Change in partnership

[DerekJohnstone]

Hello forum, first post.

I'm looking for advice on how to change the existing shareholding in a small part time business and enter into a new company agreement. My business partner is looking to exit our current company, agreeing to pass over their 50% shares to me, as long as I agree to move one the new 'products' into a new company in which we are 50/50 shareholders in this new co. This way any sales of the new product will be split 50/50 and allow my business partner to make a clean break from the existing business.

I'm not sure how to sequence this? Set up new new co first - then transfer the new product over? Or request the shares are transferred fist?

Is having an email agreement on how we are going to do this sufficient so the transaction completes as agreed? And is this doable? Some concern that I might try to do this but there are hidden barriers that might prevent the transaction completing.

Any advise appreciated.

 

[Chris Parkman]

If the Company is solvent then there should be few issues, other than complying with the requisite Companies Act 2006 rules, which will include board and general meetings being held to pass the necessary resolutions etc.

In terms of timing, the transfer of shares and assets would normally happen simultaneously.

You will need to set up the NewCo in the first instance, and a formal written agreement should be prepared and signed by both parties.

You may also want to speak to a solicitor to draft the necessary agreement, resolutions etc.

 

[DerekJohnstone]

Thanks Chris, and is it correct that set up fees and formal agreement should be funded individually by us as new co - and not from the existing business?

In looking at the books, once we pay what is outstanding (pay corporation tax, existing invoices for work still to complete) I reckon I will a sole shareholder with very little or nothing left in the existing company. Obviously would want to split anything if there was something left. Who facilitates this line in the sand to make sure all bills are covered before any spit of remaining money?

Will the transferred product into new Co be owned by us as named persons - or actually owned by the new Co company name?

 

[Chris Parkman]

In terms of the costs and fees, I think that these could be considered business expenses to be split between the two companies, rather than personal.

In respect of a line in the sane, I think that will need to be dealt with as part of the agreement, which is why I think a solicitor should be involved.

In terms of the transferred product I think that would be owned by the Company, which is then owned by the two of your personally.

 

[Lisa Thomas]

Hi Did you mean to post this under the insolvency section of the forum? Is the company insolvent?

 

[DerekJohnstone]

Hi Did you mean to post this under the insolvency section of the forum? Is the company insolvent?

Ooops sorry Lisa, it is not. Should I ask a moderator to remove or delete and re post?

 

[Lisa Thomas]

Might be quicker to copy and repost then delete.

 

[DerekJohnstone]

Might be quicker to copy and repost then delete.

Is there a particular sub heading for this type of post?

 

[Lisa Thomas]

I would recommend general business:

General Business Forum

General business discussion, advice and debates

www.ukbusinessforums.co.uk

 

[The Resolver]

I presume Oldco will still trade but not in the new 'product' so you benefit with the 50% of OldCo. You will need to decide whether you are the buyer of the 50% shares in Oldco or Oldco itself is the buyer. Probably better that the company buys (when it does the shares cease to exist leaving you with 100%) so that it can transfer the products (and any associated IPR) as well as give effective bar out/non-compete for the future.

Your partner will need taxation advice as to what is his /her price . It is effectively the 50% in NewCo which will reflect the value of the new products (physical? if so what value of stock, or digital/service , if so what value of IPR?).

You will need a full Sale and Purchase Agreement that will also include warranties and indemnities and bar out/non-compete.

You will also need a Shareholders Agreement in Newco to inc lude, apart from many other terms, how the new product and any shared expenses in the future are to be dealt with.

If you are to be the sole Director of Oldco, then you need to have the Articles checked to see if you do not become stripped of your decision making under the recent decision in Hashmi v Lorimer-Wing. (see thread here) If it is ruled by the Model Articles then they need changing but also any bespoke Articles need tobe checked to ensure they permit a quorum of 1. If this is not done enforcing the inter-company Agreement could be at risk.

BTW to everyone. I will be at tomorrow's get together at Tamesis Dock so ask me if any queries.

 

[DerekJohnstone]

Graham, thanks for your response very helpful.

Yes, OldCo will still trade and likely to 'promote' the product as it originated there and was developed there - but all sales will come through Newco which we have agreed will be 50/50.

My partner is saying we should call it a similar name so moving from Newco Training and Consultancy to Newco Interventions. Hopefully this will help market the product? Does this unintentionally undermine OldCo?

I will check the Articles as I cannot even remember what we put in that - and appreciate the guidance i don't strip my decision making.

My partner is saying she will give me the shares (is this possible?) or does this mean I buy for say, £1? Will my having 100% of shares automatically give my full ownership of all IPR of shares be sufficient for bar out so we don't have any complications down the line?

Really appreciate the advice. Much thanks

 

[The Resolver]

My partner is saying we should call it a similar name so moving from Newco Training and Consultancy to Newco Interventions. Hopefully this will help market the product? Does this unintentionally undermine OldCo?

Not sure I understand the question. Is OldCo to receve any payment for transferring ownership of stock (if the product is physical) or licensing NewCo (if software) with non-compete.?

 

[The Resolver]

My partner is saying she will give me the shares (is this possible?) or does this mean I buy for say, £1? Will my having 100% of shares automatically give my full ownership of all IPR of shares be sufficient for bar out so we don't have any complications down the line?

Really appreciate the advice. Much thanks

As I said before it may be better for OldCo to buy the shares in Oldco.

Owning all the shares in OldCo does not give you the Intellectual Property Rights to the product. (assuming the 'product' is digital) nor give you alone the bar out - you have to agree as Director to make the company commit to a bar out , but which you can do as sole Director (assuming you have 'fixed' the Artcles as I advise.)

I think for more detail best you call me.