Director fallout, potential company takeover (continued!)

[PrideofCornish]

I posted recently asking for advice as my co-director (we own a ltd company, 50/50 share holders and both equal directors) added a 3rd director without my knowledge - we have since met to discuss this and despite me showing him the advice I'd received from this site with regards to it being invalid due to it breaching the Articles of Association he still won't have it that the appointment doesn't stand, and we have since atleast agreed that we can't continue the business together!). Can I start by thanking everyone for their input so far, its all much appreciated

The basics are that we designed a product over a period of a couple of years, using grant money plus some personal investment to bring it to market.
The company has now been trading for one year, but we have fallen out over direction of company, split of workload etc. The company has no debts but zero cash (once we have removed our directors loan accounts - neither of us could have afforded to develop the product on our own, and have both invested a few thousand each and our own individual specialisms).

The company is just starting to take off, with some retailers now coming on board with regular sales (low volume, but product costs approx. £25 to make and retails to the public at £100+) and word is starting to grow and spread with reviews very positive. It is a niche market, with no competitor products. First year turnover was approx. £25k with no profit but the company now has all the equipment for tradestands, promotional material, website etc. and I believe it has potential to go on and be successful.

I have put three years of time (we have both been doing this part-time on top of full-time employment) into this and neither of us have drawn any money from the company. My co-director knows the industry and is the one that has driven the sales, but I have done all the backroom work (developing the product, website, marketing material) etc.

My co-director has basically asked me to resign, and offered to buy my share for a token amount to cover my work done to date. Having met to discuss options, there appears no chance of a resolution allowing us to continue the business together.

My co-director has all the stock, show stand equipment, materiel etc, but I have the website, email etc.
I'm after any advice people can give me on the following:

1) If he just leaves the business (ie resigns himself) can he go and startup on his own and use all of the stuff we've built up? I'm assuming that legally he can't, as this wouldn't be 'in the interests of the current company'?

2) If we wind-up the business, I'm assuming either of us (or both) could start up on our own, using the same design, branding etc, as none of this is
protected?

3) If I don't want to leave the business, my understanding is that he can't force me to close the company or to resign as these options would need to be by majority shareholder vote, and that he also can't send it in to liquidation etc or anything similar?

4) Would a fair request for him buying me out be 50% cost of assets that the company has built up, payment for the work I have done at a rate based on if we'd outsourced, plus £x per product sold over the next x years?

5) If I were to let him buy my shares for an agreed cost, but request for example a £10 payment per product sold over the next 5 years, how could I stop him 'pulling a fast one' and falsifying number of products sold during that time, or just not paying?

6) I'm also concerned that should I stay on as 50% shareholder but resign as director, that he would simply spend all the potential profit (including on a wage for him, excessive costs etc) and that there would be no 'profit' to share.

I have worked hard to build the company up, and invested a lot of time, and obviously don't want to just leave him to now reap the potential rewards, but also could not afford to take this court should it get to that. Any advice will be much appreciated!

 

[Chris Ashdown]

Basically if you do nothing you can draw the same wage as him and remain half owner, you can also sit at home watch the company grow and also draw the same wages as him, it's your half of the company

If he wants to buy you out, then he has to have it made clear it must be an attractive offer

Offer him the same amount to buy him out

 

[PrideofCornish]

Thanks Chris. My fear is though that he doesn't understand that legally that is one of my options - he sees it predominantly as his business as he knows the industry and it was his initial idea (but brought me in as partner as I have the skills that he needed), but that now that bit is done I guess he feels he doesn't need my input now.

I can't see him offering me what I feel is my entitlement, partly because of the reason I've just listed but also because there is no real cash in the business at this instance hence he is valuing my share still at £1 + a goodwill token payment.

Also, bank account is dual signatory but he has the only online access, and he has already made the odd 'cash' or 'directors expenses' money transfer to himself (is that allowed? - £80ish and £400ish amounts) - and he can therefore arrange to spend what he likes going to tradeshows, paying himself a wage and not me, etc...which I'm assuming he can't legally, but in practice he could and the only way back for me would be legal action which could end up being complicated, expensive!?

I'm really interested in any other help anyone can give on some or all of my points...apologies for all the questions

 

[kulture]

I'm sorry in your original post you said you have a product that you developed and it costs £25 and retails at £100 AND IT IS NOT PROTECTED!

So what is there to stop anyone copying it and selling it in competition?

So what is the true value of the company? Unless the design is protected, then the value is limited.

Have you considered resigning as a director and selling half your shares. Keep say 26%. Then it would just be better for him, tax wise, to pay dividend and thus you get dividends too. If he can make the company profitable, then you win. If he cannot then at least you get something out of it.

 

[PrideofCornish]

Thanks for your thoughts Kulture, can I ask why the 26%...does that basically leave me enough percentage that I couldn't be removed from the company in the future? My concern with this option however is still that he would use the company to support his lifestyle, thus spending the potential profit on 'business expense' and therefore limiting any dividend I may receive...again, I don't know where I would stand on this front?

With regards to the lack of patent and trademark protection, essentially we could not afford it (we put what little we had in just to get a product) and also felt that if someone did copy it we wouldn't be able to afford to sue anyway. Its also a niche product in a specialist market, and the bulk of people in the industry wouldn't know where to start so we felt fairly confident that no-one would try. I agree it limits the potential value...but more in my opinion to a potential investor.

 

[kulture]

If a product is profitable and likely to earn you good money, then it is stupid not to protect it. If it is likely to earn good money then it will be copied. Thus the value is reduced.

26% enables you to block any special resolution. So he will be unable to dilute your shares.

 

[PrideofCornish]

Hi Kulture, thanks for this advice, and yes completely agree about the protection issue (I would definitely do things differently next time!)

Still very interested if people can give me advice on points 1-6 that I raised at the start of this posting?

 

[kulture]

In simple terms, if either of you resigned as a director, then you would be free to do what you liked. It is only a director who has a duty to the company and shareholders.

A shareholder, has a right to see the accounts. So hold on to your shares, or at least 26% of them, so you can always check the accounts.

As for what your shares are worth, they are worth whatever you can agree on. If you can get agreement on a royalty payment then include in it a method of auditing it.

To be honest, since the product is not protected by a patient, then what is to stop either one of you changing it slightly and then say it is a completely different product and thus any royalty deal is off.

Get what you can now, learn from your mistakes, and move on.

 

[Conflictwise Karen]

From what's been posted so far, despite your worries, you have a strong basis for negotiating a satifactory leaving package, if that's what you want - even if your co-director is not recognising that at present.

Even if you could afford legal action, you are right that it is not likely to be cost effective. (although spending a limited amount on getting a lawyer to set out the legal position for your co-director may be a way of getting him to the negotiating table). Fortunately there are alternative ways to resolve disputes, such as mediation and principled negotiation.

As a conflict coach, I would suggest you get clear about what your goals are (whether leaving or staying on), and also what is your best option if you can't get a negotiated agreement. These form the baseline from which you can negotiate a more favourable deal.

A big issue here is the breakdown of trust between you. Two good things about mediation (or principled negotiation) are that (1) it provides a structure for parties to work together to find a mutually beneficial solution without having to trust each other and (2) it can often restore trust that has broken down as it creates an opportunity for the parties to understand each others needs and motives.

Mediation is a very cost-effective way of making a deal - it is time-limited and has a one-off cost. For more information, see The Resolver, who responded to your earlier thread.

However, you could manage the negotiation yourself using principled negotiation techniques developed by the Harvard Negotiating Project to get parties to work together to find a win-win situation. It is an excellent way to get a fair and lasting agreement in situations where there is low trust and high emotion (which seems likely if you feel betrayed after a three-year working relationship). A good introduction to principled negotiation is the book "Getting to Yes - Negotiating an Agreement Without Giving In" by Fisher/Ury/Patton.

No doubt you feel your first challenge is to get your co-director to engage in a negotiation process at all, with or without a mediator. Believe me, there will be a way, by finding a benefit for him in it.

I'd be happy to give you more information or chat through your options. You can send me a PM or contact me through my website www.conflictcalming.com

 

[PrideofCornish]

Thanks again Kulture, I feel I'm understanding the situation more and thanks too Karen, I will be in touch

Has anyone got any thoughts on what they'd do if they were me (you'll no doubt have a better perspective on the bigger picture than me!) or any more comments on 1-6 above?

 

[kulture]

You have to remember that if a director fiddles the accounts and draws money from a company in the way you seem to imply, it is not just the shareholders who have a case against him, it is also HMRC. A director either gets paid (and pays tax in that payment) or gets a dividend (and pays tax on that payment) or takes a loan (and pays tax on that benefit). See the trend here. HMRC take a very dim view on people who try to avoid tax. So paying yourself needless expenses, or allowances etc etc are likely to get you in very hot water. So a director has to be sensible regarding costs and expenses. A "huge" wage will be taxed, if really huge it will be taxed at 40 then 50%. A dividend is much more tax efficient. Trouble is you have to share it in proportion to shareholding. This is where you get to share in any profits.

So the other director has an interest in buying you out. This is where you get a value. BUT because you have not protected the product, the value is low, because it is fairly cheap to set up a new company and start without you.

 

[PrideofCornish]

Thanks again Kulture.

My original thought was that if a director resigned they couldn't then start up with the same product/contacts as that was going against the original company - but am I know correct in thinking thats not actually the case?

My thoughts at present are that I don't have a huge amount of solid ground (particularly if thats true)! Essentially, I don't have the contacts or really want to work in the particular industry so would struggle to sell the product on my own if I left to start up on my own, if we just simply close the business down I will walk away with nothing, and the stock etc is with my co-director and without legal action I guess I couldn't force him to share that and the other capital etc with me.

Sounds like I'm possibly best getting what I can in a buy out (albeit likely not very much) - it just feels frustrating that he could go on and make a lot of money out of my hard work! And the bargaining power seems to be in his favour, as if I don't agree he can just walk away taking everything we've done so far anyway and just set up on his own, having already got the 'start-up' done.

And even if I get an agreement offering me a percentage of sales for example, he can simply modify the product slightly and get out of the agreement?

Any thoughts?

 

[Chris Ashdown]

The more he sells the less likely he is to close up and open another company as he would have to explain to his exsisting customers why the name change and also buy new publicity etc also whilst you own 50% he is unable to close the exsisting company down without good reason

Given the poor choice open to you I would sell him 24% of the shares as suggested as this gives you quite strong rights andget the dividends when he realises they are a more efficient way of getting money out of the company

That way he gets freedom to run the company as he wants to, you get as much cash as you can by selling the shares and hopefully sometime in the future you get some more money back in the way of dividends

Once the company is self sufficient so he goes full time he will most likely need a accountant to work out the year end figures etc so be limited on illegal acts to a small extent

As a shareholder you have the rights to see the accounts, attend Shareholders meetings etc and ask awkward questions that must me minuted in companies records

A solicitor would be a good choice now you have some knowledge and I imagine be well worth his fee's, and wake up the other partner that you cannot be walked over

 

[tony84]

1) If he just leaves the business (ie resigns himself) can he go and startup on his own and use all of the stuff we've built up? I'm assuming that legally he can't, as this wouldn't be 'in the interests of the current company'? If he resigns he has nothing to do with the company, therefore from that perspective he can do what he likes. However he would not be able to use things from the company as they belong to the company (not you or the other director).

2) If we wind-up the business, I'm assuming either of us (or both) could start up on our own, using the same design, branding etc, as none of this is
protected? I would be inclined to say yes here so long as the company is closed.

3) If I don't want to leave the business, my understanding is that he can't force me to close the company or to resign as these options would need to be by majority shareholder vote, and that he also can't send it in to liquidation etc or anything similar? Thats also correct.

4) Would a fair request for him buying me out be 50% cost of assets that the company has built up, payment for the work I have done at a rate based on if we'd outsourced, plus £x per product sold over the next x years? If he buys you out you cant prove how many have been sold, as their seems to be little trust this does not look like your best option.

5) If I were to let him buy my shares for an agreed cost, but request for example a £10 payment per product sold over the next 5 years, how could I stop him 'pulling a fast one' and falsifying number of products sold during that time, or just not paying? You couldnt unless you had 26% of the shares and are able to see the accounts.

6) I'm also concerned that should I stay on as 50% shareholder but resign as director, that he would simply spend all the potential profit (including on a wage for him, excessive costs etc) and that there would be no 'profit' to share.

I would get the online bank account closed. Tell the bank there is a disagreement and this allows one part to access the account without the others permission. You want it closed or blocked until both directors come in and agree to it being re-opened. You also do not want any other accounts opening online or offline for this business.

 

[Conflictwise Karen]

Tony84s advice - particularly regarding the bank account - is good (one person should never have free access to the company's money!).

I suspect you are in a stronger position than you believe. Although you may not be able to repair the working relationship that you once had, it may well be in your co-director's interests to retain your skills in some way. I imagine the rift between you has some history, and with the right approach you may be able to clear up some misunderstandings and understand each others' needs better.

A mediative (rather than adversarial) approach will allow both sides to put everything on the table (eg - what need was your co-director trying to address when he brought in a third party? Has he really listened to your views on what you have contributed - and does he understand that half means half?). A mediator will ensure you both get heard and are able to express your frustrations without ending the discussion.

I would add that your co-director's technique of hiding his head in the sand speaks to me of anxiety and confusion. It is likely he feels threatened and if you can make clear through your behaviour that you want to get only a fair share of the business (by principled negotiation) he may be reassured. It seems he has believed the company is his because it was his creative idea (despite the 50/50 split) and he is in the denial part of the grief process in coming to terms with the notion that you really do own half the company. If you can be compassionate but gently assertive, he will probably get over it.

In short, don't lose heart because things are intense at the moment.

 

[Conflictwise Karen]

Another thought -finding a way to protecting the company's product should form an urgent part of any negotiation process, as it will add value for both of you. You might raise this issue with him first, as being something that is in both your interests.

 

[tony84]

Im thinking about this more and more.

A mediator may be a good idea, however to me it sounds like there are a lot of issues here and its probably going to come down to a case of 1 of you leaving.

What you have said sounds like he is being unreasonable, however im not going to take sides as im sure he has his story also. But when people are being unreasonable its always going to be a no win situation which is usually realised after a lot of destruction, bad blood, shouting and screaming.

You obviously want compensating for your time and efforts.

I think you firstly need to sit down be grown up and just discuss it, no shouting, screaming. Maybe arrange to draw up your own bullet points before hand and go through them 1 at a time with each other - not always do-able but it will save you a lot of stress if it can be done.
You could also possibly get an auditor in to look at the accounts and then call the police for theft from the company or possibly fraud.

 

[PrideofCornish]

Thank you again all, you've all been fantastic and this forum has helped me immensly! I hope others may learn from my mistakes!

Essentially, I'm feeling that my real options are (in no particular order):

1) sell him some shares, but ensure I still own atleast 26% shares. I'm guessing I would get very little for the 24% share, but it may appease the situation and allow the business to continue (possibly with an agreement that if my skills are needed, I get first dibs and the company pays me for the work) - I could then resign as director, do nothing, and if it takes off I'll get 26% of the profits, and if it doesn't, atleast I won't have put anything else in.

One concern with this: any liability for company debt, poor practice etc - but I'm thinking that I'm only liable for the value of my share, and that as long as I fulfil my shareholder responsbilities as laid out by Companies House I'd be ok

2) Dig my heels in and refuse to sell any shares. I think in this instance he would leave (as he can't close the company) and set up on his own, or stay as 50% shareholder himself but set up a rival company anyway. I'm now assuming he can use the same product and same product name, and take his contacts etc with him? He would, however, have to redo all marketing material, and buy new showstand equipment, stock etc as everything we have at the minute he'd have to give to me as the company owns it. However, I would be left with the company and little knowledge of the industry!

3) I could resign as a director, sell all 50% of shares for whatever I can get, and move on! However, if it then goes on to be a success, I've lost out!

 

[PrideofCornish]

Another thought -finding a way to protecting the company's product should form an urgent part of any negotiation process, as it will add value for both of you. You might raise this issue with him first, as being something that is in both your interests.

Is there any possibility that he could trademark the product/company name - either now or if he left the company - and it belong to him personally and not the company? (or would this not be valid as the company developed the logom company and product names etc and therefore by default they belong to the company?)

 

[tony84]

1) sounds your best bet but not resigning as director.

2) He cant use the product i dont think if he is still director of your company. He has to act in the best interest of the company and setting up a cometitor is not.

3) Thats possibly the best bet if you really can not sort something out between you.

 

[PrideofCornish]

Tony, thanks. Can I just ask:

1) Why not resign as director?

 

[NEBB]

Having similar issues with my business partner!

Googled 'business forum' clicked on 'legal' and this was the first post i read and can feel your pain!

Think i will start my own post as i dont want to spam yours but lots of useful advice here already

 

[kulture]

First you should know that a shareholder has no liability if a company goes under and racks up massive debts. A director normally has no liability unless the company trades when insolvent.

If you choose to remain as a director you MUST ensure that you know what is going on financially. If you sell even one share your partner can remove you as a director.

In your situation, I think it is no point staying on as a director and every point resigning unless you keep 50%

 

[Chris Ashdown]

Can you confirm you have no guarantees at the bank or any other company (car lease, Photocopy etc) or contracts that you have signed as they will not automatically be removed if you resign or leave the company

 

[PrideofCornish]

Hi Chris,

Thanks for this thought...there is an agreement for an online merchant account for approx £25/mth 12mth contract with approx 6mths remaining - would I be liable for this?

One final question folks if you don't mind...whilst I'm still a director *(and 50/50 shareholder) i can block my co-director closing the company down, but if i resign as director and leave him as the sole director could he then resign? This would then leave no directors which is obviously not allowed! What would happen with this....would that automatically mean the company closing down?

 

[PrideofCornish]

Hi Chris,

Thanks for this thought...there is an agreement for an online merchant account for approx £25/mth 12mth contract with approx 6mths remaining - would I be liable for this?

One final question folks if you don't mind...whilst I'm still a director *(and 50/50 shareholder) i can block my co-director closing the company down, but if i resign as director and leave him as the sole director could he then resign? This would then leave no directors which is obviously not allowed! What would happen with this....would that automatically mean the company closing down?

ps we are due to meet later today, so will update the forum afterwards! Any help on the above would still be appreciated

thanks again

 

[Conflictwise Karen]

PrideofCornish - what do you feel is the benefit to you of selling some of your shares?

 

[PrideofCornish]

Hi Karen

My thinking with perhaps selling 24% shares and resigning as director is that should thebusiness go on to be a success I will get a cut, but if not then I at least haven't put any more time and effort in - I think if I insist on remaining with 50% shares he will simply resign and start up elsewhere and I will be left with a company with outstanding events etc booked but little knowledge of that side of the business (and my interest is really the 'backroom business stuff'), and no contacts.

Essentially, I'm now not interested in 'working in the company' but don't want to miss out should our initial hard work start to pay off! And also don't want to walk away with nothing!

 

[Chris Ashdown]

Worth mentioning that he cannot issue more shares unless offered to all on equal footing so cannot dilute your holding without giving you the option of buying enough new shares to keep your 26 percentage of total shares

you may or may not want to take up any share issues but loose the safety of 26% if you dont

 

[PrideofCornish]

UPDATE We've now spoken, and essentially my co-director offered to buy me out for £3,000.

I declined, and he then said in that case he would close the company.*

I said that he couldn't legally close the company without my agreement and that I wasn't just going to gift him the company.

(I'm not keen on us simply closing the company, as I won't come away with anything, and he will then easily be able to setup again and carry on, particularly now the product is developed and established in the marketplace and therefore low risk!)

I then also said that i wouldn't sell up*unless he could offer me what I would consider reasonable payment for the time I had spent on work produced, that I would remain as 50% shareholder and equal director, and that the fairest way forwards would be for us to log time spent working and receive an hourly wage each, with additional agreement needed on expenses...or he could resign as director and give me his shares - however, I also explained that if he took this route i would protect the product name *and if he tried to start selling the product under the same name, that i would take legal action.

Another option I put on the table was for him to buy 24% of my shares (leaving me with 26%) and that i would resign as director - but on the condition that we amended the Articles of Association to say that the company could not raise additional shares (I would not want to buy any more and therefore that would risk him diluting my share percentage), and that should he choose to resign as sole director that I would take over not simply close the business down. I also put an option down to keep 50% shares but resign as director, with a proviso that if my skills were required I would get first choice, as a paid contractor, for that element of work at the going rate. He also did not go for that.

To support these last two options, I suggested mediation, but again this was not well received.

He still believes the company is his, and that he is entitled to close the company even without my agreement, and has gone away to (attempt to) do that!

Having received all your help I'm confident what I've said is legally correct...but any thoughts/comments would be appreciated!*

Thank you all again

 

[Chris Ashdown]

I would give him some time for reality to clock in with him, if he really thinks he can make a go of it he is unlikly to close it down and start again

Not sure what if any protection you can get

 

[PrideofCornish]

I would give him some time for reality to clock in with him, if he really thinks he can make a go of it he is unlikly to close it down and start again

Not sure what if any protection you can get

Thanks Chris...I think tho that he more thinks that because it looks like it could be successful that starting up again on his own is his best bet...but am I correct in thinking that we would both need to agree to close down the existing company?

 

[Chris Ashdown]

Who makes the items for you, is it possible to get them to supply exclusivle to your company, maybe a visit to them and request a letter confirming they will only supply this item to your company for next five years, could help and there would be no reason to tell the other director as you would still be a working director at the time

This could make it difficult for him to get made and you can also copyright the design for your company including packaging and name etc, after all you are still working on behalf of the company

 

[Conflictwise Karen]

You've made a powerful and fair opening and I couldn't suggest anything better. You are in a position of strength and, as long as you stand firm, I can't see how he has any other option than to negotiate with you once he understands the situation.

You can make it easier for him to come to the table now by opening a learning conversation with him - getting beneath his position to his interests and his fears and identifying the interests you have in common (eg to get the best recompense for the work you have both put in); clarifying his perception of what the conflict is really about for him and creating an atmosphere of respect.

You can remain resolutely non-aggressive, avoiding blame and consistently recasting the situation as one where you can work together to solve your joint problems and meet your individual needs and treating his attempts to fight as communications about what he needs. You can deal with strong emotion on both sides by neither ignoring it nor acting out on it, but using it as an indicator of what is deeply important to both of you - understanding that this may be less about financial outcome than about the need for recognition and respect.

Even though you may not wish to work together again, you are likely to get the best outcome for yourself if you can create a co-operative relationship until things are resolved. Though this may feel impossible, there really is a lot you can do to create a helpful atmosphere and while there are no guarantees (you can influence others but not control them), it is surprising how successful alternative dispute methods can be. Essentially, by taking a principled stand, you give him nothing to fight and every reason to co-operate.

I'm struggling to suppress my curiosity about how your co-director can believe he owns the company when you have half the shares, and how that originally came about - but that is part of a no doubt complex backstory which you don't need to put on a public forum. How you came to this position is, though, an important factor in deconstructing the dispute so you can clear up misinterpretations and reframe both your interests more positively.

Oh dear, that last sentence was rather vague and jargon-y. The best I can do in a hurry, though.

In short, patience and a genuine desire to meet both your needs as far as is feasible (which it seems you have, despite your co-director's sulks) is your best chance of preserving the value of the company.

- oh, and have you got the bank to stop his unilateral siphoning of company funds? That's your money!

 

[tony84]

He cant start a new company doing the same as the existing company - there are rules for directors which state they must do the best by the company they are director of. Starting up in competition is not doing the best so he would have to stand down as director (but he can still be a shareholder).
So thats that option out of the window. If he does that then your left with a piece of dead wood and a company you have no knowledge or interest of.

That being said, i would hate to see an awkward git win and i would be inclined to be just as awkward. If he steps down as director atleast you can then build the company up - you will/should have clients.

But what Chris has said it was quite good advice if you can get the product protected. That will nip all of this in the bud. He cant start up again, the company will have some proper value and he has a choice then of sorting it out or leaving the company and his ideas.

I think being nice has gone as far as it can do. You need to go out there now and start saying what will happen, how you propose to move forward, you will report him to the police for theft (money from the business bank account) and he needs to start conforming or accept one of your offers.

 

[PrideofCornish]

All, thank you again for your excellent and supportive advice.

I have now met again with my co-director, and followed up on these points (particularly in relation to the bank!). He has essentially that I can either sell my shares to him or he will force the company bankrupt. I wonder if I can ask you once again to help with the following:

He is saying he will only give me approx. £3000 to buy me out as that's all he can afford, but also that the company has no value (in his opinion). The company has stock totalling approx 100 units (purchase price to us £25 / retail price £100). He is saying that's its value is only 100 x £25, but obviously if he gets to keep this its paid for already and he can retail it at £100/unit! The company also has about £3000 worth of assets (tradestand banners etc etc), and another £3000 in the bank account.

However, he has already agreed (via email) for the company to attend a tradeshow in a few weeks time (approx. £1500), and still has his directors loan that he put money money into (approx. £4000) which he is entitled to take out, and the company owes another supplier approx. £800.

What would therefore happen if:
1) If I refuse what he can afford to pay me, he has said that he will file for bankruptcy (or whatever the correct term is?) as we will have people to pay but not enough 'cash' to pay them (his way of closing the business down). Is this possible? Also, what will happen - I don't understand bankruptcy and can't afford to lose any personal cash/my house etc! and also wouldn't want a bad credit rating or to be prevented or hindered in starting another business in the future!

Also, are we (the business) liable to pay for the tradestand if we stop trading beforehand?

2) I'd like to come up with a more 'realistic' valuation - how would you recommend the stock is valued - 100 x £25, 100 x £100, 100 x (£100 - £25)?

Thanks in advance again for any help you can give!

 

[tony84]

This is getting more complicated now he has a directors loan as there isnt enough to cover it in the companies account.

With regards to your home etc, the most money you can lose (presuming it is a ltd company) is the money already invested.

He can bully you with that, but he would be cutting his nose off to spite his face. All of the assets would get sold off and divided equally (percentage wise) to the creditors of which he is 1 of. If it came about he withdrew the £3k from the bank then went bankrupt i have a feeling the other creditors could call the police.

But on the other hand, you have the fact he has commited theft. That will stay on a criminal record forever - you can also get him kicked off being a director but you would need a solicitor etc.

If i was in your shoes i would be inclined to argue this to the hilt because i hate having someone blackmail me, im that awkward that i would be prepared to lose money if i knew it meant he did too.

However you dont seem confident enough to argue this to a point where he will believe you or that he will believe you will report him to the police for theft. You could be best working out what you invested (time/money) working out a fair price and then maybe saying you will take £3k upfront with the rest to be paid over 12/24 months or that you want 50p off everything sold for the next 3 years on top of the £3k.


Also ive just read this; http://www.ukbusinessforums.co.uk/forums/showthread.php?p=1814464#post1814464

 

[Conflictwise Karen]

I don't believe a company can declare bankruptcy, only an individual. And I don't think your co-director can simply decide to liquidate the company on his own. But you really do need proper legal advice.

Many solicitors will give you a free initial consultation so you will at least be clear what your options are. Look in your local phone book or try Clare Kaudeur at www.clarkmans-solicitors.co.uk And don't be afraid to speak to the official receiver and get accurate information about what your co-director can do regarding bankruptcy.

It looks like your co-director has really backed himself into a corner where he feels his only options are to get his own way or outright hostility towards you.

Your account on this forum started with him trying to appoint another director without consulting you - but I imagine this was only the point where conflict became so overt you could not ignore it and differences between you had been simmering for some time before then.

Though it is late in the day, it may well still be possible to unravel the history of this dispute and get to the bedrock of what it is all about. Whatever you disagreed about on a practical level, the source of the kind of punishing rage your co-director is displaying is always about an insult to identity - how the disagreement was handled rather than the practical issues.

Do be clear that his narrow-minded hostility does actually put him in a weaker position (issuing threats he can't carry out), especially if you are able to detach from your own no doubt difficult feelings and take a mature, creative approach to solving the underlying problems.

As I have said before, I am happy to give you a free phone consultation to unpick this dispute and help you generate some new thinking.

 

[Alan R Price]

PrideofCornish

A company cannot file for bankruptcy - it goes into liquidation (or possibly administration or a company voluntary arrangement - CVA). It can only go into liquidation if the shareholders pass a resolution for it to be wound up or the court makes a winding up order, so nothing can happen without your consent or knowledge.

The company (i.e. its shares) is worth what somebody is prepared to pay for it. A small private company's shares are usually worth more to its director-shareholders than to an arm's-length purchaser. A good place to start is the break-up value: what its assets would fetch in a forced sale if it ceased trading, compared to its liabilities. The net amount is the value of the company.

A going-concern valuation will take into account the the premium value an independent purchaser might be prepared to pay for the shares over the break-up value; but there is no hard and fast rule. A company's value may be calculated as a multiple of its historical annual turnover; or of its profit. It can be done as a percentage of future turnover or profits - a form of royalty payment. If you contact a business transfer agency they may be able to advise what similar businesses in the sector are changing hands for.

There are all sorts of ways to value a business but in the final analysis it often comes down to a simple "this is what I want to pay - let's negotiate", or even "take it or leave it".