I'm a minority shareholder and have been asked to resign and give up my shares

[nabneysaverin]

Hi all,

I'm totally new to being a business as a director / owner. We've created a company and have 4 directors (listed as directors).

Shares as follows:

1. Director A - 30%
2. Director B - 30%
3. Director C - 30%
4. Director D (Me) - 10%

Director A wants me to resign from my role, and relinquish my shares. Directors A-C have 3000 shares each with nominal values of £0.001 GBP. I have 1000. Director A wants to pay me for my share.

The reasons behind me being asked to resign are:

1. I do not seem friendly
2. I do not seem to be active in whatsapp group chats
3. I do not meet up often for drinks at the local boozer often enough

What rights do I have? Can a single or two directors remove me? One of the directors is 100% on my side. Can the value of shares be increased? If I resign, can I keep my shares? Can those shares be removed/reduced/diluted from me?

I am a complete newbie to this and so are they.

The company is registered via companies house. We all contributed towards the registration fee.

I also want to add that we have no formal agreements in place, other than the document produced automatically at companies house. I've been reading about share holder agreements, we have none of this.

We have no revenue either. Our product is currently under R&D.

 

[nabneysaverin]

The company is registered via companies house. We all contributed towards the registration fee.

I also want to add that we have no formal agreements in place, other than the document produced automatically at companies house. I've been reading about share holder agreements, we have none of this.

We have no revenue either. Our product is currently under R&D.

 

[fisicx]

Being a director and shareholder are two different things. Even if you resigned as a director you could still retain the shares.

It seems that the relationship has already soured so it may be better to leave now but keep the shares. They cannot force you to sell.

 

[Mark T Jones]

Being a director and shareholder are two different things. Even if you resigned as a director you could still retain the shares.

It seems that the relationship has already soured so it may be better to leave now but keep the shares. They cannot force you to sell.

This.

 

[Newchodge]

Being a director and shareholder are two different things. Even if you resigned as a director you could still retain the shares.

It seems that the relationship has already soured so it may be better to leave now but keep the shares. They cannot force you to sell.

Agreed. Alternatively you could agree to sell the shares at a proce acceptable to you. That is NOT the original valiation of the shares.

 

[UKSBD]

Directors A-C have 3000 shares each with nominal values of £0.001 GBP. I have 1000. Director A wants to pay me for my share.

Do B and C know that A is trying to obtain another 10% of the company?

 

[cjd]

Do not give up your shares, they're yours permanently - like your car, your watch and your washing machine. They can't be taken from you and nobody else has a right to them without your consent.
If the company ever pays dividends you get them too.

If there are no shareholder agreements in place you can only be forced to resign by an agreement of 50.1% of the shareholders through a formal company resolution - so in your case they could achieve it if one other director agreed. One Director alone with only 30% can't do it.

Whether you'd want to carry on in that kind of climate is up to you, but you can make yourself a real nuisance with your minority holding particularly if you have the other 30% director on your side - it means they can't do anything radical (special resolutions require 75%) without his/her agreement.

 

[Rawlinson Pryde]

You should read your articles to see what they say.

Having a 10% share gives you the entitlement to force the company to have an audit which they wouldn’t enjoy the extra costs.

gov.uk/audit-exemptions-for-private-limited-companies

 

[WaveJumper]

The key points here are:

!, Foolish not to have a share holders agreement in place
2, They can't force you to sell your shares ..... so don't
3, As all ready mentioned are the other share holders aware of whats going on, Shareholder A could be out manoeuvring the others ?

 

[Chris Ashdown]

They also can not issue more shares based upon present percentages without offering you the same opportunity to buy. If the business prospers so would any dividends paid out to shareholders

 

[Paul Kelly ICHYB]

Are all the shares the same class?

 

[nabneysaverin]

Being a director and shareholder are two different things. Even if you resigned as a director you could still retain the shares.

It seems that the relationship has already soured so it may be better to leave now but keep the shares. They cannot force you to sell.

Thank you. The shares were entered in to Companies House when we registered during the registration process.

This.

Thank you.

Agreed. Alternatively you could agree to sell the shares at a proce acceptable to you. That is NOT the original valiation of the shares.

How would the valuation of the shares change?

Do B and C know that A is trying to obtain another 10% of the company?

I have informed them

Do not give up your shares, they're yours permanently - like your car, your watch and your washing machine. They can't be taken from you and nobody else has a right to them without your consent.
If the company ever pays dividends you get them too.

If there are no shareholder agreements in place you can only be forced to resign by an agreement of 50.1% of the shareholders through a formal company resolution - so in your case they could achieve it if one other director agreed. One Director alone with only 30% can't do it.

Whether you'd want to carry on in that kind of climate is up to you, but you can make yourself a real nuisance with your minority holding particularly if you have the other 30% director on your side - it means they can't do anything radical (special resolutions require 75%) without his/her agreement.

Just to confirm, that is resignation as director not resignation of shares? I am just learning about special resolutions

You should read your articles to see what they say.

Having a 10% share gives you the entitlement to force the company to have an audit which they wouldn’t enjoy the extra costs.

gov.uk/audit-exemptions-for-private-limited-companies

Thank you for this

The key points here are:

!, Foolish not to have a share holders agreement in place
2, They can't force you to sell your shares ..... so don't
3, As all ready mentioned are the other share holders aware of whats going on, Shareholder A could be out manoeuvring the others ?

Very foolish not to have a share holders agreement, wasn't even aware of such a thing. I am a newbie to this. The other share holders have now had knowledge of this

They also can not issue more shares based upon present percentages without offering you the same opportunity to buy. If the business prospers so would any dividends paid out to shareholders

Great

Are all the shares the same class?

I don't know how to check this. The shares were entered when we created the compamy on companies ouse. How do i check?

 

[nabneysaverin]

Being a director and shareholder are two different things. Even if you resigned as a director you could still retain the shares.

It seems that the relationship has already soured so it may be better to leave now but keep the shares. They cannot force you to sell.

Just had a thought, what if I resign as a director (don't plan to) and they eventually dissolve the company, rebrand, and create incorporate as a new company and have new shares?

 

[cjd]

Just to confirm, that is resignation as director not resignation of shares? I am just learning about special resolutions

They can make you resign as a director if they can get 50.1% of the vote.

There's NOTHING they can do to make you give up your shares - they're yours until you sell them or give them back (Do not give them back.)

 

[fisicx]

Just had a thought, what if I resign as a director (don't plan to) and they eventually dissolve the company, rebrand, and create incorporate as a new company and have new shares?

Yes they can do that if they want. You can of course vote against this.

 

[perfumeryart]

Hi all,

I'm totally new to being a business as a director / owner. We've created a company and have 4 directors (listed as directors).

Shares as follows:

1. Director A - 30%
2. Director B - 30%
3. Director C - 30%
4. Director D (Me) - 10%

Director A wants me to resign from my role, and relinquish my shares. Directors A-C have 3000 shares each with nominal values of £0.001 GBP. I have 1000. Director A wants to pay me for my share.

The reasons behind me being asked to resign are:

1. I do not seem friendly
2. I do not seem to be active in whatsapp group chats
3. I do not meet up often for drinks at the local boozer often enough

What rights do I have? Can a single or two directors remove me? One of the directors is 100% on my side. Can the value of shares be increased? If I resign, can I keep my shares? Can those shares be removed/reduced/diluted from me?

I am a complete newbie to this and so are they.

The company is registered via companies house. We all contributed towards the registration fee.

I also want to add that we have no formal agreements in place, other than the document produced automatically at companies house. I've been reading about share holder agreements, we have none of this.

We have no revenue either. Our product is currently under R&D.

I seem to remember that this was what Steve Job did to the guy who helped me develop Apple. As a result, Job became a billionnaire and the other guy not. I'd try to keep my shares

 

[WaveJumper]

They could phenix the company for sure. What did you bring to this R&D are your skills going to be missed.

 

[Newchodge]

How would the valuation of the shares change?

The value of shares at incorporation has no relevance beyond that point in time. If you want to sell you shares you cn choose how much you want for them.

I bought a book from a shop for 4.99. That was its value when I bought it. Someone wants to buy it from me, I can choose how much they have to pay to get it. Shares are the same.

 

[Chris Ashdown]

Without a shareholders agreement in place which often includes things like who you can sell to among other items, you would be able to sell your shares to anyone, unless specifically agreed at the time the company was setup. so you could even sell to a competitor for a higher price that any of the other shareholders would offer.
A 40% holding would no doubt be valued highly by anyone of the other shareholders

 

[japancool]

How would the valuation of the shares change?

The shares are worth whatever someone is prepared to pay for them.

 

[japancool]

the guy who helped me develop Apple.

You helped develop Apple?

 

[Daybooks]

Just had a thought, what if I resign as a director (don't plan to) and they eventually dissolve the company, rebrand, and create incorporate as a new company and have new shares?

As tedious as it seems read the relevant sections of the Companies Act. It shouldn't but probably will give you an advantage as your fellow shareholders and directors may not have (at least initially)!

Companies Act 2006

An Act to reform company law and restate the greater part of the enactments relating to companies; to make other provision relating to companies and other forms of business organisation; to make provision about directors' disqualification, business names, auditors and actuaries; to amend Part 9...

www.legislation.gov.uk

The above will tell you what can be done and how including disputes (s169). Check the Company's Memorandum and Articles which you can access via Companies House as this may give you more information as to the conduct required.

If you are doing R&D you could always negotiate a decent price for your shares based upon your share of income from any repayable tax credit expected.

 

[DoolallyTap]

There has been no mention of you being employed by the company, are you?
You possibly should have Directors agreements, Shareholders agreements and if you are employed a Contract of Employment.
'Director A wants me to resign from my role,' as a Director? or an employee? or both?
If you don't want to do anything you don't have to. Have you invested money into the business?
Your shares will have a value based on profits etc, if you want to sell, think of a price double it and then offer them to any of the other directors, not just 'A'
If someone wants you to resign your employment consider your loss of income and loss of future potential, don't resign, let them sack you or negotiate an exit fee.

 

[perfumeryart]

You helped develop Apple?

Oops! Of course not...The guy who helped develop Apple.

 

[Eric Feltin]

They also can not issue more shares based upon present percentages without offering you the same opportunity to buy. If the business prospers so would any dividends paid out to shareholders

As mentioned above, you have various rights; however, most of those rights only have nuisance value. More significantly, the other shareholders can simply ignore your rights, forcing you to go to court each time you want your rights honoured. In theory, at court you could win your costs, but I wouldn't count on that if you are only invoking your rights to cause a nuisance.

Other people have mentioned that your shareholding cannot be diluted. Although this is true, the company can issue shares and use the proceeds to pay those 3 other shareholders huge salaries. You say that the company has no revenue and they will continue working for it. So, why shouldn't they get paid, and why shouldn't the company raise money from shareholders to pay them. You would have a hard time at court arguing against this situation. So, to maintain your shareholding you could very well be asked to regularly pay for the privilege.

Your best bet is to cut a deal for your shares. Don't surrender them for free, but do recognise that a small minority stake in a zero-revenue company has little value.

 

[WaveJumper]

Would be nice to have an update from the OP