Director / share holder removal

[albert handcock]

good afternoon all,

I won’t bore you with all the details, but looking for a few answers if possible.

Newly founded ltd company with 3 directors / shareholders. Myself and another own 75% where as the latter owns 25% we’re also all directors. One of the directors / shareholders hung up how boots around 3-4 months ago, while me and the other gent are seemingly working ourself to death trying to make the company succeed.

The questions are, what power do we have over the non worker? As you can imagine him reaping the rewards over our hardwork just isn’t acceptable. Can the majority vote him out? Is there a way we can remove his shares?? Also please bear in mind this is a family run operation so the lines of any formal documents or literature are none existent.

 

[Scalloway]

Do you have a shareholders agreement that covers this?

If not you can remove a director by an ordinary resolution.

https://www.companylawclub.co.uk/removal-of-a-director-from-office

Removing a shareholder is harder. The simplest thing to do is to make them an offer they can't refuse to buy their shares.

 

[albert handcock]

Thanks for the link and reply! And unfortunately or beneficially we don’t. Being all in the family (terrible idea btw) we have nothing documented.

So that being said, I presume it has to have a majority vote to strike him off? And I’m afraid a buy out isn’t possible at the moment as we’re literally scraping by to survive. Is there any other possibility of removing shares? This chap has zero interest in the business and hasn’t returned to work in months.

 

[Mr D]

Most shareholders don't work in the business.
The directorship is separate from shareholding.

Buy him out later though by then his price may go up - its his choice about selling or not.
He can keep the shares for many years to come.

 

[Scalloway]

You can remove him as a director as you have a majority.

You will just have to put up with him as a shareholder. You can limit his benefit from having shares, such as paying yourselves a bonus when profits allow, rather than declaring a dividend.

 

[albert handcock]

So just to confirm, we as a majority can in no way remove his shares?? My only fear is as mentioned in the future when / if the business becomes a success, he has absolutely no right to benefit from what we’ve built up. Scandalous thinking about it. I’m extremely surprised the majority can’t inforce a removal based on this situation.

 

[Mr D]

So just to confirm, we as a majority can in no way remove his shares?? My only fear is as mentioned in the future when / if the business becomes a success, he has absolutely no right to benefit from what we’ve built up. Scandalous thinking about it. I’m extremely surprised the majority can’t inforce a removal based on this situation.

The shares are his unless he chooses to sell them to you.

He has a right to benefit from your success in the future because he is a shareholder. If you didn't want him to benefit then shouldn't have given him shares.

If you don't want him sharing in that success then offer to buy the shares off him. Now or at some point in the future.

If he agrees to sell the shares anyway.

 

[albert handcock]

Thanks for the help everyone, much appreciated.

Sorry for the 20 questions, but can I put together an ordinary resolution? Or do I have to discuss this with a solicitor?

Thanks

 

[Scalloway]

You can do it yourself. The procedure is here

https://www.rapidformations.co.uk/blog/can-i-remove-a-director-from-my-company/

Remove a director by ordinary resolution

Where the articles do not cover the cause for removal, you should call a general meeting of the members (shareholders or guarantors) to vote on the matter and pass an ordinary resolution. This requires a ‘simple majority’ vote (over 50%) in order to be passed.

The member who proposes the dismissal must give the company ‘Special Notice’ of a resolution to remove a director at least 28 days prior to the meeting at which the director may be removed. The director in question should be given a copy of the notice, and he or she will be permitted to attend the meeting and make representations.

Minutes of the meeting should be taken. A copy must be kept at the company’s registered office or SAIL address with a copy of the resolution. The company’s statutory register of directors should be updated to reflect the dismissal.

Companies House must be notified of a director’s removal within 14 days of the resolution being passed. You can do this online using Form TM01 or via Rapid Formations free Admin Portal.

 

[nelioneil]

You can remove him as a director as you have a majority.

You will just have to put up with him as a shareholder. You can limit his benefit from having shares, such as paying yourselves a bonus when profits allow, rather than declaring a dividend.

Whilst correct, if this becomes a matter of course than a one off and they never pay dividends, could there be an argument of prejudicing the minority shareholders?

 

[Mr D]

Whilst correct, if this becomes a matter of course than a one off and they never pay dividends, could there be an argument of prejudicing the minority shareholders?

How are they prejudicing? The decision to issue dividends would be taken by vote and if decided not to issue dividends the company is worth more by keeping the cash on hand.
Quite a number of companies over the years have not issued dividends for one reason or another. And kept shareholders happy.

 

[nelioneil]

How are they prejudicing? The decision to issue dividends would be taken by vote and if decided not to issue dividends the company is worth more by keeping the cash on hand.
Quite a number of companies over the years have not issued dividends for one reason or another. And kept shareholders happy.

Because he would no longer be a director but purely as a shareholder and would not receive any bonuses, as a way to ensure that dividends are not paid to this shareholder.

 

[Mr D]

Because he would no longer be a director but purely as a shareholder and would not receive any bonuses, as a way to ensure that dividends are not paid to this shareholder.

And the shareholder will share in any dividends issued alongside the other shareholders.
If he wanted a wage & bonuses then maybe work for the company too.

 

[Lisa Thomas]

Have you asked him to sign a TM01 form to lodge at Companies House to remove him as a Director? Might be simpler if he agrees to do it voluntarily.

As regards the shares as you can see from the above comments they belong to him - you can offer to buy him out but cannot force him to sell his shares.

A Director and Shareholder are two completely different things.

 

[albert handcock]

Thanks for the advice all. I think a quick chat with a solicitor may be on the cards just to iron everything out.

 

[Chris Ashdown]

Please not you have a duty of care to the company, so you could not for instance close it down and start a new company unless there is a very good reason for doing so, and any new shareholding he must be given the opportunity to purchase his share of them to avoid watering down his shareholding