buying out a business partner

[businesstime]

Hi

I have spent a lot of time looking over the forums here and I was hoping to get some advice on my particular situation

Basic facts are: I own 50% of an online retail business - I have a business partner who owns the other 50% and we are both directors. The business is less than a year old and is currently loss making. He refused to sign a shareholder agreement when we started the business and our working relationship has become completely untenable. He wants out finally and has returned to full time employment leaving me to run the business remotely with a limited amount of stock from a fulfillment perspective without allowing me access to the actual office where the stock is (its situated in an office owned by a member of his family and he wont provide me with the alarm code to the building and has told me if I try and gain access - I have keys and have asked many times to come in and work on the business or at least do a stock take - he will have me arrested for trespass).

We have both put approx 25k each in to the business but it is loss making and as such the money is gone. He has been running the operational side of the business up (as it is - fulfilling the minimal orders) up until 3 weeks ago when he returned to full time employment at a weeks notice to me and the company, and has been the financial director of the company (but has taken more in petrol expenses than we have made in sales )

He has told me he wants me to buy him out - he dragged out providing me with the financials refusing to provide them to me in May when he initially told me he wanted me to buy him out and not providing them or the stock inventory until two weeks ago (two weeks after our effective year end despite me requesting "interims"). I have had an independent valuation done (despite the fact the company is worth nothing in itself and all there is really is extremely minimal fixed assets - a computer, laptop, printers, website and "brand" which is non profit making etc and stock) and provided him with a initial starter offer for his s/h as a basis for starting negotiations and suggested if its not acceptable that he should tell me what his price is based on the financial facts.

he has told me the offer is risible and that our only options are to sell the whole business or to liquidate. I have asked, again, for him to provide me with a price for his 50% (as that is all he has to offer for sale not the whole business) and he has told me its not his place to tell me how much its worth, that he wont accept the valuation (but wont get another one done at his personal cost) or my offer (but clearly wont have any discussions on a next offer by providing me with his valuation) and has told me its up to me how much I want to spite myself.

I suspect the whole situation is lost but I was wondering if there was any advice on where I could go from here. I want to buy him out but I suspect he will not sell to me full stop as he would rather destroy the company (liquidate it) than have any chance of me potentially going forward with it and making a success. I also have a buyer for his 50% but I am not sure at what point I can bring that into the equation when he wont even have negotiations with me.

any advice appreciated

thanks

 

I can appreciate you have put a lot of time and money into this, but maybe your best off just winding the company down and doing your own thing? It sounds like your offer is reasonable and youve done all you can to finalise it all with him. I would be tempted to divide the stock 50/50, sell yours off and wind it up. He may also think you have a greater need to continue it, therefore is holding out for a silly offer from you despite knowing its worthless - so if you call his bluff it could be a good thing and he might start being sensible about the situation. Only you can really judge though.

 

[TotallySport]

what is the value of the assests of the business?

 

[Wavecrest Ltd]

I had a similar situation a few years ago although didn't get as acrimonius as it has in your case.

If you have a limited company and can't agree on a sale price for your partners shareholding you only have the option of winding the company up.

I'm sure our legal friends here on the forum will correct me if I'm wrong but as I understand it this has to be done by a liquidator (which costs money!) and notified to Company's House.

In my situation, my partner also had fanciful ideas of the value of his shareholding at the time. In the end I called his bluff and said either accept my offer by xyz date or I will have the company liquidated.

He soon saw that the amount he would get after a liquidation less all the expenses was a lot less than the sensible offer I had proposed!

Good luck.

Best regards,
Glen

 

[nextdayprint]

Sounds like a nightmare, but if I was you I'd just shutdown, liquidate, buy the assets from liquidation and setup again by myself or with a new partner. Make sure that next time you have a solid agreement in place with your partner and that the stock isn't held somewhere you don't have access to. I'm guessing you have some belief in this business model, though why if it has been failing so badly, is beyond me.

Should you want any more specific advice I'm sure a few on here wouldnt mind trying to help and would allow you to pm them with more exact details about your reasonings for trying to buy the business, as opposed to just walking away and setting up again. If nobody more reputable volunteers feel free to contact me -or if your near Wakefield just drop in for a chat.

 

[businesstime]

Hi all

thanks very much for your responses.

I suspect as you have said the only option now will be a wind down/liquidation - I guess I was hoping for a miracle!

totallysport: realistically the value of the assets is just under 10k currently (most of that being stock with the value being the price we paid for it)

I do feel the model has legs if managed by the right people in the right way - sadly I just feel my bp was always in it for a fast buck at anyones expense and now that hasnt happened in his perceived acceptable period of time, and having made things as difficult for me as he can, he wants out and he sees no reason to allow me to potentially continue with another bp who might make a success out of it. I have invested time, intellectual property and a fair whack of money in this business which ultimately I would rather not have to write off completely if I feel I could go forward with it with a new bp (and a sh agreement prior to starting - lesson learned there).

Nextdayprint - I will drop you a pm if thats ok,

thanks again - and any legal advice on the buyout process (ie freezing bank accounts and the website while shareholder dispute is ongoing etc) and/ or the wind down process would be much appreciated...

 

[TotallySport]

in that case I agree with most of the above, offer a reasonable figure for the 50% of the assets you both own for the business, make sure you point out that if he refuses you will wind down the company.

This is on the basis you don't have any additional debts.

It might be worth trying to keep the business as I assume it has the setup, domain name etc, but you need to make sure the buyout is 100% clear and completed, make sure all passwords etc are changed and he is completely cut off.

Also you need to move out of the premises.

Otherwise just wind it up and move on.

 

[Chris Ashdown]

As a first move I would change all passwords immediatly, and make sure you change the office locks (two can play the same game) make sure you have a full backup of the web site and accounts at your home, notify the bank manager you wish to make all money transfers have both signatures to be valid.

Is the web site registered with the company as owner of the domain if not make sure it is.

Buy a small safe from Staples £150 and put all company items possible into it at all times incase he comes in and grabs them.

Then call the bluff, but at least you are prepared

Maybe a bit over the top but fight fire with fire

Good Luck

 

[The Fixer]

[FONT=&quot]I think it's worth remembering that your co-director does not appear to be fulfilling his legal responsibilities to the company as a director, which include:[/FONT]

• [FONT=&quot]To act within powers.[/FONT]
• [FONT=&quot]To promote the success of the company.[/FONT]
• [FONT=&quot]To exercise independent judgement.[/FONT]
• [FONT=&quot]To exercise reasonable care, skill and diligence.[/FONT]
• [FONT=&quot]To avoid conflicts of interest.[/FONT]
• [FONT=&quot]To not accept benefits from third parties.[/FONT]
• [FONT=&quot]To declare interest in proposed transaction or arrangement.[/FONT]

[FONT=&quot]It may be worth getting some legal advice, which will not cost much but could strengthen your negotiating position. If your co-director could receive a 'strongly worded' letter from your solicitor he may throw in the towel and give you the shares. In terms of a valuation remember that you must think in terms of 'net' assets rather than assets. You need to deduct and debts and also any costs involved in a transaction between the 2 of you. I doubt the shares have any real, value but if you are prepared to pay for them, before doing so, given that the company is losing money, take into account likely losses, and costs until you can turn the business around (assuming you feel that you can, and want to). So for example if net assets are £25k, the business is losing £2k per month and will take 6 months to get to break-even, and will cost you £5k to get it going, then offer no more than £25k - £12k - £5k = £8k...
[/FONT]



[FONT=&quot][/FONT]

 

[businesstime]

Hi

Quick update: for the last two weeks I have been trying to negotiate a price with him - but we are no further - he gave me his "position" which included some classics like a 25% "control premium" on top of the headline price and that the fixed assets should include all the capitalised development costs. Anyway - I went through the unaudited financials and stock reconciliation and gave him what i considered a fair price taking into account depreciation and reality. He has now come back and said if I think its a fair price I can take 50 quid extra and sell my shares to him (regardless of the fact I have never wanted to exit and it was him demanding I buy him out. I do not want to exit full stop so its irrelevant).

So - the situation now stands at a stalemate - he clearly wont sell to me, and the business is suffering badly. What is the legal situation about winding up the company? Can I do this without him? He claims I cannot put the company into administration as it is solvent and he wont accept a voluntary liquidation (despite at first wanting this). He is still denying me access to the office and saying he has "given me" enough stock to fulfill orders at the rate we have been selling - although I am already out of stock of at least two products and low on others so this is untrue. All of this is not acting in the companies best interests and yet when I state this it goes ignored or derided.

Help please on next steps? I really didnt want to have to wind the company down but it now seems like the only option given his inability to act in a professional business manner and negotiate his required exit. Given we do online retail, and to wind a company up it need to have ceased trading for at least 3 months (i think?) what can I do?

many thanks

 

[The Fixer]

You absolutely MUST see a commercial solicitor right away. Your fellow shareholder has responsibilities to you and to the company and it seems clear that he is in breach of those responsibilities. A strongly worded letter from your lawyer might help to bring him to his senses. Also in terms of value, any accountant looking at your balance sheet would say that in a forced sale situation, which is where you seem to be headed, capitalized development costs would be struck out, stock value would be radically reduced probably by no less than 50% etc, which would perhaps make your own offer generous. See a lawyer today, that's the best advice I can give, and take ALL the information and any correspondence with you!

 

[businesstime]

thanks fixer - I am waiting for my corporate lawyer to give me a callback - but in the interim given that I am being expected to run the business but without full access to the stock I need can I refuse to continue fulfillment until this shareholder dispute is resolved? this will effectively mean we cease trading and as its a website will mean the site will have to be suspended - but at the moment I couldnt fulfill orders for specific products anyway as I dont have some of the stock on site!

Any ideas? Advice greatly appreciated!

 

[The Fixer]

Well you do need to be careful because as a director you have the same legal responsibilities towards the company as your other director. Try not to do anything that will compromise the company's position. If however you simply cannot trade because of his actions, then make sure you can demonstrate this, and the fact that you did all you could to continue trading.

 

[businesstime]

sure - effectively I have been running the company carrying out its only current need which is fulfillment of the orders since my business partner decided he would no longer do this as he was returning to full time employment a month ago. Given the rest of the stock is stored in the office (which he will not allow me access to unless accompanied by him, at a weekend convenient to him) I face the situation of being out of stock of a couple of products which, if they were ordered tomorrow, I would not be able to fulfill. In addition I find his lack of transparency around allowing me access to even just do a basic stock take concerning as a shareholder and co-owner.

He has been dragging his feet over the selling out process (he first demanded I buy him out in May but has been obstructive and slow to provide any financials, would not agree to my independent valuation and has taken his own good time providing his "position" on value) and the impact on the business has been that it has stagnated - as I anticipated this only being a temporary situation which would be resolved one way or the other in a shorter period.

 

[The Fixer]

If you wish to take some action prior to seeing your lawyer, you could send him an email (keep a copy) outlining the fact that, in advance of any agreement on a share purchase you are concerned to ensure that the company can continue to trade. To this end you require access to the stock in order to process orders. Point out that he should bear in mind that any failure by him to enable the company to trade could be deemed as a breach of his fiduciary responsibilities as a director of the company, and that you are currently taking legal advice in this respect and also in respect of his other recent actions and inactions..

 

[businesstime]

sorry have been away for a while trying to resolve this situation to no avail.

the lawyer basically advised me not to engage in sending letters as it would cost me more than the company was worth. he also told me the winding up would cost 2k uncontested, and I know my fellow director/shareholder will contest.

he made me a poor counter offer - and threatened me with blackmail if I didnt accept. I called his bluff (including telling him I would go to the police as blackmail is a criminal offence) and made him a counter offer back but he hasnt responded.

basically I am now at the end of the line - I havent seen any stock inventory or accounts info since July - and his father (who is the freeholder of the building which our company operates out of as a registered address) has stated we can no longer use the office and I am barred from entry. Yet he is still running the business out of this office as a registered address.

does anyone have any advice on what I can do? There seems to be no help from companies house in deadlocked shareholder disputes like this and I am concerned he will buy more stock and then this could run and run

please help??

thanks

 

[The Fixer]

One piece of advice. Change your lawyer. On the evidence I've heard so far, if you are a director of this company then your co-director is abusing his position, breaking the law and should be brought to book. Any lawyer that charges more than say £25-30 for a tough letter pointing out your co-director's actions does not deserve to represent you. I don't suppose you are a member of the IOD (Institute of Directors)? If so they offer free legal advice.