the same problems arising again. They will need to obtain "buy-in" from all the major creditors - which will usually include the bank, suppliers and HMRC. They will need to ensure that profitability and cash flow will be sufficient not only to pay the company's future debts but also to make substantial inroads into any existing liabilities, otherwise a rescue will simply not be possible. The keys are planning, monitoring progress and keeping the creditors informed of the situation so they cannot protest, at some later date, that they allowed further supplies, or time to pay, on the basis of inadequate information.

Insolvency itself need not be the reason for a company to cease trading however the directors of an insolvent company are only justified in continuing if they can demonstrate that to do so is in the creditors' best interests; and that the decision to continue is based on sound business principles and realistic expectations, not just some airy-fairy hope or misplaced Micawberish optimism that "something will turn up".

 

[john9999999999]

Thanks for all your replies.
Its all so simple on paper isn't it. But when you are in the thick of it and trying to keep things all amicable its a different story.
Just an update on our situation, I managed to see some accounts and digest it all in the space of about an hour, there are some things that don't add up, which I am investigating now.
Money is tight at the moment and I realise that.
But now my business partner is claiming that we shouldn't get paid anything next month (Dec)or the foreseeable, to allow extra cash for vat and other bills.
Is there any way I can protect myself from not getting paid.

 

[Grumpybloke]

It's not compulsory to get paid! A few years ago my partner and I drew almost nothing for six months, simply because trade had dropped off dramatically and we were trying to keep trading, ie having money to pay bills and buy stock. I think the whole situation with your other director sounds awfully dodgy though. How could you be sure that while you weren't being paid, he wasn't drawing wages?

 

[Alan R Price]

Thanks for all your replies.
Its all so simple on paper isn't it. But when you are in the thick of it and trying to keep things all amicable its a different story.
Just an update on our situation, I managed to see some accounts and digest it all in the space of about an hour, there are some things that don't add up, which I am investigating now.
Money is tight at the moment and I realise that.
But now my business partner is claiming that we shouldn't get paid anything next month (Dec)or the foreseeable, to allow extra cash for vat and other bills.
Is there any way I can protect myself from not getting paid.

As regards getting paid, if the company cannot afford to pay you, it should not pay you; however how do you know what the position is? How do you know how long the situation is going to continue? What are the prospects for recovery? What is the board's collective strategy to deal with the problem?

You and the other guy must sit down to discuss the company's problems and put together an action plan, supported by cash flow and profit and loss forecasts. If you don't do this, you are putting yourself in a very difficult position by remaining a director. All the directors are equally responsible for the company's affairs and you cannot abdicate your responsibility by saying, "he wouldn't let me see the accounts".

It seems to me you have two options: either do something about the situation so you can actually discharge your obligations as a director, or resign as a director. You may need to spend money on a good solicitor to advise you.

 

[john9999999999]

Thanks for your replies.
Grumpy bloke, did you ever recover your wages lost for that 6 month period?

Thanks alan, yes the situation is quite clear, we don't have the best of relationships so the whole thing will probably get worse before it gets better.
I think the biggest question is when do we draw the line, and say we can afford to pay ourselves again. The prospects are good for a recovery, I am not sure I can afford to go 6 months without any income.

 

[Core List]

But now my business partner is claiming that we shouldn't get paid anything next month (Dec)or the foreseeable, to allow extra cash for vat and other bills.
Is there any way I can protect myself from not getting paid.

That can be an OK strategy to get you through. As a Company Director you should get paid, but also as a Company Director you should ensure the business if profitable so sometimes it is a trade of between the 2.

I am a firm believer that - if you start a business that you do this for all of the rewards and you also have to accept the down times and find a way to get out of them.
I guess you can legally get out of company debts if your company folds while still taking a wage, I personally wouldn't feel good about paying myself in a company I am director while my other creditors go short, including the Government and the Tax owed as much as I dislike paying it.

So don't feel bad about not getting paid in the short term if your company survives and you personally can survive (financially). You and your company will be better for it in the long run if it comes through.
On another note, you better check the books, because if your partner is taking more than they should and not paying liabilities, I would end the partnership with them ASAP.

Regards
John

 

[Grumpybloke]

Thanks for your replies.
Grumpy bloke, did you ever recover your wages lost for that 6 month period?

No, as hard as it was at the time it was just something I had to put up with.

 

[businessfunding]

As regards getting paid, if the company cannot afford to pay you, it should not pay you; however how do you know what the position is? How do you know how long the situation is going to continue? What are the prospects for recovery? What is the board's collective strategy to deal with the problem?

You and the other guy must sit down to discuss the company's problems and put together an action plan, supported by cash flow and profit and loss forecasts. If you don't do this, you are putting yourself in a very difficult position by remaining a director. All the directors are equally responsible for the company's affairs and you cannot abdicate your responsibility by saying, "he wouldn't let me see the accounts".

It seems to me you have two options: either do something about the situation so you can actually discharge your obligations as a director, or resign as a director. You may need to spend money on a good solicitor to advise you.

Just focus on this

Yes, it is easy to sit outside and comet - you are stuck in the middle of a tricky situation which is made worse because financially and psychologically you are the lesser partner. Somehow you must shake that off - it isn't 'only 27%' - it is a key shareholding & you are effectively running the business

If you want to be a salaried shareholder, resign as a Director.

 

[shine26]

This is one issue that should have been discussed even the business commenced. So since everything's done, all you need to do is to simply ask your partner. It's your right. And yes, its not about trust issue here.

 

[Gecko001]

Perhaps the fact that the OP's business partner says that there is no money for "wages" this month is a blessing in disguise as it is a very good reason for the OP to start insisting on seeing more details of the finances of the business.

 

[tony84]

www.duedil.com - Have a look at this site so you can at least see the last years accounts.
trust goes both ways, if your partner cant show you the accounts then you cant trust them.

 

[Paul Norman]

As so many have correctly advised above, the first problem here is your business partners lack of transparency.

You need to see the accounts. Now. Immediately.

The issue of salary is seperate and for you to negotiate over. But, in case you didnt get the thrust of this whole thread, you should have the accounts in your hand by this evening. If the chap cannot achieve that, something is very wrong indeed.

 

[Moneyman]

You simply cant take the situation of being told that you are not getting paid and at the same time not getting the books to see what is wrong.
It has to be a two way thing.

 

[businessfunding]

I should add that I was in a slightly similar situation a few years back.
In my case had co-founded & built the business. As we got bigger and took on shareholders & directors my original partner became more power mad.

We would hold meeting and agree a course of action which he would leave and do something completely different - there were also accounting anomalies (interestingly, their accounts are 18 months overdue)

After a lot of heartache I walked from the company I had founded and built, for several months blaming myself and kicking myself for not having put up more of a fight to get things right.

After 6 months I came to realise that - unless you are the type of person who relishes a daily battle it simply isn't worth it - you might as well be an employee or, as in my case, be the comfortable owner of a smaller, self-contained business.

 

[Alan R Price]

The various posts on this thread underline, yet again, the importance of anybody going into business with somebody else having a well-drafted shareholder or partnership agreement. It may cost a few hundred pounds to pay a lawyer but not to do so can result in £10,000s of legal and other costs if a dispute arises, or the loss of one's business altogether. Such an agreement will define the members' rights, duties and responsibilities and provide a framework for dealing with disputes. If a member is in default of the agreement he will lose if the matter goes to court - it's a big stick with which to keep people in line.

Even the best relationships can turn sour - look at the divorce rate - so having a clearly-defined and unequivocal regime for dealing with such a situation will save a lot of tears and wasted money.

 

[john9999999999]

Many thanks for all your time.
guess I have some big thinking to do.

 

[beasty]

The various posts on this thread underline, yet again, the importance of anybody going into business with somebody else having a well-drafted shareholder or partnership agreement. It may cost a few hundred pounds to pay a lawyer but not to do so can result in £10,000s of legal and other costs if a dispute arises, or the loss of one's business altogether. Such an agreement will define the members' rights, duties and responsibilities and provide a framework for dealing with disputes. If a member is in default of the agreement he will lose if the matter goes to court - it's a big stick with which to keep people in line.

Even the best relationships can turn sour - look at the divorce rate - so having a clearly-defined and unequivocal regime for dealing with such a situation will save a lot of tears and wasted money.

True, BUT every couple in a marriage or pair of friends go into business thinking THEY ARE DIFFERENT!

People get married knowing 50% get divorced but with the attitude, yes but WE are in love (As if the divorcees were are all shams)

Funny, true but people will always think, yes but WE are different

 

[Psl]

Thanks for all your replies.

But now my business partner is claiming that we shouldn't get paid anything next month (Dec)or the foreseeable, to allow extra cash for vat and other bills.
Is there any way I can protect myself from not getting paid.

Those three little letters should make you get all the financial information from your partner, and quickly. You don't know if right at this moment the company has a huge unpaid VAT bill?

 

[beasty]

VAT the EVIL SANTA of the business world

 

[john9999999999]

Thanks psl.
Could you elaborate what you mean by that.
We have had problems paying the vat.

 

[Scalloway]

If the VAT is not paid in time the company will be hit by a surcharge, which is not deductible for Corporation Tax. If VAT has been paid late in previous quarters it could be quite hefty.

 

[john9999999999]

I take a salary from the business as a fulltime working employee as well as a company director and shareholder. Can that salary actually be with-held from me, by my fellow director/business partner or can I legally contest this saying I am also an employee of the business and should therefore get paid along with rest of the staff.

 

[SBlundell]

Just to go back to this point (more for anyone else searching threads as I appreciate this topic has moved on somewhat):

The annual reports are due soon. So, should I automatically get a copy of these?

They will be abreviated accounts and not tell you much unless you have a large company definatly not tell you all you want to know

I am a 27% shareholder

As a 27% shareholder you are entitled to (automatically receive) a copy of the company's full accounts by the time they are filed at the Registrar, under s423 of the Companies Act http://www.legislation.gov.uk/ukpga/2006/46/section/423

 

[john9999999999]

I take a salary from the business as a fulltime working employee as well as a company director and shareholder. Can that salary actually be with-held from me, by my fellow director/business partner or can I legally contest this saying I am also an employee of the business and should therefore get paid along with rest of the staff.

Can anybody help with the above?

 

[BusinessDeli]

Is your partner also the accountant? If not have you called the accountant to ask for a copy and to answer any questions you have?

 

[SBlundell]

fulltime working employee as well as a company director and shareholder. Can that salary actually be with-held from me

If you, as an employee, are contractually agreed a salary then that salary cannot be withheld from you, no (just the same as Goldwyns can't simply 'withhold' a salary from me, an employee, presuming I am keeping up my half of the contract of course).

If no salary has been contractually / legally agreed and it's a case that you've simply decided you think it appropriate that you should receive a salary it's a different ball game - there's no obligation.

The devil's in the detail.

 

[john9999999999]

No contract was legally done but a verbal one, the salary was agreed for the best interest of the business.
And has remained the same for the past year.
So if I decide that I have had enough and was to go and earn some money else where I wouldn't be breaching my contract because we don't have one??

 

[10032012]

Sell your shares to the other business partner and move on: get another job or set up your own business.

Do you deserve a salary increase as a full-time director* who hasn't been doing his legal duties*?

(* technically its common law position and payment doesn't come into it - the legal duties apply if paid or not)

I must also point out you reserve the right to resign as a director at any time. If something happens, you are as equally liable as him. I have placed assumptions that you have been working for this company and as a director for at least a year (correct me if this is incorrect).

 

[SBlundell]

No contract was legally done but a verbal one, the salary was agreed for the best interest of the business.
And has remained the same for the past year.
So if I decide that I have had enough and was to go and earn some money else where I wouldn't be breaching my contract because we don't have one??

Not quite - a verbal contract is legally binding too but of course the inherent difficulty is proving the terms and obligations. In this case receiving a salary for the last 12 months may be sufficient to prove your entitlement from a constructive position (although 12 months isn't a huge period of time for [otherwise undefined] employee rights anyway). I would stress I'm not a legal expert, just offering my understanding / view.

However:

Sell your shares to the other business partner and move on: get another job or set up your own business.

10032012 (great name ) makes a valid pragmatic point - is this the sort of ongoing working relationship that's beneficial for both parties? Of course not - so it needs to be resolved very quickly or you need to consider how you can move forwards (as an alternative to the above, perhaps offering to buy out the other party if you've done most of the work so far?).

To illustrate, here's another marriage parallel - if things aren't right you have to try and sort them but if they can't be resolved eventually you have to cut your losses and file the divorce papers.

 

[john9999999999]

Sell your shares to the other business partner and move on: get another job or set up your own business.

Do you deserve a salary increase as a full-time director* who hasn't been doing his legal duties*?

(* technically its common law position and payment doesn't come into it - the legal duties apply if paid or not)

I must also point out you reserve the right to resign as a director at any time. If something happens, you are as equally liable as him. I have placed assumptions that you have been working for this company and as a director for at least a year (correct me if this is incorrect).

Thanks
Been with the company/director 6 years.
Maybe you are right. Sell up and start afresh with and not make those same silly mistakes!