Shareholder rights

[ebisu]

Hi,
about a year ago I founded a limited company together with two others, the three of us serving as directors and owning a third of the shares.

Well, as it happens, we have fallen out with each other and I am not director anymore, but still own my shares.

Me question is about shareholder rights. I have read everything at
http://www.shareholderrights.co.uk/rights_frameset.htm
but I am refering more to "soft" shareholder rights, like being informed about what is happening in the company. With a 33% share in the company, do I have the right to request monthly or quarterly reports. Do I have the right to know in detail the sources of revenue and profits. Do they have the obligation to show me the books?

Thanks for any help
Ebi

 

[gj]

Unfortunately shareholders have very little in the way of rights regarding the day to day matters - the directors deal with that.

Shareholders have no right of access to the records, or to any management accounts, only to year end accounts.

Have you actually resigned as a director?

The directors have a duty to the shareholders to run the company in the interests of the shareholders (collectively) but they are entitled to reasonable remuneration as directors which may be agreed by the shareholders depending on the arrangements the company has, but with 67% of the voting rights they could out vote you anyway. So unless they act unreasonably you may be rather stuck.

You could look at them buying your shares which they may be willing to do to stop you being a thorn in their side. I assume there was no shareholders agreement. The memorandum and articles of association therefore need looking at to see what they say about such a situation.

It may be worth talking to a solicitor just to see what your options are at this stage

HTH

Graham

 

[ebisu]

Hi Graham, thanks lots for you comments!

> Have you actually resigned as a director?

Why?
Yes, I sent my resignation notice (the official form) to Companies House and to the company. I resigned before they would have removed me, mainly because it would have taken them some time to remove me formally and I did not want to take responsibility and be liable for their work in the meantime.

The articles of association don't say anything about this situation, only it seems the directors can veto any transfer of shares, i.e. I can not just sell to a third party.
We are talking about them buying me out, but are lightyears from an agreement. No shareholder agreement was signed when we founded the company, stupid ...

I realize I could legally force them to buy me out (since they forced me out of the company), but the value of this young company does not justify any legal measures.

Seems I am stuck with my share for now, without a lot of rights to be informed. I guess I can request quarterly and more detailed reports, but if they decline there is not much I can do about it.

Thanks again
Ebi

 

[Alpha]

Ebi

As it is a new company that will possibly grow and become profitable in the future and I presume your shares did not cost any more than the nominal value I would simply sit tight. Your shareholding entitles you to a third of any dividends paid out bythe company(assuming there are no variations in shareholders rights) and of course a third of the value of the company on any liquidation.

Your liabilities however are limited to the shares (which if as in many start up limited companies you have not paid for them would simply be the nominal value of the shares)

Just ask for a copy of the accounts each year and I suppose if you want to be difficult insist that the company is audited (which will cost more money and therefore can be a double edged sword)

 

[ebisu]

Thanks for your comments, Alan.

You are right - while I would prefer to sell my shares to them to put an end to the story, the absence of a reasonable offer makes it best just to sit tight at the moment.
Something you wrote made me think: If I have the right to demand that the company be audited, this could be used as leverage for demanding more information for them.
It is either something like quarterly reports about sales, profits and where they come from plus insight into important developments, or I demand that the company be audited, which is in nobody's interest because of the cost.

Ebi

 

[Enigma121]

Suspect that an audit is carried out on the basis of establishing that the accounts records are a full and accurate account of the actual trading figures declared.

This would entail a review of the sales, profits etc, but only against declared figures as shown in the company account record (ie. for a previous year).

I'm sure that there are some accountants or auditors out there who can confirm or deny this.

As you say, if this is the case, it's a bit pointless and wasteful of resources (1/3 of which are yours).

Sitting tight limit's their options in terms of paying dividends, but as they run the company they can pay themselves huge salaries indefinitely.

They could also use their position to pinch the company's customers and set up another company.

If things are as sour as you say they are, it might be worth getting your share now. Alternatively forget about it and put it down to experience (you might get a buy out offer years from now).