Directorship

[andy]

Hello all,
I would like some help ? The hotel has 2 director each have a 50/50 shares and 50/50 decision making even though 1 direction put around 83% in and the other only put around 17%
After about a year into the business one of the directors just gave up and couldn’t handle the business and walked away ,the other director has been funding and running the hotel on her own , with no help , she has asked several time for help in running the hotel and paper work but she gets nothing from the other director , but he still demand to know what is going on , he has not been back for over 18 months ,

Any thoughts many thanks Andy

 

[Ozzy]

Hi Andy,
The first thing we need to do is separate 'Director' and 'Shareholder' from this sentence;

director each have a 50/50 shares and 50/50 decision making

The person who stepped away should have resigned as a Director, being a director is a job and if they are not doing that job then they should be removed from position (sacked). This would need to be addressed, so the remaining Director needs to make sure this has happened and discuss it with the person who stepped away.
This is nothing to do with 50/50 or anything else, it's the job. The Directors work for the Shareholders, and the shareholders are the ones who own 50/50 shares. (yes they can be the same people wearing two different hats)

Now as for the 50/50 shareholding, nothing can be forced through about that. The shares are the property of the individuals and to try and take that away is theft, but it can be negotiated. As a 50% shareholder the person who stepped away has every right to ask for updates, and every right to know what is going on with their property (remember the shareholder is their property, half the hotel/business is their property).
So all that can be done really is to look at negotiating to buy those shares from them, perhaps. Or walk away themselves and let the business fold, forcing the person who walked away back or risking losing their investment.
Perhaps one for @The Resolver to add some more context and options around

 

[Mark T Jones]

First and foremost, the original cash stake is irrelevant at this point, unless it is documented as a loan or whatever.

What you have in simple terms is a classic 50/50 stalemate.

Are there any shareholder/service agreements in place? They would be your first point of reference, followed by articles.

@The Resolver is your man for legal & dispute resolution, but as always in these cases, communication is the best way to resolve - however tough it may be!

 

[andy]

Hi Andy,
The first thing we need to do is separate 'Director' and 'Shareholder' from this sentence;


The person who stepped away should have resigned as a Director, being a director is a job and if they are not doing that job then they should be removed from position (sacked). This would need to be addressed, so the remaining Director needs to make sure this has happened and discuss it with the person who stepped away.
This is nothing to do with 50/50 or anything else, it's the job. The Directors work for the Shareholders, and the shareholders are the ones who own 50/50 shares. (yes they can be the same people wearing two different hats)

Now as for the 50/50 shareholding, nothing can be forced through about that. The shares are the property of the individuals and to try and take that away is theft, but it can be negotiated. As a 50% shareholder the person who stepped away has every right to ask for updates, and every right to know what is going on with their property (remember the shareholder is their property, half the hotel/business is their property).
So all that can be done really is to look at negotiating to buy those shares from them, perhaps. Or walk away themselves and let the business fold, forcing the person who walked away back or risking losing their investment.
Perhaps one for @The Resolver to add some more context and options around

Thank you for your reply , unfortunately the person that walked away is a controlling person and no one is able to have a constructive conversation as he just turns it all round and blames the other person he will take no ownership of him walking out

He still has to have control , he will not resign and can not be removed as there is no manger shareholder , so he is going to be a thorn in the side of the business

First and foremost, the original cash stake is irrelevant at this point, unless it is documented as a loan or whatever.

What you have in simple terms is a classic 50/50 stalemate.

Are there any shareholder/service agreements in place? They would be your first point of reference, followed by articles.

@The Resolver is your man for legal & dispute resolution, but as always in these cases, communication is the best way to resolve - however tough it may be!

Thank you Mark unfortunately you can not have a conversation with him as he is always right in he’s mind .so in essence it’s a waste of time
Thank you

 

[Paul Kelly ICHYB]

Which one is the problem with - the 83% or 17% one?

 

[Ozzy]

Which one is the problem with - the 83% or 17% one?

They've said above it's the 83% one, the majority controlling holder.

In which case as the minority holder I would resign as a director, stop turning up for work and issue a notice to the majority holder that you wish to negotiate a compromise agreement.

 

[Paul Kelly ICHYB]

They've said above it's the 83% one,

Sorry, I missed that!

 

[chappers27]

I've been in this situation twice and will never do 50/50 again without a locked down shareholder agreement. What someone puts in I think is irrelevant as its the shareholding thats the binding legal issue. Any profits will be shared 50/50. I guess you can ask for a meeting and a buyout of their shares? Or find a mediator?

More questions..

Who controls the Companies House access? Who controls the Bank Account access? Who has the relationship with the accountant? Who has the passwords to things?

 

[andy]

Hello unfortunately one director invested 83% and the one that walked away 17% but I believe it is a 50/50 in everything so even she invested 83% she has no control I assume?

They've said above it's the 83% one, the majority controlling holder.

In which case as the minority holder I would resign as a director, stop turning up for work and issue a notice to the majority holder that you wish to negotiate a compromise agreand the other that walked away only invested 17% but I believe it is a 50/50 in everything

They've said above it's the 83% one, the majority controlling holder.

In which case as the minority holder I would resign as a director, stop turning up for work and issue a notice to the majority holder that you wish to negotiate a compromise agreement.

 

[andy]

Which one is the problem with - the 83% or 17% one?

The 17% but it’s a 50/50 split on everything !

 

[Ozzy]

unfortunately the person that walked away is a controlling person

You said here the one who walked away is a controlling person, but then you say here the person who walked away is the 17% holder (which is not a controlling stake)

the one that walked away 17%

I think you may be confused, which is Ok if you do not have the knowledge around shareholding rights and control, but if you don't have that knowledge then it emphasises that you should take this to a solicitor to advice you.

There will be some members on here who provide this sort of advice and support, but on face value just to reassure you .. it is NOT 50/50 if the shareholding is 83% and 17%, but I'm not confident in that statement as I'm don't factually know what the shareholding is in the company.

 

[chappers27]

I think he meant 'controlling' as in a controlling personality, not a controlling ownership.

From what ive read, it seems 83/17 was just the initial monies invested. This investment can be viewed as a 'directors loan' to the business, and the company, if it has funds, can pay that money back with no tax implications (I think Im right in that).

For example, lets say 'she' invested £83,000 and 'he' invested £17,000 but both individuals have 50% share in the company (lets say there are 2 shares and each one has 1 share). From what ive read that is the situation.

If so then neither party has 'control' and any decision not agreed upon with result in deadlock.

 

[andy]

Hello unfortunately one director invested 83% and the one that walked away 17% but I believe it is a 50/50 in everything so even she invested 83% she has no control I assume?

Yes that’s correct, I’m just wondering , because he has walked away has he broke the roll of a directo ?

 

[Ozzy]

Yes that’s correct, I’m just wondering , because he has walked away has he broke the roll of a directo ?

You're going to need to get some legal advice from someone who you can sit and chat to where they can get a clear picture of everything, and advise accordingly. You have had some good pointers here, but everyone's advice is based on limited information available and only one person's perspective.

Do you have e a solicitor you work with within the business you can speak to?

 

[chappers27]

IMHO, the only thing that matters is the ownership. I cite the case of Duncan Cameron and Simon Dixon of MoneySupermarket. Simon gave Duncan 50% of the company to join the company and work in the IT department. They fell out and then Duncan later walked out, but still owned 50% and still received dividend. Dixon later had to buy him out for £162m. Imagine walking away, contributing nothing and still get £162m. That's gotta hurt. Not the same scale clearly, but the ownership issue is the most salient one. The only thing to do is get the guy to discuss things. Maybe with a third-party, a mediator etc.

 

[andy]

Yes that’s correct, I’m just wondering , because he has walked away has he broke the roll of a directo ?

Sorry broke the roll or a director ?

 

[chappers27]

Sorry broke the roll or a director ?

He means "broke the role of a director"

 

[Gecko001]

Just a thought. Aren't all people who run their own business "controlling". Isn't that why they start their own business in the first place. They want to be their own boss. I would forget about personalities and leave this to the professionals such as the accountant that the business uses. If they are experienced, they will have seen this all before and will be able to work their way through it without worrying about personalities.

 

[stepphiesecret]

Hello all,
I would like some help ? The hotel has 2 director each have a 50/50 shares and 50/50 decision making even though 1 direction put around 83% in and the other only put around 17%
After about a year into the business one of the directors just gave up and couldn’t handle the business and walked away ,the other director has been funding and running the hotel on her own , with no help , she has asked several time for help in running the hotel and paper work but she gets nothing from the other director , but he still demand to know what is going on , he has not been back for over 18 months ,

Any thoughts many thanks Andy

Hey Andy, sounds like a tough spot. If one director isn't pulling their weight, it might be time to revisit your partnership agreement. Legal advice could help clarify the responsibilities and rights. Good luck!

 

[Newchodge]

Hey Andy, sounds like a tough spot. If one director isn't pulling their weight, it might be time to revisit your partnership agreement. Legal advice could help clarify the responsibilities and rights. Good luck!

This is not a partnership. It is a limited company with 50:50 shareholders and 2 directors. and lacking a shareholders' agreement.

 

[chappers27]

Just a thought. Aren't all people who run their own business "controlling". Isn't that why they start their own business in the first place. They want to be their own boss. I would forget about personalities and leave this to the professionals such as the accountant that the business uses. If they are experienced, they will have seen this all before and will be able to work their way through it without worrying about personalities.

I very much disagree with this. I have been involved in business where the other individual was highly controlling, in terms of personality. The legal aspect of business is clear when ownership is 50/50 - and that is both parties own half. But that's where it ends. There are no rules of the road in terms of bank account access, sharing information, sharing passwords to business services, use of accountants. I have actual experience of decision making that went nowhere. I thought we should do X, my ex-business partner thought we should do Y, and nothing happened. It's called deadlock.

 

[rajeshk]

You guys were top notch on all the replies.

Any advice, how to avoid these mis-understandings in the first place. I could think of a JV agreement between the directors outlining the conditions of the partnership and breakup clauses when these responsibiities are not met. May be this JV can keep updated, as needed between the parties, when the roles change.

Sorry, if it seems I'm hijacking the thread. [Admin] - Please let me know.

 

[Ozzy]

Sorry, if it seems I'm hijacking the thread. [Admin] - Please let me know.

That is great in hindsight, but in the circumstances of the OP and this thread, the horse has bolted, and the advice of retrospect is more needed here.

 

[Paul Kelly ICHYB]

JV agreement is called a share holders agreement

 

[Porky]

Totally Screwed IMO and a perfect example of why you should always have a shareholders agreement in place.

The 83%/17% of capital invested is academic - its simply directors loan. Likewise, the division of labour - the lazy one wont give a toss that the other partner is doing all the work - seen this situation before - again its totally academic. The only thing that counts here is the business ownership which the OP states is 50/50 of the shares in issue.

Only way to fix this is for the one to buy the other one out and have control. If they can't reach agreement on terms, sell the hotel outright. The worker could always bid via another party if she wants it bad enough. But no point building this business 50/50 with a partner not engaged.

As time goes on she will simply resent him even more each passing day. I genuinely feel for her position but it's business and unfortunately there are people about that will be happy to ride on this watching the other partner work themselves into the ground whilst they have a free lunch.

But do remember one thing here: she owns 50% so if she downs tools, no matter what the outcome she owns half, if he pulls on his loan or the hotel goes into admin he loses too.

It's better for both parties to reach an agreement - good luck

 

[MikeJ]

Thread is 6 months old, and was brought up by the spammer. I'll do a mod alert.