Need for partnership contract?

[sajsaj]

Hi all, I started a business with my friend 3 years ago, and we agreed it will be 50:50 and he will supply me staff and I will set the business sup and manage. While setting up he asked me to make it 51:49 shares to make it easier to set up the business accounts etc, so I agreed. I needed him to be the registered manager as he is a doctor. I didn’t wish to be a director also as I working elsewhere also. So, we set the business up and I got the first client with my own staff, when it came to him giving me staff, he couldn’t manage to get anything, so I had to do it myself. he didn’t do any of the tasks we agreed in the beginning, when I told him I want my share back he said he cant give it as he it the registered manager and more at risk. Which I found a silly excuse. Now I have proof of us agreeing us to be 50: 50. Also I would want to make a partnership agreement to ensure he cant just make random decisions about the business without my input as currently he is saying he would want to take a salary from the business also. Which I do not agree to. I wanted to know if a partnership agreement is legally binding and what can I do if he continues not to hold up his end. Also about my shares how is the best way to get my share back?

 

[The Byre]

Here we go again! Partnerships and all the problems they bring!

OK - this all rests on the most elegant law we have in the UK - the Partnership Act of 1870. About two sides of paper is all you need to print it out. Now that's what I call elegant drafting!

Firstly and most importantly, without a formal agreement stating otherwise, if one partner leaves, the partnership is over. But that applies only to a common law partnership and not to a Ltd., i.e. a limited company.

As you talk of shares - is this a limited company or just a partnership?

 

[sajsaj]

Hi, it's a limited company , we have started growing quite a bit due to my team. we are a healthcare company providing care at home.

 

[Mark T Jones]

Then you need a shareholders agreement and potentially directors service agreement

Some will disagree, but in ky view the real value of these agreement is in the detailed discussions before they are finalised.

If you need to enforce them they have failed

 

[The Byre]

Then you need a shareholders agreement and potentially directors service agreement

This!

While setting up he asked me to make it 51:49 shares to make it easier to set up the business accounts etc, so I agreed. I needed him to be the registered manager as he is a doctor

Completely irrelevant and totally unnecessary. A director and a shareholder are two different things and two different roles.

Also about my shares how is the best way to get my share back?

In a nutshell, with great difficulty.

This is one for @The Resolver and I suggest you contact him and talk things through. As Goethe pointed out in Faustus "THe Devil is hiding in the details!"

Details here - https://www.ukbusinessforums.co.uk/members/the-resolver.6183/#about

Good luck.

 

[DoolallyTap]

For a Limited company, each person should have , Shareholders agreement, Directors Agreement, if employed, Contract of Employment.
You say - we agreed it will be 50:50, he asked me to make it 51:49, Now I have proof of us agreeing us to be 50: 50 -- what proof, is it signed by him?
You say -- I didn’t wish to be a director, who are the people shown as involved at Companies House?
If you are not a Director and do not have a written, signed shareholders agreement then 'he', as a listed Director can do whatever he wants with the business.
You say -- he didn’t do any of the tasks we agreed in the beginning, is there a written list? signed by all?
You say -- when I told him I want my share back he said he cant give it - What do you mean? are you asking for your investment capital back?
Knowing the Company name would be useful for seeing all public information at Companies House.

 

[The Resolver]

Was it set up on incorporation as 51-49 or was it 50-50 (as you say was the initial agreement) . If the latter and you have not signed a Stock Transfer Form to transfer 1 share to him then it rmains 50-50 whatever has been told to Companies House.

If it was set up as 49-51 then so it remains, However look to his weaknesses and your strengths in negotiation. You could resign as Director (if not one already) and have nothing to do with the company . He will then begin to realise that unless he comes to an agreement with you, he will legally be obliged to have to give you 49% of every dividend he wishes to issue despite you not lifting a finger to make it a success. If he decides not to issue dividends he will have to award himself tax ineffcient high salary to benefit. You could even act in competition in social care pitching to the same councils.

If he decides to not do anything but run the business down rather than share profit with someone who does not lift a finger then you have a right to sue him in the name of the company for damage caused to the company by not attempting to make it a success. In fact draining the company of profit by awarding himself a very high and unreasonable salary to deny you dividends could amount to such a breach as well.

Also as a sole Director he needs to make sure the company is not run by the Model Articles else unless he amends them he cannot make any binding decsiions on the company,

So he is also in a bad space. Time to negotiate but from strength,

You are welcome to a free 30mn call for me to adviose and clarify your options - Book in at https://www.SeeYouOutOfCourt.com/book-online

You may also have a breach of contract claim.

 

[The Byre]

I sometimes wish I could fall out with my fellow shareholders (the main one being the wife!) just to get those pearls of wisdom from @The Resolver! (As things stand, if I did fall out with the wife, she'd probably just give me a thick ear, so I'll pass on that one!)

 

[sajsaj]

Thank you for the replies. Sorry I am not comfortable disclosing the name as it may show up on searches etc.

@The Resolver thank you for the advice, I will be booking in.

The Company was set up at 49:50 I am not a director.

A lot of agreements were just verbal, and this is causing me the issues right now.