Director dispute

[StartupDreamer]

Hi,

I own a business with 2 other directors, each with an equal share.

As the company has grown, 1 of the directors is no longer fulfilling the demands of the role and therefore we would like to buy him out of the business.

After an initial conversation it is quite clear that he has no intention of moving on, and we have now identified that he has has previously listed himself as the sole PSCO for the company (something we overlooked).

What weighting does PSCO have in this situation? Do two directors have the ability to vote out one PSCO?

Thanks in advance, and apologies if my question is naive!

Thanks,
James

 

[Mr D]

you can end his directorship maybe. his shareholding - do you have a shareholder agreement by any chance/
its common for people to have shares in companies they do not work for. buy his shares at a price he agrees if you wish - or perhaps not issue dividends for a while.

 

[Scalloway]

As far as I am aware listing somebody as PSCO is for the information of people looking at your company's entry on the Companies House website. It has no particular significance for running the company.

 

[WaveJumper]

Lifted from Companies House:

'A person of significant control is someone that holds more than 25% of shares or voting rights in a company, has the right to appoint or remove the majority of the board of directors or otherwise exercises significant influence or control'

I assume it depends what they have in the shareholders agreement as to the way forward.

 

[StartupDreamer]

Thank you for your responses.

you can end his directorship maybe. his shareholding - do you have a shareholder agreement by any chance/
its common for people to have shares in companies they do not work for. buy his shares at a price he agrees if you wish - or perhaps not issue dividends for a while.

This is where it gets slightly more complicated;
Prior to me joining the company, a parent company was setup. The director & shareholder structures are the same for both companies.

The parent company references fair price clauses and doesn’t suggest the PSC has any additional decision making authority, but the main company was formed in the early 80’s and doesn’t mention fair price at all.

Can two directors vote to make the other redundant?

Whilst this wouldn’t resolve the outstanding shares issue, it would add stability to the day to day running of the business.

@Clinton @The Resolver - I’d be keen to understand your views.

Note - I will be looking for professional advice, but would like to better my knowledge first.

Thanks,
James

 

[Mr D]

the psc does not have decision making any more or less than any other shareholder.

the directors make decisions day to day, shareholders make decisions when voting at shareholder meetings or when deciding to request an audit.

just remember you can get rid of directors, you do not get rid of shareholders the same way.

 

[StartupDreamer]

just remember you can get rid of directors, you do not get rid of shareholders the same way.

Thanks. With the director also working as an employee, I assume the same employment law applies, and therefore two directors can make another director/employee redundant?

 

[StartupDreamer]

the directors make decisions day to day, shareholders make decisions when voting at shareholder meetings or when deciding to request an audit.

On the audit point - if we suspect the director of misconduct through authorising inappropriate purchases from another company he owns, I take it we could treat the situation as you would with any other employee who was stealing?

 

[Clinton]

This is where it gets slightly more complicated...
Note - I will be looking for professional advice, but would like to better my knowledge first.

The more complicated it is the more the need for paid advice where an appropriate professional gets all the relevant information and advises accordingly.

Getting ad hoc advice based on incomplete information from people who may or may not know what they are talking about ...saves you neither time nor money.

The only exception is where you ask specific questions relating to what the law says. Posters can then back up their answers with links to the relevant law. Asking questions relating to your particular case when we've seen neither shareholder agreement, nor board resolutions, nor shareholder breakdown (and classes of shares) nor anything else means we are shooting in the dark and have to keep revising our answers as new information and material emerges.

I don't have the time or patience for that game

The fact that there's a parent company involved, and shareholding / directorships etc there as well is, as you say, a complication. I can't see how this company can be a "parent" company and still have the exact same shareholding and directorship structure as the other company! But don't bother answering that question as it will just lead to another one and then another one ...and I still won't have the full picture.

Go pay your money and getting professional advice from the start rather than trying to "better your knowledge" on the cheap.

 

[StartupDreamer]

The more complicated it is the more the need for paid advice where an appropriate professional gets all the relevant information and advises accordingly.

Can you recommend a company who could support based on your interactions?

 

[Mr D]

On the audit point - if we suspect the director of misconduct through authorising inappropriate purchases from another company he owns, I take it we could treat the situation as you would with any other employee who was stealing?

I have read it's a bit more complicated when director is acting against his duty to the company. One for a commercial solicitor - and maybe legal action.

Audit - as a shareholder he could annoy people by requesting - and of course getting, at company expense, an audit every year if he wanted.
Downside for him holding the shares is he may never see any money from them unless he sells - he will not be deciding dividend.

 

[Newchodge]

If the director is an employee you can treat them as you would any other employee. He is not redundant, you would be looking at a disciplinary investigation and haring. That could end his employment relationship, but it does not necessarily end his directorship or deal with the shareholding issue. I would not recommend dealing with the 3 areas separately.

 

[Chris Ashdown]

What percentage of the shares are owened by him and also the other shareholders

You can have a director removed from office but still be a employee its two different things

Significant control relates to shareholding not directors power, and its the directors who run the company, not shareholders

 

[StartupDreamer]

What percentage of the shares are owened by him and also the other shareholders

You can have a director removed from office but still be a employee its two different things

Significant control relates to shareholding not directors power, and its the directors who run the company, not shareholders

Two have 65% combined vs 35% for the shareholder in question.

In this instance I’d like to remove both the employee and director as only taking partial action will likely to cause further conflict.

What does significant control actually do for the stakeholders if the directors make all the decisions?

 

[Mr D]

Two have 65% combined vs 35% for the shareholder in question.

In this instance I’d like to remove both the employee and director as only taking partial action will likely to cause further conflict.

What does significant control actually do for the stakeholders if the directors make all the decisions?

the directors do not make all the decisions. just the ones that are not shareholder decisions.

 

[Scalloway]

75% is the majority of shareholders needed to pass a special resolution. Your co director has the power to block such a resolution.

More information here.

http://www.shareholderrights.co.uk/RightsOfAShareHolder/75.html

 

[The Resolver]

As a fact all three of you are PSCOs. Her has simply misinformed Companies House that he is the only one/ That needs correcting to comply with company law.

Subject to what may be written in any Shareholders Agreement (is there one?) or , if there is one, it does not cover removal of a director, and subject to anything in the Articles of Association (unlikely) then you should proceed to remove him as director. This is done by a Resolution passed at a General Meeting of shareholders, called after one of you asks the Board to hold such a meeting and for the stated purpose of his removal as director. This must be followed by notice to all shareholders, for which at least 28 days notice has been given ,of such meeting, making it clear it is to consider a Resolution to remove the director.

You should separately take action as appropriate under employment law to investigate and make a decision to dismiss him from employment,. This requires calling him to an investigative meeting at which you confront him with the evidence and make a decision If it is to dismiss, you must give him the right to appeal which requires another meeting chaired by someone who did not chair the first meeting, at which he can argue his case to reverse the previous decision, . If you do it properly like this you should avoid losing a case at the Employment Tribunal of unfair dismissal.

The best cause of action is to remove him as director so you then control and suspend him from employment (on pay) while you investigate a dismissal. At that point it should be possible to negotiate an agreed resolution including a purchase of his shares. Call me if you want some further guidance on negotiation strategy but best you first of all gather together the evidence backing the allegations.

 

[The Byre]

I nearly always learn something when Graham posts!