Help! Bad situation leaving a LTD company

[PB2012]

What to do regarding leaving a Ltd company?

Myself and my business partner opened a salon 10 months ago. We are both 50% shareholders in the limited company and we signed a 5 year lease with a break clause at year 2.

We took out a joint business loan for £15k, and both invested £20k each (£15k personal loans each and £5k of our own money).

We have fallen out and I have decided to leave the business. The problem is she won’t pay me back what I’ve invested (the business currently owes me £13k), unless I agree to a restrictive covenant of not trading in hair for a year. I have been in the industry for 8 years and bought 90% of the clients to the business.

The problem is I need her to sign over the lease into her name as I will be liable for the 5 years rent and service charge if she doesn’t. I also need her to provide an indemnity for the joint business loan as the bank have refused to take my name off of it. There is currently £10k business loan outstanding to pay off.

I have said I will not agree to any restrictive covenants therefore she has refused to pay me back what I’ve invested. The company made a loss of £14k at the end of year accounts but she has personal savings to pay me.

Now it’s a case of do I walk away with nothing and lose £13k? She gets to keep the business and all the assets in the salon including sunbeds worth around £50k (currently being paid off on finance).

Does anyone know any other options for me to get my money back? If I walk away and do nothing then I risk the landlord and bank coming after me if she fails to pay rent and loan. I cannot break the lease at the break clause next year without her permission.

I have resigned as company director so I can carry on trading now on my own, but I am still a 50% shareholder. There is absolutely no option to stay working there.

As I have lent money to the company I know I can take the company to get it back, but currently the business has made a loss and surely the court might say the company just continues to pay my personal loan instalments for the next 4 years?

To liquidate the company would probably be very expensive. If I stayed as a silent partner with a share in the company how would this work?
Any advice would be much appreciated.

 

[Spongebob]

If the company has made a loss of £14k what makes you think you are entitled to all your investment back? At the very least you are responsible for half the losses so can knock £7k off the amount you can expect back.

Your expectations are unrealistic. Why would your erstwhile partner agree to take on full responsibility for the lease and bank loan AND pay you for your shares in a failing business? If I was them I would only absolve you of your responsibilities if you relinquished all claim to any monies whatsoever from the company.

It is by no means certain that the bank and landlord would agree to letting you off your guarantees anyway. Why would they?

Ultimately it's all down to negotiation. Unfortunately for you your ex partner holds all the cards and appears to be playing them rather well.

 

[businessfunding]

For once I agree with Spongebob.

You have taken on liabilities an now you have to honour them.

On a practical level, assuming you are going to start on your own I imagine that your partner will want you out so will probably pay you off,but that is entirely a matter of negotioation between the two of you.

 

[PB2012]

Thank you for your replies and opinions. Just to clarify, yes the business made a loss of £14k but this only accounted for 5 months trading as we set up the limited company 7 months before we opened the salon and started trading.

Its understandable to make a loss after 5 months due to the loans and finance we took out not being paid off. The business is actually doing financially well, turning over between £12-£15k a month so it will soon be in profit.

I never intended to leave the business, she made it so awkward and uncomfortable for me to work there, and basically pushed me out so she could keep the salon for herself.

I feel like i'm left with nothing and have to start over again, while she gets to keep a profitable business.

We are not on talking terms anymore so communicating only through our lawyers. There has to be someway of me getting something back?

 

[Spongebob]

I never intended to leave the business, she made it so awkward and uncomfortable for me to work there, and basically pushed me out so she could keep the salon for herself.

I feel like i'm left with nothing and have to start over again, while she gets to keep a profitable business.

We are not on talking terms anymore so communicating only through our lawyers. There has to be someway of me getting something back?

Yes. Grow a pair and walk in there tomorrow morning as if nothing has happened and start working. You are a half owner of the place and have every right to be there.


Assert yourself in a friendly and professional manner and don't be intimidated. Make it quite clear that you have had a change of heart and are in it for the long haul. Let her feel 'uncomfortable'.

If she finds it impossible to work with you then suggest that she leaves the business and that you carry on alone.

If you are unable to do this then unfortunately you would appear to be a pathetic wimp who hasn't got what it takes to be in business at all.

 

[businessfunding]

We are not on talking terms anymore so communicating only through our lawyers. There has to be someway of me getting something back?

Whatever you do,ndon't let the lawyers become the beneficiaries ofyour dispute.

A little commercial maturity will help here..

 

[The Resolver]

As Spongebob says your best strategy is to assert your interest and disabuse your partner of the notion that you are leaving everything to her. The only problem is that you are no longer a director and, I presume, not an employee so strictly you do not have any right to go into the salon and work. But it is worth a try.

The way forward though is to assert your rights as shareholder and that means calling for a general meeting to discuss declared issues and raising questions with the director about the financial position of the company. Whilst you are not entitled to much information as a shareholder, you can continually remind her of your interest and that you will be looking in detail at all times at what she does. The objective is to encourage her to want you to give up your shareholding. She has to be constantly reminded that as her business improves she is working in part for yourself while you run a separate business. Of course reasonable salaries of her and staff may avoid any potential for dividends (which have to be shared 50/50 with you) but if she sells, the buyer will have to buy your shares which you will not be obliged to sell. She needs to also understand that if she tries to marginalise your interests, eg setting up another company to enjoy the bulk of the revenue, that she becomes potentially personally liable to the company for losses arising to you.

She is not in good position running a company alone for which she only has 50% ownership. No decisions can be taken without your agreement. Making her aware you are aware of your rights and she, as sole director, owes duties to you as shareholder, and will monitor everything she does and , at same time raising questions and calling meetings, will soon encourage her to make an offer.

BTW she cannot insist on a restrictive covenant as a condition of repayment by the company. YOU must take steps to recover the loan. A judgement may be worthwhile despite the lack of adequate assets at present. The very fact that you could send in a bailiff to remove working equipment should itself also encourage her to a deal with you.

 

[Spongebob]

The only problem is that you are no longer a director and, I presume, not an employee so strictly you do not have any right to go into the salon and work. But it is worth a try.

Exactly.

Carry on as if nothing has happened and show this woman that you will not be intimidated. Like all bullies she will crumble when faced down like this.

As I said before, if you can't summon up the guts to do this then you should just walk away and get a job in someone else's salon.

 

[Vinka]

I am new here and can't work out how to post a new thread. However, this thread bears some similarities to my situation: I set up a language teaching school together with two partners. Two of us provided equity, the third contributed nothing but worked with us as a director. I had a shareholder agreement drawn up - and paid for this myself - but was not able to get the others to sign. We now have a difficult situation, whereby the other directors are making it very difficult for me to work with them. I would like to get my capital out - do I have a right to do this, without a shareholders agreement?

 

[RaykingslandBr]

I agree with the guys above. Also you should not have resigned as a director, you lost so much control over the company by doing that. you cant sign for cheques etc. also as the sole director you business partner can take out loans etc on her name and worse still if she wants to liquidate the company she can.

I would try and get yourself reinstated if possible.

 

[amich]

I am new here and can't work out how to post a new thread. However, this thread bears some similarities to my situation: I set up a language teaching school together with two partners. Two of us provided equity, the third contributed nothing but worked with us as a director. I had a shareholder agreement drawn up - and paid for this myself - but was not able to get the others to sign. We now have a difficult situation, whereby the other directors are making it very difficult for me to work with them. I would like to get my capital out - do I have a right to do this, without a shareholders agreement?

Vinka, you are right in that this would be better in a thread of its own instead of hijacking this one. You can open a new thread by going from the UKBF homepage to the forum you want to post in, in this case probably the legal forum. You'll see a large blue button on the top left of the page, just above the thread list, marked "new thread". That's the one you want.

In any case, you need to tell us how the shares are distributed. 50:50 between the two cash contributing partners or otherwise.
Shareholder agreements need to be in place at company formation time, otherwise you run into the situation you currently find yourself in where people become obstinate. You may find it difficult of impossible to get one signed at this stage.
Likewise, the value of your investment (shareholding) in the company now will depend on the value of the company itself. If the company hasn't done well, your investment may (at the moment) be worthless. Getting it out without a shareholder agreement may indeed be tricky. You would have to sell your shares to one of the other partners (who will probably low-ball you) or to an outside investor (probably virtually impossible to find).

 

[GeorgeM]

"I never intended to leave the business, she made it so awkward and uncomfortable for me to work there, and basically pushed me out so she could keep the salon for herself."

Then I suggest your first move is to return and re-establish yourself in the business - don't give it away and leave yourself saddled with hugh debts over which you have no control.

I also suggest handling matters through some formal negotiation (maybe using a solicitor). But don't get into a slanging match - that can and should be avoided.

Why did you resign as a Director BTW ?