Ltd company partner and shareholder exit advice

Discussion in 'Legal' started by Nlynwood, Nov 10, 2018.

  1. Nlynwood

    Nlynwood UKBF Newcomer Free Member

    2 0
    Good morning,

    I am looking for some advice of a few different aspects of this situation, I have read many of the posts on here and have an idea for some parts, but not for others. For context I am not party to the business, rather I am assisting my friend because she is very ill, and becoming worse with the increasingly stressful situation.

    Ltd company set up 10 years ago. Sole director assigned 50% shares to his then girlfriend who was a partner in the business. This was done without her knowledge, so no shareholders agreement was signed. When he told her he said it was so he could pay her via dividends. I cannot see anything in the articles of association regarding buying the other out or casting votes.

    Her employment / salary. She has been employed in this business for 15 years, building it up with the director and having a relationship together which is now over. He dealt with all the financial affairs. The company accountant did her tax returns, but since looking into them, she is very concerned her personal tax may not have been handled correctly. He stated he transferred her the amount net of tax, however it now seems he has paid her gross, and she has not made payments for her tax. (I'm just awaiting her tax returns to check this).
    She has no written contract of employment, but in March demanded she be put back onto salary and provided payslips.

    New company. She had enough and resigned, very much to his surprise, in October. I have just found the next day he registered a new Ltd company, using the business name they have been trading under for years.

    Personal circumstances. She has been seriously ill with a condition being treated by top medical doctors, but it is not improving. She took an agreed sabbatical for a month earlier this year to focus on her health, and extended it for another. In reality I think she has had a breakdown from the stress of this situation and she is deteriorating. Since they broke up romantically he has been threatening her with all sorts of crazy things to get the shares back. One example is that he will spend all the money in the business and run it into the ground so there is no value left if she doesn't sign a compromise agreement for 50k. She will never work in the industry again (which is unfortunately possible given his status in the industry).
    The reason he wants a compromise agreement is that there are over 10 previous employees who have been mistreated and forced out of the business over the years, and she has all details. She pointed this out to him when she recognised he was doing the same thing to her.
    In her resignation letter she stated she would work from home due his abusive behaviour. She thinks she has a 3 month notice period, however without a contract of employment I am not sure. He is calling her constantly and being abusive. I would prefer she take sick leave, however she is reluctant as she would receive her full salary as sick pay for one week.

    Next steps. She hired a local solicitor, however from what she has said the lawyer is more just responding to queries than leading the charge. And she still has to deal with the director on every aspect. The director knows she is very ill and is trying to wear her down, worrying her with all sorts of ridiculous claims to make her give in and sign.
    I think that like she needs a professional to step in and negotiate for her. I am happy to support her personally however would appreciate some advice on the swiftest route to resolve this situation if possible please!

    I know she needs a valuation of the company value. Last net profits were 150k
    I think she needs a professional assessment of her tax situation, as this is a big risk and knowing either way would put her mind at rest. She already asked for it to be made part of the compromise agreement, not confirmed by the director though.

    What can the director do in terms of wiping out the business value?
    He set up a new company in the trading name they have been using for many years - what can he do with this?
    Should she raise a grievance to record his behaviour in case it does end up in court? Can she do this even though the business has no procedure in place?
    The lawyer said he would take it to court, however it would cost circa 10k, with prospect of getting 80k max (no idea where this figure came from). Also it could take up to 18 months. Any thoughts on this?

    She has built this business up for 15 years, and when she was told about the 50% shareholding she was told the business was worth 250k. I want her to move on from this, but balancing her health and the impact of a lengthy court case must be considered. I want her to receive her equity from the business.

    Thanks in advance for any advice!
    Posted: Nov 10, 2018 By: Nlynwood Member since: Nov 9, 2018
  2. dotcomdude

    dotcomdude UKBF Regular Full Member

    243 31
    Reading between the lines, it appears that your friend is a shareholder but not a Director.

    If this is correct, there is a lot that he could do to wind down or de-value the business and it will be expensive to challenge this.

    Take the 50k compromise agreement and afterwards contact HMRC to ensure her employer had paid everything regarding her period of employment. Let HMRC deal with any errors or omissions on his part!
    Posted: Nov 10, 2018 By: dotcomdude Member since: Jul 27, 2018
  3. Newchodge

    Newchodge UKBF Big Shot Free Member

    11,305 2,895
    He is offering her 50K. The solicitor who has seen all the facts said she may get 80K, at a cost of 10K. Her health is seriously affected. Is it worth the possible 20K that she may or may not get? Take the money and run.

    Also, bear in mind he 'gave' her the shares and she was not expecting him to, so this is, in one sense, free money. she would have done the same work for her salary anyway.

    Her tax situation is a lot more serious and she needs to get onto that straightaway. She also needs to make sure that the compromise agreement she signs allows her to claim against the company if she faces a tax bill because of their behaviour. she should get independent legal advice (paid for by the company) before she signs the compromise agreement anyway, otherwise it will be unenforceable.
    Posted: Nov 10, 2018 By: Newchodge Member since: Nov 8, 2012
  4. The Resolver

    The Resolver UKBF Big Shot Full Member

    3,001 980
    The £80k value assessed by the solicitor was probably his estimate of her employment claim ("constructive dismissal"?) but will not include the sake price of her shares which would be required as part of an exit settlement. I suspects there is a lot more value for her than the £20k

    She should not seek to negotiate without first taking independent advice on the likely area for the value of the shares.

    If he seeks to move the trading to another company then he gifts her a right to open a case against him in the name of the company for the damage that results to the first company.

    As a 50% owner she puts him in a very difficult position. He can't make any major decisions without her agreement. He can't even award himself any dividends or appoint another director without her agreement. Once he realises that she understands his exposure the offer will rise significantly.

    I negotiate on these disputes and would be happy to represent her in those negotiations if she wishes. She is welcome to a free initial call .
    Posted: Nov 11, 2018 By: The Resolver Member since: Mar 31, 2006
  5. Nlynwood

    Nlynwood UKBF Newcomer Free Member

    2 0
    Thank you so much for your responses. I was not clear on the value of the company but Iknow it has not been formally assessed by either side.
    Resolver, you are correct that she does not understand her position at all I will ask her to get in touch.
    Posted: Nov 11, 2018 By: Nlynwood Member since: Nov 9, 2018
  6. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    2,765 328
    Did she receive a dividend based on last years net profits of £150k?
    Posted: Nov 12, 2018 By: Lisa Thomas Member since: Apr 20, 2015