Limited Company woes!

[barney-r]

Hi,
I would appreciate some impartial advice and opinions.

I provide a design service

in 2003 I was working for a sole trader and I decided it was time to move on..sole trader (nearing retirement) asked me to stay and offered me 20% of his business and saw me as his successor..I agreed to stay and wheels were set in motion for a partnership agreement. accountants suggested that i was best to form a limited company.

ltd co. purchesd the good will and minimal assets and consequently this "debt" was shown as directors loan account..but...100% not the 80/20 split I thought it should...the value of the loan was 100k meaning the ltd co now had a net worth of 0 on the balance sheet.

Once I realised that essentially my fellow co director was essentially selling his business for 180% of its value I brought this up and said wasnt happy (he could draw on the directors loan to pay him back and then when this balance his cleared the ltd would then have a value for him to sell to me)

fellow co.dir called in company accountants and they said its been done correctly..i didnt agree...co.dir wouldnt budge either on this issue so I offered resignation he offered me a sweetner to stay by selling me 10% of his shares..me at the time thought the value would a nominal amount ....however co. accountants came up with a figure of 8K!...by the time this figure had come up I decided to stay..and to date this purchase never went through...over 2 years ago now

to the current situation co director (who is md) is well into his 70's and currently has 35k on directors account. but I feel the business is slipping...reduced turnover/in overdraft...unhappy clients...

I am the major fee earner..and I know i should have walked a long time a go

so my point is...i am at a crossroads now....i leave and set up myself..or i offer to buy him out..but at a realistic amount..but its this amount im struggling with..on paper i would say the value of the business is very small if i wasnt there..no assets..reduced turnover/goodwill....overdraft and directors loan...but i know its established and if i was in control could turn it around

thoughts?

 

[LawHound]

Are you now a director only and not a shareholder, at Companies House? If so then it appears you will be treated as an employee and need to start negotiating to aquire ownership of shares if that is what you want to do.

There appears to be a very convoluted story of the company shares being offered to you but the reality being ownership retained by your original boss. If that is the case then apart from director responsibilities your role within the company is pretty much as it was when working for the sole trader. For more help of a detailed nature regarding company law disputes call us.

 

[The Legal Mango Team]

Hi,

It seems that the crux of your deliberation is really whether you consider there to be any value attached in continuing to trade under the existing brand / company name, and if so whether you consider the cost and benefit of purchasing this to outweigh the risks and effort associated with starting from scratch (you'll also need to check whether you have any restrictions re competing businesses in your directors service contract and shareholders agreement and consider whether exisiting customomers would be bale to get out of any contracts with the current business).

To make an informed decision, it seems that you'll need to get the company valued - a decent accountant (not the company's accountant!) will be able to do this for you. There are various ways of valuing companies and you'll need to discuss them with the accountant before choosing your preferred option - please also check the company's articles / shareholders agreement as this may prescribe the mechanism that is to be used, which makes things much simpler!

Once you have the value, you can then make an informed decision as to whether you wish to buy your fellow shareholder out, or whether you wish to start from scratch. If the former, the valuation and your accountant will be able to help you to decide what level to pitch the offer at and how to structure it (eg you may prefer not to pay all money up front and to defer some of it based on company performance).

We'd also recommend that you involve a solicitor to document the process.

Hope this helps.

We're not a firm of solicitors and the above is intended as general guidance only.

 

[barney-r]

Are you now a director only and not a shareholder, at Companies House? If so then it appears you will be treated as an employee and need to start negotiating to aquire ownership of shares if that is what you want to do.

There appears to be a very convoluted story of the company shares being offered to you but the reality being ownership retained by your original boss. If that is the case then apart from director responsibilities your role within the company is pretty much as it was when working for the sole trader. For more help of a detailed nature regarding .

no..i am a shareholder as well as director.

 

[barney-r]

Hi,

It seems that the crux of your deliberation is really whether you consider there to be any value attached in continuing to trade under the existing brand / company name, and if so whether you consider the cost and benefit of purchasing this to outweigh the risks and effort associated with starting from scratch (you'll also need to check whether you have any restrictions re competing businesses in your directors service contract and shareholders agreement and consider whether exisiting customomers would be bale to get out of any contracts with the current business).

To make an informed decision, it seems that you'll need to get the company valued - a decent accountant (not the company's accountant!) will be able to do this for you. There are various ways of valuing companies and you'll need to discuss them with the accountant before choosing your preferred option - please also check the company's articles / shareholders agreement as this may prescribe the mechanism that is to be used, which makes things much simpler!

Once you have the value, you can then make an informed decision as to whether you wish to buy your fellow shareholder out, or whether you wish to start from scratch. If the former, the valuation and your accountant will be able to help you to decide what level to pitch the offer at and how to structure it (eg you may prefer not to pay all money up front and to defer some of it based on company performance).

We'd also recommend that you involve a solicitor to document the process.

Hope this helps.

We're not a firm of solicitors and the above is intended as general guidance only.

yes..i suppose my intial gripe is that i feel i was shafted when the sale of the initail company went through so since then ive not progressed, the shareholders agreement says that the company accountants are to provide a valuation !!
I need a realistic/independant valuation that will take into account the past few trading (shrinking) the reduced goodwill, the company debts and if i wasnt there as the major fee earner

 

[LawHound]

What shareholding do you currently hold and was this the £8K offer or the intial allocation? I take it there is no shareholder agreement in place?

 

[barney-r]

yes we have a shareholding agreement
i hold 20% 20 shares..he holds 80% 80 shares
the 8K offer was for me to transfer some of his