New Startup Issues

[granjaman]

I need some advice.

I recently got involved in a new start up business as a director and was gifted a 19% share holding, so the company could take adbvantage of my expertise and contacts.

Through my ability and contacts, I have driven the order book to 200K + (in 3 months). The other 2 directors who have 51% & 30% want me to stop winning business as it can't be cash flowed. When the business started i was assured that 75K would be invested at start up which has turned out to be 20K which one of the directors now wants back out of the business.

I now realise I was duped and have made a mistake and I now want out! I have been offered another opportunity which i want to take, but need to know how I stand as a director/shareholder in this business.

Can I just resign and walk away? I will want to take my contacts with me & I have no contract only a shares certificate.

 

[akirk]

several different things go on in terms of the relationship of a person to a business:

shares - you are a shareholder - is there a shareholder agreement that you have signed, if so you are bound by its terms and conditions...

director - you are bound by the articles & memorandum of association / company law / etc.

employee (if you have a contract as such)

so depends on all your relationships and any contracts / agreements that are in place...

if you have no contracts / agreements then you can toddle off and remain as director & shareholder... or resign as director and remain shareholder etc.

depends on the legal setup

Alasdair

 

[granjaman]

Thanks for the info.

I have only signed a shares certificate, as far as I'm aware I havent signed a shareholder agreement etc and I have no contract of employment at present.

 

[akirk]

then resign as a director - toddle off and so as you wish

Alasdair

 

[ANOTHER REBEL]

Although you can Resign as a Director under current Legislation you continue to have certain duties and responsibilities to the Company.

You must avoid any situations where you have any personal or outside interests which will potentially come
into conflict with the interests of the company.

This duty even extends to former directors.

However, this duty is not infringed if:​

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the situation cannot reasonably be regarded as likely to give rise to a conflict; or​

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the matter has been authorised by the directors, as appropriate to the type of company (public companies must give the directors specific powers in their articles)

If you took all your contacts with you, and it could be proved that you had solicited their business, then you could find yourself personally liable to the shareholders of the company.

The best option would be to try and negotiate giving up your shares in exchange for being allowed to do as you please.​

 

[akirk]

directors leave companies and set up in competition all the time

on what basis do you have responsibility to a company you no longer have a connection to? Yes you continue to have responsibility for things you did while there, and yes that could arguably include taking data during that time - the argument being that you couldn't have taken it post involvement... but once you have left and no longer have a link to a company then I am pretty sure you don't have responsibility any more - would love to know the details if otherwise...

Alasdair

 

[ANOTHER REBEL]

directors leave companies and set up in competition all the time

Agreed but they run risks of being sued. Case law is still developing in this area, and there is no catagoric yes or no to the question. The following has been copied from the web to illustrate the potential pitfalls.

Whether you get sued or not depends on the competence of the Solicitor advising the company, and their enthusiasm for taking legal action.

Case law: statutory duty on company director to avoid conflict of interest
Companies whose directors leave and carry on a competing business may be breaching their duties to avoid conflicts between their own interests and those of their company, under the Companies Act 2006, according to a recent case.

Company directors have a duty under the Act to avoid situations where they have, or can have, an interest that conflicts, or may conflict, with the interests of their company. The duty applies particularly where a director exploits any opportunity, property or information of the company (irrespective of whether the company itself could take advantage of it). If a director leaves, the duty continues to apply. So an ex-director may be in breach of his duties if, after leaving, he exploits any property, information or opportunity of which he became aware during the time when he was a director.
In this case, a director and founder member of a company resigned and went to work for another firm. However, he was made redundant a few months later, and set up his own business in the same area of activity as the original company, approaching some of their customers. Under his contract of employment with the company, the director had been subject to a non-solicitation clause for a period of six months after termination of his employment; however, this expired shortly after he set up his own business, so the company also sought to restrict the director's scope of activity in his new business by relying on the Companies Act duty to avoid conflict of interest.
The court re-stated the principle, as agreed between the parties, that the provisions of the Companies Act introducing the duty did not alter the pre-existing law. On the facts of this case, the court concluded that the director's approach to former customers of the company did not amount to an appropriation of a 'maturing business opportunity' of the company, as there had not been any, or any significant, discussion of the potential business by the company. He was not therefore in breach of his duty.
The court also referred to the fact that this case did not involve any continuing fiduciary duty, eg where a director's resignation was prompted by a wish to acquire business from the company for himself, which will often exist in similar situations.
Recommendation
Companies whose ex-directors set up or start work for competing businesses should consider whether they may be able to bring a case against them for breach of their duty to avoid conflicts under the Companies Act 2006.
Case ref: Thermascan Limited v Norman [2009] EWHC 3694 (Ch)

 

[akirk]

Thank you.

Not sure that applies:

The effect of the court's judgment in Thermascan was that the "stock in trade" of knowledge which Mr Norman had acquired as a director of Thermascan, even including such things as business contacts and personal connections made as a result of his directorship, was his to exploit in the future.

http://www.wragge.com/analysis_5663.asp

clear parallel to the above OP's post.

Alasdair

 

[ANOTHER REBEL]

Accepted.

All I am saying that case law in this field is still evolving. The next case could go in the opposite way. The Legal profession certainly feel that there is a potential "problem" for former directors, otherwise they would not keep highlighting the issue. (You like me may be cynical and believe that this is purely to boost their fees.

However any advice posted on this forum should also include the potential downside.

To tell someone to carryon regardless is not in my mind giving best advice.

Anyone posting a query should be given a range of potential scenarios, and be allowed to make their own decision or take further advice according to their own gut instinct.

 

[granjaman]

Thanks for the advice

I'm not planning to set up in competition with the current company.
The main product that I bought with me under a personal NDA with the supplier (my contact) has been awarded to another distributor and as such the present company I am a director of will not be authorised to sell the product.

I plan to set up as an independant consultant working with a number of different companies on a daily rate.

I don't think they will try to sue me, but the advice you have given is duly noted, Thanks to all.

 

[akirk]

Accepted.

All I am saying that case law in this field is still evolving. The next case could go in the opposite way. The Legal profession certainly feel that there is a potential "problem" for former directors, otherwise they would not keep highlighting the issue. (You like me may be cynical and believe that this is purely to boost their fees.

However any advice posted on this forum should also include the potential downside.

To tell someone to carryon regardless is not in my mind giving best advice.

Anyone posting a query should be given a range of potential scenarios, and be allowed to make their own decision or take further advice according to their own gut instinct.

Agree - I do always give a balanced view where possible - however I also don't believe in over-complicating when not necessary...

we usually have limited info on a forum, so advice can only ever be in the context of what we see, but the simple reality is that if you are not contracted into a company, you can walk away from it...

yes case law can change law, however it can also itself be over-turned, and there is a danger in generalising from case law - it will usually hinge on one or two tiny facts.

so, understand where you are coming from, but also feel that we do not need to over-complicate what can sometimes be quite simple...

Alasdair

 

[granjaman]

The issues with the company i am with have now grown larger. The director who owns 51% of the business is claiming that as a director of the Ltd company, I owe 19% of £50,000 to his other company.

I have never signed a personall guarantee for any moneies with this other company.

Am I Liable?

 

[akirk]

as mentioned above - you are only liable in law for anything in the statute books, or which you have signed in addition...

if the company for which you work owes £50K to another company, that does not mean that you personally owe it, unless your company can't pay it and defaults and you have signed a personal guarantee - until that point it is the company (which is in law an individual) which owes the money - in the event of default the options are to pursue guarantors if any, or wind up the company -you only hold liability as a director for 3 things:

- anything where you are a guarantor
- anything you do illegally (e.g. not acting to the benefit of the company could lead to this)
- any shares you own which are not yet paid up (and that is liabiliyt as a shareholder, not as a director, just that many directors of small companies are also shareholders!)

so if you have £19,000 of shares not yet paid up then you hold that liability
if you have signed a guarantee you have that liability
if you have brokent he law you have that liability
otherwise you hold no liability

Alasdair

 

[granjaman]

Thanks for the advice, this is as I thought.

The share cetificate shows my holding as worth £190.00 so theoretically i may have to pay that money

 

[akirk]

Thanks for the advice, this is as I thought.

The share cetificate shows my holding as worth £190.00 so theoretically i may have to pay that money

if you have not yet paid for the shares then they should be in the accounts as unpaid and yes, in a liquidation (and only then) you will be liable for that cost - the face value of the shares, not the 'company value' so 190 x £1 Ords would be £190 of liability.

the reason that companies are limited liability companies is that you are limited in your liability to that cost.

Alasdair

 

[granjaman]

This is an old thread but there has been a new development. I resigned as both an employee and a director on 11/10/10, and as far as I am aware I am a free agent. I have had a call this AM fromn one of the remaining directors who is stating that I am obligated to deliver on a couple of outstanding projects that the company has going on, and that i won't be released from my responsibilies as a director (Form TM01 submitted) until after they are delivered. I now have an offer of employment, which I wish to take.

How do I stand for just walking away and getting on with my life? If I have to deliver the projects in question I will not be able to take up the offer of employment.

Any help will be gratefully recieved

 

[kulture]

Do you have a contract with them obliging you to finish current projects? Did you have a notice period, and has this now expired?

Unless they have a signed contract from you saying otherwise, I don't see how they can force you to do anything. What can they do to you if you walk away? On what basis are they saying you are obligated?

Regarding the directorship. You have resigned. Why no fill in your own TM01 and send it in?

 

[granjaman]

I have no contract, no notice period, in fact nothing in writing, the only thing I have is a share certificate.

The other 2 directors are claiming that I am liable for 33% of the companies debt position of £20K.

I have now taken legal advice and have a meeting with a solicitor in the morning.

Thanks for the reply

 

[kulture]

Its a limited company? You signed no guarantees? It is a good idea to see a solicitor. Get your name off this company. The debts are the companies, not the directors unless they have signed personal guarantees or unless the directors have been trading whilst insolvent.

 

[granjaman]

Thanks for the advice, i'm seeing a solicitor today to get this issue put to bed.

 

[Alan R Price]

I'm with Alasdair on this one. If you resign as a director your rights and responsibilities effectively cease subject to the competition issue. Against that however, you appear to have a right of action against your co-director/shareholders for misrepresentation or possibly even fraud for their failure to honour the promises made to you to entice you to join them. Would they really want a fight?

 

[granjaman]

Been to see my solicitor this AM.

Letter going to the other 2 directors to state that in the absence of a contract of employment, a restrictive covenant or a share holder agreement, legally since my resignation I am a free agent and that all responsibilities to the company either as an employee or director ceased with my resignation.

Further more my solicitor feels that if I the other 2 directors feel I have an obligation to continue to work to deliver the outstanding projects then I should be paid to do so.

I will let you know the outcome of the letter.