help can i be forced out as a 25% share holder??

sammybro12

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Aug 12, 2011
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Hi just seeking advice if anyone can help or point me in the right direction. i am a 25% shareholder in a company which myself and 3 others set up nearly 12 months ago all appears to be going well and work a plenty and whilst the others work in the office, pricing jobs and contracts managing, i am on site overseeing the work, checking jobs done general foreman/manager role.
In recent weeks things between us have become them vs me, and i have been told the company is in £60,000 loss they have suggested i lose my share and remain as an employee, on a minimal wage.
I have not seen the books to prove this and surely if it was in such loss the company would fold, or some of the office staff would need to site work not sure who to get advice from or what my rights are please help as not trusting anyone in the company.
can i be foreced out, can i get an independant review of the books, where do i stand??? Thanks
 
P

Parrot Hosting

If you own shares nobody can force you to sell them unless there are terms in the shareholder agreement that allow for that. I would insist on seeing the books and getting an independent accountant in to validate and find out where the loss is occurring. You might have to pay for this yourself but if you found there was other things going on then you might be able to insist they foot the bill and turn things around.

I'm only speaking from experience of running companies but there will be legal and financial experts on here that will provide you with real knowledge but personally I wouldn't be bamboozled and whatever you do don't put yourself into a position where they have due cause to exclude you. Stick to your guns and request an audit of the accounts. If they have something to hide the Auditor will find it, and if you ARE insolvent it may well be a time to look at the options.
 
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sammybro12

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Aug 12, 2011
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thanksfor response just tiring putting everything in for my so called mates to offer me 10 pound a hour to work for them. Will await advice and look to getting an accountant nx week. Thought they could as majority shareholders vote me out and was worried but they cant make me make any direct changes as yet? Will try to not be excluded but as they presently out pricing a job in spain not easy. Advice great as not sure who to turn too
 
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Bob

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Jul 24, 2009
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i think they need 76% to have control, so you are ok, you are in a position strength
No. 25% is no better than 10%. Your only right is to require an audit, but that right is of little value in this case. This explains the rights of 75% shareholders assuming they act together
However, none of this is relevant in your case. If you have a shareholders' agreement, this may well have enhanced - or for that matter reduced - your rights. It is imperative that you access this as soon as possible and, dependent upon the amount of money at stake, consult a suitably qualified lawyer. May be worth having a word with "The Resolver" - a longstanding member on here
One of his services is "Boardroom Resolve" which may be suitable for your circumstances
At the end of the day, stand back and make sure that you do not end up throwing good money after bad :(
 
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J

jules12345

they can get rid of you as director by ordinary resolution 51% majority.

They cannot make you sell your shares unless in shareholders agreement. You would also be entitled to your dividends. Shareholders have rights to see accounts. You need to see the accounts to determine whether they are in loss and if they owe you dividends.

They might devalue your shares by alloting more.

DR would be able to clarify your exact position but its essentially as stipulated above.

Regards
Jules
 
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kulture

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    Consider further that you may well have employment rights. You could be considered as an employee as well as being a director and shareholder. It is not normal to ask an employee to take a salary drop and expect them to carry on working the same hours etc.

    First thing to do, as others have said, is to find out if there is a shareholder agreement and what it says. Then ask for a copy of the accounts. You are entitled by way of being a shareholder, to see the accounts. Further because you are a DIRECTOR you are OBLIGED to look at the accounts to ensure that the company is not trading insolvently. I would ask to see the companies accountant and get him to go through the accounts with you.
     
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    Some good advice here. Just to clarify, don't be fobbed off with the annual accounts which often do not show the reality 'behind the curtains' but you want to see the management accounts - who has paid what - what owing/owed- bank accounts - (part of what is provided to the accountants to help them create the annual accounts). As a director you are entitled, and as kulture says, you have a duty, to look at these as it is you and the other directors who are responsible for running the company.

    You also of course have the right to call meetings of the Board and of the shareholders and to formalise the discussion (your questions, the responses etc).

    To clarify bbbbb's point that 25% is no better than 10%, (in answering appyamer's statement that they need 76% for control) he is referring to the fact that, whilst ordinary resolutions need only a 51% majority vote, special resolutions (eg to change the articles etc) require 75%. The other three have that level of control.

    However you are in a better position than 10% (apart from the right to a higher dividend) because, and in the (likely) absence of any provision in place that gives a casting vote in a deadlock eg to a 'chairman' you only need to persuade one of the other three to your point of view to block any shareholder (general meeting) resolution the others may wish to pass (eg to dismiss you from the Board) or board decision to reduce your work. This can be very important when I am conducting a boardroom mediation.

    You appear to have been told the company has problems but if the only information is that it is running a £60K loss, is that really the case? The company has not yet traded 12 months and will be carrying much start up cost. It is often the case that successful fast growing companies still make a loss in the first year , in fact it is often planned that way for cashflow/tax reasons or to show steady growth over the initial years to attract investors etc. If you has some big clients to start you off with then failed to attract adequate new clients in years 2 and 3 to fuel the planned growth, or to replace unhappy first customers, then the company has an inherent problem. To avoid such future problems if you have a exit strategy to attract investors fro growth, then you may ensure at least a loss on paper (delay invoicing, lengthen projects etc) so that if new business does slow down in year 2 you can at least show growth on paper by carrying some of the year 1 revenue into year 2.

    You say business in fact is good with work coming in (and the others currently pricing a new job in Spain - which I presume, from taking 3 directors out of the country, is of some significant value) .

    As jules12345 says they cannot force you to sell your shares although, subject to any protective provisions in the Articles or any agreements reached, they could dilute them to lower than 25% on the basis that further capital id required which you cannot provide but others can.

    Another 'power' you have is the power of resignation form your work. Your role seems to be a key one so that they would have to pay a full salary to your replacement.

    In boardroom mediation I help all parties to understand the potential downsides of not reaching an agreement eg for the others it includes the inability in the future to benefit from lower tax when being paid through dividends without having to give 25% to you (even if they dismiss you from employment) , and to continually be accountable to you as a shareholder through meetings and reports etc even though you may be working for a competitor (not being a director removes form you the duty to not compete) and ,of course, your right to take a significant share of any sale of the company in years to come even though you may not have been contributing through work). So whilst there are downsides for you as a minority shareholder, it is not all one way. Most important fo all you have to ask yourself if you need the aggravation of being in a business with three others who are again you and whether it can be changed.

    Once everyone has been given a list of the potential downsides for them of not reaching an agreement, it becomes easier for all to see the sense in reaching a settlement.
     
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    Graham

    What percentage vote is required to amend or change the shareholders agreement?

    Its cannot be amended save by the agreement of all shareholders.

    As to your other query about dilution, the Articles may well require new shares to be offered proportionate to existing shareholding but each will have to put in new capital so those who cannot/ do not have their shares diluted.
     
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    sammybro12

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    Hi all just an update we having a meeting on thursday, dreading it as feel 3 against 1 anyone gt anything i need to check/ say etc, they gonna go through accounts with me and said we'd have a chat bt still think they want me to resign as shareholder. Regardless of what they put to me gonna need the weekend to think. Any further thoughts welcome need to go in with a plan
     
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    kulture

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    You cannot resign as a shareholder. You can resign as a director. Ask for the accountant to be at the meeting. Do not agree or sign anything at the meeting. Say that you want to take legal advice. That should shut them up if anything is not above board. If they are right and the company is in difficulties, then I do not see how getting you to give up your shares affects the situation. Now taking a reduced wage, so long as all 4 share the pain, that I can understand.
     
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    sammybro12

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    Aug 12, 2011
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    thanks bt the immpression i gt is that they are gonna ask me to step down as director and they will pay off the debt??!! can i refuse, or do i have any other options really only work manually never done business before that was the other partners role so sorry nt clued up on issues. will defo nt sign anything though
     
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    You should write in and make it clear that you will not be able to make a decision on anything significant unless you have been given copies of the detailed management accounts and any other relevant financial data before the meeting with an opportunity to take professional advice. Suggest it will make more sense for them to provide that now and postpone to another date.

    If they refuse then make it clear you would consider that to call for a vote on a significant resolution with significant lasting effect without an opportunity to consider the key data so as to be able to try to consider an argument to offer to your co-shareholders that might vary from the resolutions sought, might amount to unfair prejudice under s994 of the Companies Act 2006 (In reality that would be a very tough task but making them aware you are aware of the provisions will do no harm).

    If they refuse then just abstain on any resolution you are not comfortable with and explain it is because lack of prior information and opportunity to take advice.

    But you really need advice on the Shareholders Agreement. It may be that dismissal from the Board triggers a forced offer of the shares to the others.

    If they do try to vote you off the Board point out they cannot lawfully do that without 28 days written 'special' notice of such a resolution.
     
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    sammybro12

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    thanks all sorry if appear to know nothing bt my role has been purely manual since starting have left business side to others, foolishly
    i think they gonna offer me a job, to loose my directorship and they will fund the deficit. as work is well and gt a good reputation closing the company would be a last resort to them.
    if there is a loss and they say will fund do i have an option or if i cant match it stepping down my only choice??? i wont do anything till after weekend and as they currently away on business and i cant access accounts or aggreements.
     
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    kulture

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    What everyone is concentrating on is the shares and directorship and voting. What no-one is really commenting on is the money. A company does not save any money by dismissing a director, unless they are overpaying themselves. Even then money is saved by reducing director reimbursements. Likewise the only reason to get rid of a shareholder is so you can not give them dividends, and a company with money troubles( even though it can seemingly send three directors abroad) cannot pay dividends.

    So what is not being said. What is the real reason behind the 3 vs 1.
     
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    sammybro12

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    hi in response to that i get on with people n work hard bt the other 3 drink and socialise together and have known each other 20 yrs i am younger and only met one of the partners through a previous job 2 years ago and we set up the company. He approached his mates for finance and we ended up together. i feel that after we gt our first job and payment which we put staright back in, the other 2 joined us and i became nt needed. think they could employ someone to do my job and avoid giving directors cut?? thus saving money
     
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    kulture

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    Directors cut. That will be the dividend. That will be a profitable company. A company with a £60,000 loss will not be producing a dividend. Probably find the loss is not as they say. So the basic problem is that they in the office feel that they bring in the money and should get the most reward. What you have to do is show them why they need you. Why you being a shareholder is in the companies best interest and why a simple employee will not be good enough.
     
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    Chris Ashdown

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    Being a Director is probably not giving you any benifits in that you are responsible for the good of the company, but not being invited into meetings and it sounds like basically ignored in that position, as a Director you could be fired anyway at some time in the future

    I would suggest let them take away your directorship but make you a manager of a department on the same wages or more as long as this does not effect your shares

    Regarding shares under no senario should you accept any change in the sharholders agreement without seeing a good solicitor who specialises in company law, all big firms will have one in your town

    As an employee they cannot get rid of you easily, and if the shareholders agreement does not force you to sell your shares on leaving the company your shareholding and dividends are probably safe for the future

    Prehapse you could show the shareholders agreement here without any mention of the company, so the legal bods on the forum could give you advice

    I think a large number of companies just state that if you sell your shares you must first offer them to the exsisting shareholders, but if that does not reach your expectations you can sell outside the shareholders, others do state you must sell to exsisting shareholders at a value of them obtained by a method mentioned
     
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    sammybro12

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    Meeting is now delayed until tomorrow and as no paperwork is available at present due to secretary being on hols they state, nt sure what use it will be. Have spoken to them and have offered me a job if i retire from shareholder, they do not want to fold the company. But still state company in debt and they paying it off, without me also being able to contribute my shares and directorship being taken from me. When disscussing this they make it sound so logical and fair but in hindsight still need proof, have not signed anything and wont my wife is furous and says like many of you need documentation and legal advice. just feel that when faced with £15000 debt or a decent job, should i nt just take what they offer?? not slept for a week, head all over the place perhaps i were they want me!?? although when met was very nice and even sympathetic to me saying how they know nt my fault and how ive worked the hardest ensuring jobs done !
     
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    Stay firm and make it clear you will not be transferring your shares until such time as you have been given all the management accounts and records and taken independent advice.

    If they simply want to secure a gain in return for putting in more capital to pay the debt, which is fair, there are lots of ways to resolve this in which they can exploit and benefit from their proposed further investment without taking your shares. You could all agree to create a B class of share that received none or a lesser proportion of dividends or did not vote on certain matters for which need a special resolution, or add a term into the Shareholders Agreement that gave them a higher share on a company sell off etc etc. i am not saying you should agree to any of these possibilities (removing your blocking vote to a special resolution should only be agreed for something back in value) but that there are other options to resolve other than giving up all your interest in t e company.

    Even if you do give up your shares in return for employment then at the very least you want a rock solid long term fully protected employment contract so they could not just sack you a short way down the line. Perhaps also with a profit share element to give you interest in future success.

    Call me
     
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