Buying out a director process

[Do it yourself]

Hello,

I work in the graphic design industry where our company (25 staff) have been rung through the mill over the recession. Pay-cuts, redundancies etc etc have all taken their toll and morale is low.

Our company of which I'm a staff member, is owned by 3 directors MD 45%, PARTNER B 45% and third 10%.

PARTNER B is quite a poor relationship builder, he regularly annoys clients and intimidates them into his way of thinking and while we might gain contracts we never hold onto them due to this partner. PARTNER B will also not move with the times and is frightened of new technology, all in all I dont see the company lasting another few years.

I know I could do a much better job than Partner B and wondered how to go about buying him out. He would be reluctant and the MD and him are 'thick as thieves' so I would need to be careful there would be no way of the MD forcing me out if successful, and bringing partner b back.

How do you find out the value of his shares and start the process.

Thanks

 

[Tom McClelland]

There are many, many pitfalls here. In the situation you describe the attitude of the 10% partner (following the buyout) would be critical, since either of the 45% partners requires their support in the event of a board dispute. 45% of the vote isn't too different from no vote at all if the other two directors stick together.

If the current MD and other 45% partner are "thick as thieves" I'd say your chances of buying in successfully are somewhere between zero and negligible. In your position I'd ponder starting on my own, and seeing if any like-minded non-directorial colleagues would come with you. That might be a better employment of your buy-out money than buying into a sticky situation. Conceivably, depending on your contract of employment, you might be able to take some clients with you if you or anyone who joins with you has a strong personal working relationship with them. But check your contract, because it may forbid that.

To answer the question you asked. The value of his shares is whatever he will sell them for, unless someone else is prepared to offer more than that.

 

[saxondale]

put on your best suit and ask him.


"he who dares Rodney, he who dares..............."

 

[IANL]

Hello,

I work in the graphic design industry where our company (25 staff) have been rung through the mill over the recession. Pay-cuts, redundancies etc etc have all taken their toll and morale is low.

Our company of which I'm a staff member, is owned by 3 directors MD 45%, PARTNER B 45% and third 10%.

PARTNER B is quite a poor relationship builder, he regularly annoys clients and intimidates them into his way of thinking and while we might gain contracts we never hold onto them due to this partner. PARTNER B will also not move with the times and is frightened of new technology, all in all I dont see the company lasting another few years.

I know I could do a much better job than Partner B and wondered how to go about buying him out. He would be reluctant and the MD and him are 'thick as thieves' so I would need to be careful there would be no way of the MD forcing me out if successful, and bringing partner b back.

How do you find out the value of his shares and start the process.

Thanks

Hi There

I have been this position twice with different companies may years apart, on both sides. 1st time I was bought out and the second time I bought the other director out. In one circumstance it was 49/49/2 and in the other it was 50/50.

I would suggest sitting down with the main shareholder and stating your feelings and that the business cannot go on like it is. You have two choices buy him out or sell out.

In the first instance I was oasked if I wished to buy my co-director out or sell out. ( he stated he would go and work with a competitor if he left, as he wanted to take the business in a specific direction) I chose to sell out as I could see where the business could go. It was struck at balance sheet value (no goodwill valued) then I had a share pf profits for some years after (that was the goodwill). I was asked if I would like to keep some shares but I declined.

In the second instance I bought the other director out and paid him his share capital over a period of 1 year. I also agreed to pay a small amount of the declared Gross profit (by way of goodwill)

Both occaisions we drafted a legal agreement and had paid stamp duty on the share transfer.

The hardest part for me on the second instance was working out how to tell the other director, who was also a friend. In that instance I had some other employees threaten to leave if he stayed, they didn't feel he was pulling his weight, they offered to buy him out and take his shaes If I wanted.

It's a tough meeting but you need to have it on a one to one basis, The other shareholder will most likely sell out or go with the flow, he needs to keep his investment secure and will know which is the best path.

Talk it over with someone you trust and role play it out so you are comfortable,

Whatever you do take positive action.

 

[Tom McClelland]

IanL, The original poster doesn't currently own any shares in the business, I think. Your reply reads (to me) as if you think he does.

 

[Chris Ashdown]

A controlling interest in your own company is better in most cases than a minority holding in a private company, break away and take the talent with you

 

[IANL]

IanL, The original poster doesn't currently own any shares in the business, I think. Your reply reads (to me) as if you think he does.

you're right Tom. Apologies. I misread.

In that instance you could break away unless your contract has any restrictions on delaing and solicitation of business from it's customers. In which case you would hae to start on your own afresh.

Have an escape plan, then start the meeting suggestiong you would like to consider buying into the business.

 

[Do it yourself]

Thank you gentlemen for the advice.

Yep, going it alone is an option but our industry is beset with start ups that ultimately fail due to not being established!!!!!

I would ideally prefer to buy into a company that is established and grow it.

The company I work for is slowly failing due to the reasons I outlined earlier. There may come a point where more redundancies and part time working is introduced.

Would you say that this would be the best time for a buyout attempt? Would I get it cheaper?

 

[IANL]

Thank you gentlemen for the advice.

Yep, going it alone is an option but our industry is beset with start ups that ultimately fail due to not being established!!!!!

I would ideally prefer to buy into a company that is established and grow it.

The company I work for is slowly failing due to the reasons I outlined earlier. There may come a point where more redundancies and part time working is introduced.

Would you say that this would be the best time for a buyout attempt? Would I get it cheaper?

Not knowing how close you are to the directors and the numbers in the business, I would suggest, assuming you know it's making a loss, to have a meeting stating that you have some ideas that you ould like to see implemented and are willing to invest in the business. They will of course want to know what these are.

They may well be thinking of trying to get out and selling a failing business is not easy and will always go for a song. It's a 'turnaround' possibility. Strike while it's fresh in your mind is my view.

Let us know how you get on.

Ian

 

[Do it yourself]

Not knowing how close you are to the directors and the numbers in the business, I would suggest, assuming you know it's making a loss, to have a meeting stating that you have some ideas that you ould like to see implemented and are willing to invest in the business. They will of course want to know what these are.

They may well be thinking of trying to get out and selling a failing business is not easy and will always go for a song. It's a 'turnaround' possibility. Strike while it's fresh in your mind is my view.

Let us know how you get on.

Ian

Thanks Ian,
at the moment its very much 'in the long grass' The directors are very stubborn and think a dip is just a dip, I think differently.

If I did have a chat about the failings of the business and where it could improve, they would probably take my advice and dismiss me over some trivial matter (this has happened to others).

Is there a way to start this process somewhat anonymously? basically trying to find out the shares of director b without raising suspicion?

 

[saxondale]

Is there a way to start this process somewhat anonymously? basically trying to find out the shares of director b without raising suspicion?

assuming the company isn`t listed - you can`t buy out director b unless he wants to sell his share or the other two directors force him to sell.

neither will happen unless you face them.

 

[Do it yourself]

assuming the company isn`t listed - you can`t buy out director b unless he wants to sell his share or the other two directors force him to sell.

neither will happen unless you face them.

So i'm basically stuck, i cant simply buy director b out unless the other 2 agree?

 

[saxondale]

So i'm basically stuck, i cant simply buy director b out unless the other 2 agree?

yes, would be like me forcing you to sell your house.

 

[IANL]

Thanks Ian,
at the moment its very much 'in the long grass' The directors are very stubborn and think a dip is just a dip, I think differently.

If I did have a chat about the failings of the business and where it could improve, they would probably take my advice and dismiss me over some trivial matter (this has happened to others).

Is there a way to start this process somewhat anonymously? basically trying to find out the shares of director b without raising suspicion?

Yes, you can get the information from companies house www.companieshouse.co.uk. You do a search for the business either using the company registration number or the name. You can purchase for 1-2 pounds the company anual return and this will detail the precise shreholding of all the directors.

 

[Do it yourself]

Yes, you can get the information from companies house www.companieshouse.co.uk. You do a search for the business either using the company registration number or the name. You can purchase for 1-2 pounds the company anual return and this will detail the precise shreholding of all the directors.

Already did that, but of course the 'real' figures were hidden.

 

[Chris Ashdown]

Yes, you can get the information from companies house www.companieshouse.co.uk. You do a search for the business either using the company registration number or the name. You can purchase for 1-2 pounds the company anual return and this will detail the precise shreholding of all the directors.

Think about what you have just said an why you want to invest an work with them

Most companies have a agreement that if a shareholer wants to sell their shares they must offer them to the other directors first and only if they do not want to buy can they sell to someone else

 

[Tom McClelland]

If I did have a chat about the failings of the business and where it could improve, they would probably take my advice and dismiss me over some trivial matter (this has happened to others).

Yet you seem to think that becoming a minority partner with these people is a good idea, even though that statement portrays them as sharks? :|

Never get into a minority partnership unless you're pretty sure that all the other directors are enthusiastically with you and that they're going to enjoy working with you, and you're going to enjoy working with them. Once you'd invested you'd be completely at the mercy of the 55% shareholders if they decided to shaft you, and then you'd have lost your job, and your investment. UKBF archives are full of tails of woe from dispossessed minority directors.

 

[IANL]

Already did that, but of course the 'real' figures were hidden.

I thought you asked about the shareholding, which won't be hidden. They won;t be listed in the annual accounts which is different from the annual return.

The annual accounts filed will probably be abbreviated so you won't know turnover but you can work out if there was a retained profit or loss by the change in the balance sheet.

The annual return is a different document which WILL show shareholding percentages, these are not the same as annual accounts. Hope that clarifies.