Looking for Advice: Navigating a Challenging Exit from My Business Partnership

[Sanseveria]

Hello everyone,

I’m reaching out for advice as I find myself in a complex and emotionally draining situation. Despite being a business owner, my experience in this matter is limited, and many decisions I made were rooted in the trust I had for my business partner and friend. Here’s a summary of my situation:

In 2014, I started working at a limited company (a coffee shop) as an employee. A few years later, one of the founders (Founder A) decided to leave and sell her 30% share to me, while the remaining 20% was sold to the other founder (Founder B). This made me a 30% shareholder, and Founder B owned 70%. Both of us have been shareholders, directors, and employees since then. Over the years, we never established a shareholders' agreement or held formal board meetings.

About a year and a half ago, I decided to leave the company and informed my business partner (BP). We began with a business valuation, and to my shock, I realized that when I bought my shares, there had been no proper valuation—it felt more like I’d been cheated at the time of purchase.

Following the advice of our accountant, who insisted I couldn’t leave the company in any simple way (e.g., as a silent partner), we agreed to work hard for another year to boost the business value. During this time, I sought legal support due to my limited experience, but I’m now questioning the effectiveness of the lawyer I hired and have struggled to find a replacement.

A few key points to note:

1. When I initially bought my shares, it was 30% ownership of one unit. Later, we verbally agreed on a 50/50 split when we expanded to an adjoining unit.
2. Since the beginning of summer, I’ve been unable to work due to severe mental health challenges. Unfortunately, the bullying and mobbing I endured over the last 5–6 years have completely consumed me.
3. My relationship with my BP, which was challenging in the past, has now deteriorated to the point of being disastrous. I appointed my lawyer to act as a medium between us. However, since August, our communication has consisted solely of a continuous exchange of emails, with no real progress being made.

Here’s where things have taken a turn for the worse:

• My BP stopped paying my wages, which included a regular salary and dividends, and placed me on statutory sick pay.
• She then increased her own salary significantly, leaving no room for dividends, which has forced me to seek Universal Credit to support myself.

At this point, I just want to find a way to leave this business as quickly as possible. I’ve come to terms with the fact that I will never recover the money I initially invested.

I’m here today to ask for your advice:

• How should I approach exiting this partnership given the lack of formal agreements?
• Are there strategies I should consider to protect my interests, even if I won’t recoup my investment?
• If anyone has experience finding a competent business lawyer, I’d appreciate tips on securing effective legal representation.

Thank you for taking the time to read this. Any guidance or insights would mean the world to me.

 

[ChrisCallaghan]

Hi @Sanseveria ,

Welcome to UKBF, and I'm sorry to hear about the situation you find yourself.

My background is in insolvency advice, so I will leave others more experienced in the advice you need to comment, but a couple of thoughts I wanted to share to help:

Firstly it's important for you to separate out your different concerns and roles in this. Your statuses as an employee, a director and a shareholder are all 3 different and separate issues, and should be treated as such.

As a director, you are free to resign at Companies House anytime if you feel you no longer wish to be a director of this company. The following will help you with this:

Terminate an appointment of a director (TM01)

Use this form to terminate the appointment of an individual or corporate director.

www.gov.uk

(please don't take the above as myself advising you to resign as director - I am just highlighting that you are free to do so at anytime)

As an employee, you should consider whether your terms of employment are being breached etc by your employer. I would recommend taking advice from @Newchodge on this.

Lastly and most importantly, when it comes to your shares, and this issue as a whole, the most helpful member at UKBF would be @The Resolver , who I'm sure will be along shortly.

 

[Sanseveria]

Hi @Sanseveria ,

Welcome to UKBF, and I'm sorry to hear about the situation you find yourself.

My background is in insolvency advice, so I will leave others more experienced in the advice you need to comment, but a couple of thoughts I wanted to share to help:

Firstly it's important for you to separate out your different concerns and roles in this. Your statuses as an employee, a director and a shareholder are all 3 different and separate issues, and should be treated as such.

As a director, you are free to resign at Companies House anytime if you feel you no longer wish to be a director of this company. The following will help you with this:



(please don't take the above as myself advising you to resign as director - I am just highlighting that you are free to do so at anytime)

As an employee, you should consider whether your terms of employment are being breached etc by your employer. I would recommend taking advice from @Newchodge on this.

Lastly and most importantly, when it comes to your shares, and this issue as a whole, the most helpful member at UKBF would be @The Resolver , who I'm sure will be along shortly.

1. Thank you for your kind welcome and for taking the time to share your thoughts and advice. I truly appreciate it during this challenging time.
   You’ve made a very helpful point about separating my roles as an employee, director, and shareholder, as I often feel overwhelmed trying to navigate the situation as a whole. It's something I will keep in mind as I move forward.
   Regarding resigning as a director, I do understand that I am free to step down at any time by notifying Companies House. However, following my lawyer’s advice, I’ve decided to remain on sick leave for now while I focus on improving my mental health. Resigning as a director at this point might weaken my position in addressing the larger issues within the company. My business partner’s tendency to manipulate decisions and cut me out of key matters has made me cautious about taking that step prematurely.
   As an employee, I do feel my rights are being breached, particularly with how my wages and dividends have been handled. I’ll reach out to @Newchodge as you suggested to explore this further.
   I’m also very grateful for your suggestion to seek help from @The Resolver, and I look forward to any insights they may have about the best way to handle the issues surrounding my shares and the company.
   Thank you again for your guidance—your message has helped me approach this situation with a bit more clarity.
   
   
   

 

[pentel]

Sorry to hear about your situation.
It is definitely worth staying as a director. This entitles you to access to far more information than you would have access to otherwise.
Most share sales at his sort of deal are done without an official valuation.
Did you ever get the 50/50 agreed in writing anywhere? An email / text / anything similar? e.g a text saying that we have made £x this month so you will receive a dividend of 1/2 X

 

[Clinton]

It is definitely worth staying as a director. This entitles you to access to far more information than you would have access to otherwise.

There are both pros and cons to this. As a director, you share responsibility for anything that goes wrong.

The OP made the classic mistake we see so often on these boards when people run into problems: not getting professional advice when going into business / buying into a business.

No accountant, no lawyer, not even a valuation of the business at the point of buying shares!

Jeez!

Then there's no SA, no formal agreement on this 50-50 deal on the expansion (which in itself sounds ridiculous. If the company expands then the 30% shareholder continues to hold just 30%, not 50%), no records on declaration of dividends, no nothing.

... I realized that when I bought my shares, there had been no proper valuation—it felt more like I’d been cheated at the time of purchase.

Duh, you make it sound like it was someone else's fault that there was no valuation. It was 100% your fault. You went into something you knew nothing about and didn't have the sense to get formal professional advice! The business, like most micro businesses, was probably not worth what a UKBF ol' timer called The Byre would have said was a bucket of warm spit.

Pay @The Resolver to advise on the matter. With a 30% shareholding you can cause the other shareholder all kinds of problems by demanding EGMs, audits and what not.

From my point of view, your best option, especially given your claimed mental health problems, is to just resign, write off your 30% "investment" AND DON'T GET INTO STARTING OR BUYING ANOTHER BUSINESS UNLESS YOU HAVE ADULT SUPERVISION.

During this time, I sought legal support due to my limited experience, but I’m now questioning the effectiveness of the lawyer I hired ...

BTW, who was the lawyer you hired? A lawyer specialising in business / corporate matters or some cheapo high street generalist?

 

[Sanseveria]

Sorry to hear about your situation.
It is definitely worth staying as a director. This entitles you to access to far more information than you would have access to otherwise.
Most share sales at his sort of deal are done without an official valuation.
Did you ever get the 50/50 agreed in writing anywhere? An email / text / anything similar? e.g a text saying that we have made £x this month so you will receive a dividend of 1/2 X

Thank you for your message and for pointing out the importance of staying on as a director. I agree—it allows me to access key information that would otherwise be difficult to obtain. This is one of the main reasons my lawyer has advised me to retain my position for now, even though my business partner would clearly prefer I resign.

Unfortunately, we never had the 50/50 agreement formally documented, but I do have substantial evidence to support it, including emails and texts. These include communications not only with my business partner but also with our previous accountant, who advised us to open a separate bank account to divide the daily takings between the two shops—70/30 for the first and 50/50 for the second. Regrettably, this never happened.

Last year, under the advice of our new accountant, we created a new classification of A shares, and for a time, we were both receiving the same monthly wages and dividends on a 50/50 basis. However, things changed drastically when I left work at the beginning of the summer due to my health. My business partner took this as an opportunity to stop paying my agreed wages and placed me on statutory sick pay. At the same time, she tripled her own salary, leaving no room for dividends.

I’m trying to address these issues systematically, but it’s been incredibly challenging. Thank you for your advice—it’s reassuring to know I may have some solid grounds based on the documented communications I’ve kept.

 

[Sanseveria]

There are both pros and cons to this. As a director, you share responsibility for anything that goes wrong.

The OP made the classic mistake we see so often on these boards when people run into problems: not getting professional advice when going into business / buying into a business.

No accountant, no lawyer, not even a valuation of the business at the point of buying shares!

Jeez!

Then there's no SA, no formal agreement on this 50-50 deal on the expansion (which in itself sounds ridiculous. If the company expands then the 30% shareholder continues to hold just 30%, not 50%), no records on declaration of dividends, no nothing.



Duh, you make it sound like it was someone else's fault that there was no valuation. It was 100% your fault. You went into something you knew nothing about and didn't have the sense to get formal professional advice! The business, like most micro businesses, was probably not worth what a UKBF ol' timer called The Byre would have said was a bucket of warm spit.

Pay @The Resolver to advise on the matter. With a 30% shareholding you can cause the other shareholder all kinds of problems by demanding EGMs, audits and what not.

From my point of view, your best option, especially given your claimed mental health problems, is to just resign, write off your 30% "investment" AND DON'T GET INTO STARTING OR BUYING ANOTHER BUSINESS UNLESS YOU HAVE ADULT SUPERVISION.



BTW, who was the lawyer you hired? A lawyer specialising in business / corporate matters or some cheapo high street generalist?

Thank you for taking the time to respond, though I must admit your tone comes across as unnecessarily harsh. I’m here seeking advice because I recognize the mistakes I’ve made in the past and am actively trying to rectify my situation.

You’re absolutely correct that I didn’t seek proper professional advice when buying into the business. At the time, I trusted my business partner and the process we followed, which I now see was a significant error in judgment. Unfortunately, hindsight doesn’t change the situation I’m in today, but I’m doing my best to learn from this experience and ensure I make informed decisions moving forward.

Regarding the 50/50 arrangement on the expansion, while it may seem unconventional, it was a verbal agreement supported by written communications and was implemented to some extent, as both our wages and dividends were aligned accordingly until recently. I understand the lack of formal documentation complicates things, but it’s a reality I now have to navigate.

As for my lawyer, I specifically sought a professional specializing in Business, Commercial, and Corporate Law. While they have helped to some degree, I’ve started to question their approach and effectiveness, which is why I’m now exploring alternatives. If you or anyone else can recommend a capable lawyer with expertise in these matters, I would greatly appreciate it.

I appreciate the suggestion of pursuing formal actions like EGMs or audits, though my current focus is on finding the best way to exit this business while safeguarding my interests as much as possible. Resigning prematurely, especially given the behavior of my business partner, might not be the most prudent course of action.

Finally, I’d like to gently remind everyone in this forum that we all come here for constructive advice. While I fully acknowledge my mistakes, I believe it’s more productive to focus on solutions rather than assigning blame. Thank you again for your input.

 

[Clinton]

As for my lawyer, I specifically sought a professional specializing in Business, Commercial, and Corporate Law. While they have helped to some degree, I’ve started to question their approach and effectiveness, which is why I’m now exploring alternatives. If you or anyone else can recommend a capable lawyer with expertise in these matters, I would greatly appreciate it.

There's a forum member here called the Resolver who, apart from being a friend of mine, is brilliant at this kind of stuff. If he is unable to help, or unavailable, drop me a DM - I know a million corporate lawyers.

 

[The Resolver]

As @ChrisCallaghan said, become informed of your rights separately as employee, director and shareholder. Speak to @Newchodge on employment rights. Given your health issues this may qualify for constructive dismissal or indeed a claim for the damamge from work based stress.

As to your role as a Director, it is an offence for the other Director to deny you access to all the financial and trading records of the company. Do you have full access to the banking and to the cuurrent (not historic) books of account? If so and as the other person can calll a meeting and vote you off the Board on his claim to have a majority shareholding, make copies asap. These will be vital when seeking advice on valuation.

On being voted off the Boad you of course have a claim that you are a 50% shareholder and can use that to block a dimissal vote. But the problem is that to challenge your removal willl require a signifiicant 5 figure sum to pay your lawyers. So as ever the court outcome will reflect more the depth of your pocket from which to pay the lawyers fees than the justice of the case.

It is not uncommon for shareholders not to have physical share certificates (although it is the duty of the company to issue them). But if you have emails confirming the agreement and you both then acted on them, you may well have a case to enforce the contract. You would have to have made clear that no payment other than possibly a nominal £1, was to be made for the 20 shares to be transferred to you.

For the majority shareholder to triple her salary without your agreement which significantly depleted the profitability on which to issue dividends is conduct that is clearly prejudicial to a minority shareholder (even 50% is considered a minority for these purposes.) However see above about funding litigation.

My recommended approach is to draw up a strategy by which to encourage the other person to begin to prefer for you to leave. At the same time you try to convince him that you prefer to not give up your shares but retain them to benefit from future growth/sale. That may be diifficult to convince him given your circumstances and what you may have said but the point is that, even there is no Shareholder Agreement, the one beneft of that is that he cannot force you to give up your shares (whether 30% or 50%). So as @Clinton suggests become the co-shareholder he most definitely doesn't want, calling meetings (of the Board and of shareholders) at which to raise questions with his responses minuted on record (he cannot refuse the meetings just not attend to prevent a quorum (but check the rules set out in the Articles of Association - PM me the company name and I will check for you in private).

You mention the creation of 'A' shares. Were they issued to you both? Alpahabet shares like that give the opportunity to issue separate dividends for each class of shares.

Impossible to give you a proper steer just on the above information and without talking to you. You are welcome to book a free of charge 30 mn call with me by clicking the link in my sig below.

 

[The Resolver]

…. In my earlier response I omitted to mention the main reason why your co-director may possibly be persuaded to want to make an acceptable offer to you for your shares, is for her to take legal advice that will make clear the limitation on her in avoiding profit through a huge salary . The thought that in future if you do not sell she will have to pay you some level of dividend ( if only to avoid the tax costs of a high salary) to you so you share profit without contributing to the success of the company. Of course there is also the thought that she will also have to share the payment should she want to sell the company.

As ever the way to gain the best offer when selling is to convince the buyer that you do not want to sell.

Another point is that she is ,at best, under 75%and thus cannot , without your agreement, lliquidate the company or amend the Artices.

 

[Clinton]

As ever the way to gain the best offer when selling is to convince the buyer that you do not want to sell.

The OP may want to think carefully about how he plays this.

Here's the starting point: as there's a near criminal lack of formal documentation, this setup would fail the most basic DD. There is also shareholder animosity, director conflict, poor record keeping, illiquid shares and, likely, not a great deal of free cash flow anyway. I can't see anybody rushing to buy this.

The business is worthless.

Given the OP's situation, if I were the other party I'd be tempted to simply let the business collapse and pick up 100% in a pre-pack.

I'm reminding myself that we know here only a small part of the story. The other shareholder may have, probably will have, a completely different version of events. There may also be elements here to which we are not privvy like, yikes, PGs. These unknown elements have the potential to further complicate matters and make a nonsense of all the advice offered so far.

Back to the main questions:

• How should I approach exiting this partnership given the lack of formal agreements?
• Are there strategies I should consider to protect my interests, even if I won’t recoup my investment?
• If anyone has experience finding a competent business lawyer, I’d appreciate tips on securing effective legal representation.

Thank you for taking the time to read this. Any guidance or insights would mean the world to me.

1. Offer to sell your shares to her for a nominal £1 and just get out. Trying to claim loss of earnings etc is a mug's game and is only going to worsen your mental health problems.
2. See my answer to 3 below
3. Take Graham up on his offer for a free call and then pay for further advice.

Do the above three in reverse order.