Directors Salary

[vyk750]

Hi

Can someone please answer a question for me?

My partner (not married) and I have recently separated, I am a director also and own 49% of the business that we bought together 5 years ago. He works the business and I do all the bookkeeping and invoicing etc.

Now that we have separated he says that he is no longer prepared to take a basic wage + dividends but intends to put his wages up to £60k per year as this is his 'worth' in the business whereas I shall only get £12k per year as a part time bookkeeper (my worth).

If he manages to do this then the business will have little money left at the end of the year for any dividends to be paid. Therefore leaving my 49% worth nothing.

I am trying to get him to buy me out of the business so that he will have 100% of shares.

Can he put his wages up to what he considers to be the industry standard (oh and the fact that he is MD and runs the business) without my consent being a director and 49% shareholder?

I have spoken with my accountant and he has advised that he thinks that he can not. However, I am concerned that perhaps he may have been wrong. Any help would be much appreciated.

Many thanks

 

[MyAccountantOnline]

I have spoken with my accountant and he has advised that he thinks that he can not.

I would go back to your accountant and ask him to explain why he thinks your former partner cant do this.

Does he hold the remaining 51% of the shares?

 

[elaine@cheapaccounting]

This really is something that a solicitor needs to be involved it.

At the moment he does if he has control oft 51% of the shares.

Did you have a shareholder agreement?

If you have other assets that need to be split the whole thing would be brought together in the financial settlement.

 

[Benn]

The way the partnership is governed is through a shareholders agreement - if you dont have one of these in place then you will not be able to stop him from applying whatever wage he sees fit as he has more shares (votes than you)

 

[vyk750]

Hi Nicola

Yes he does hold the remaining 51% of shares.

The accountant advised that he would not be able to jump from a basic wage to £60k per year without my consent as being a director he would require the consent of all shareholders. (i.e me and him).

I constantly receive a barrage of texts from my Ex partner advising me that he is going to do this and that as I am only a 49% shareholder there is nothing I can do to stop him.

I have advised him that the accountant says he can not do this without the shareholders consent but he is insistant.

What concerns me the most is that our accountant is my Ex partners friend. (I have been speaking with another accountant in the firm).

Many thanks for your response.

Vicky

 

[elaine@cheapaccounting]

Vicky

Get a solicitor involved asap.

The business would be valued and as said form part of the settlement.

Being realistic - will you be able to work in the business is the separation is not amicable?

 

[MyAccountantOnline]

Hi Vicky

I second Elaines advice at this stage I'd get some legal advice immediately.

In advance of taking some specific paid advice a posting in the legal forum may help.

Good luck in getting it resolved.

 

[UKSBD]

Is what he considers to be the idustry standard about right, or has he grossly over inflated it?

 

[oldeagleeye]

This is a common ptractice when trying to get rid of a shareholder and while he doesnt have the 75% shareholding to overide any other shareholders objection you can seek all the legal advice you want at great expense but the bottom line is that without a shareholders agreement covering issues like this he will get away with it.

Sit down and talk. It is the only realistic way out of this and remember. He may be bolshy now but you once shared a life together. Appeal to his sense of fair play whhile at the same time making sure that he knows your no walkover.

Rob

 

[UKSBD]

until we know the answer about the industry rate pay question we don't really know what is fair and what is not.

If he has been paying himself well below the industry rate for past 5 years the OP has effectively had things very good.

Surely it is fairer that both are paid a fair rate for what they do for the business, even if that does mean the OP loses out?

Would be intersted to know if the rate he wants to pay himself now is the fair rate or not.

 

[vyk750]

Hi all

Firstly, Thankyou all very much for your input. I have spoken with a solicitor and shall be having a meeting with them very soon.

In regards to his salary. I know that other competetors are on approx £30K + company car per year. His idea of a salary for his worth in the job that he does and being MD is £60k per year + 51% of any remaining profits.

Apparently my worth is just £12k per year.

Unfortunately when we bought the business off of my family 5 years ago my father was deperately ill and I had all intentions of being 50/50. However, when it came to the crunch he said he wanted 51% and I simply agreed as my father was so ill I just wanted for my father to know that my mum would be ok etc. Sadly I never knew about shareholder agreements. Ignorance is no excuse, I know.

The most annoying thing is my family trained him to be what he is today!

Again, many many thanks for the advice that you have all given.

Vicky

 

[Grayson Moore]

You are already taking the most important step by taking formal legal advice.

As oldeagleeye states don't allow yourself to be bullied out. You ex partner may be hoping he'll be able to push you into agreeing a bargain price for your shareholding. Stand your ground and go for a fair price.

Once you get down to the nitty gritty of specific valuations you should consider appointing a separate firm, with experience in this area, to act on your behalf to avoid any possible conflicts of interest.

One of the few rights you do have is the right to request the annual accounts are audited. Depending on how long this drags on for and your accounting year end this may be worth considering.

Ultimately it is as much in your ex partners interests as your own to reach a resolution to this. Hopefully you will get this sorted.

 

[UKSBD]

I would think it all depends on whether the £60k is a fair rate for the job he does and the responsibility of being MD.
What do you think is a fair rate?

 

[mr. mischief]

I'd have thought that such a substantial increase in pay would require a Board Resolution, in order to protect your rights as a Minority shareholder. I am by no means an expert in company law, but in principle what your other half is proposing is against the spirit of the Comapnies Act.

Minority shareholders rights are enshrined in UK law to a higher degree than in most Western countries. If you end up needing to challenge this guy, this is the route you need to look down in my view.

If you block him this way, he'll no doubt attempt to wind up the company or similar. Well tough luck pal, you're going to need a Board Resolution to do more or less anything along those lines and you each have one vote on that board so it's stalemate.

So he needs to sit down at the table and talk.