Can we remove a Director

[PhilAJ]

Our company has 2 directors (myself and 1other) and 4 shareholders (the 2 directors plus 2 others). The other director has 25%share. This other director has stopped actually doing anything in the business and the 3 other shareholders wish to remove him as a director and signatory on the bank account.

Can we do this at an EGM With 75% majority.

Furthermore, is there any way we could reduce his shareholding?

As an option could the 3 shareholders with 75% decide to sell the business to another company, which would be formed by just the 3, thereby removing that director as a shareholder.

Any advice appreciated.

 

[Bob]

By giving him due notice of the meeting and allowing him to appear, you can remove him as a director. Subject to your not having a shareholders' agreement with the power to do so, you can't remove his shares. You must also act in the best interests of the shareholders and selling it to a third party at an undervalue to exclude 1 shareholder's rights would be actionable but IANAL.

 

[PhilAJ]

Thanks for that bbbbb - what does IANAL mean?

Also - the Company hasn't traded yet - just has a name an web site and some software that was developed, so value I guess is only the value of the shares - £400. If we were to sell for £400 / £500 then would that be ok?

 

[Bob]

IANAL = I am not a lawyer !!!!!

 

[PhilAJ]

Ahh ok sorry

 

[The Resolver]

You need to give 28 days 'Special Notice' of an EGM to remove him as a director, with the notice setting out the proposed Resolution with reasons. BTW, for readers, the majority needed is 51% plus not 75% but which in your case will be 75% ,ie the three others.

If he was under an employment contract as a director (written or implied) or otherwise received a salary then he may have an employment claim or claim for breach of contract. You say he has stopped working for the company so you seem to have good grounds but the dismissal still has to be 'fair' under employment legislation, ie with notice of the grounds, opportunity to respond and appeal etc etc. So make sure you have clear evidence and set out the case clearly. Do not show a pre-determined decision but leave to discuss at the EGM.

Check the Articles as well a any Shareholders Agreement as the former may also contain clauses that could force a transfer of shares. You can of course amend the Articles with the 75% majority .

As bbbbb says you could expose yourselves to liability if you sold the business and assets to another company you owned. Even if the value was fair market value, the sale is effectively a decision to cease the business and the 25% shareholder could claim this is conduct by the majority vote prejudicial to him without any benefit to the company and thus actionable by him under s 994 of the Companies Act 2006.

I provide negotiation strategy advice in these situations to help you navigate a safe passage to a solution for the future. Call me for a free initial 30 mn chat in detail.

 

[kulture]

You could always try talking to him. He may be open to an offer to buy his shares. He may be willing to resign. It might be easier to negotiate your way out of this.