The role of managing director in a shared Ltd company?

[richmondfloyd]

Hi,

Four of us have just set-up an equal shared Ltd company.

One of the partners has suggested that he assumes the role of managing director, without the hierarchy usually attached to the role. As he puts it, the role would concentrate on 'co-ordinating roles, etc'.

I cannot see how a managing director role would work in a partnership like this? He says it's not a partnership but a Ltd company and the rules are different. He doesn't believe the role can be shared, but is open to options.

Any advice welcome.

Kind regards,

 

[paultnl]

A quick search of this forum will show the wisdom of setting up a good shareholders agreement before any decisions are made. DO IT NOW!

 

[kulture]

So you have barely started and already there is disagreement on what you are doing and who is in charge. Not a good beginning.

 

[Merchant UK]

The problem is its not a partnership its a Limited Company and each one of you are Directors.

I assume that this guy wants to manage the the business on a day to day basis so he wants to set himself as a Managing Director, Sometimes it can be a hassle for 4 people equally shared to do one job, so you really need to decide if your going to let him take on this role.

You need to remember that simply being a Managing Director unless that person has a higher share than the other 4 , there is no difference with the equallity of the 4 directors, or shareholding.

Why don't you take it in 3 monthly turns to be the Managing Director, That way everyone has a slice of the ckae

 

[businessfunding]

So you have barely started and already there is disagreement on what you are doing and who is in charge. Not a good beginning.

My opinion is that this is precisely the time you should be falling out!

As has been mentioned, this is the time to put together a shareholders' agreement and to thrash out all of these issues.

From an inward-facing point of view, titles are irrelevant, what matters is who takes on what responsibility.

From an outward point of view a business needs a managing director - the one who puts his head above the parapet. Don't make the mistake we did of having 'Joint Managing Director' - it just looks wishy-washy (as was pointed out to me several times

 

[Philip Hoyle]

You can call him the managing director if you want, just for the sake of appearance, but the reality is that you each should have your own well defined roles, i.e. a finance/admin director, a sales/marketing director, a technical/production director, or whatever, and you should concentrate on your own role and pretty much ignore and don't interfere with the others, except where you have to interact - preferably at board level. You really don't want the techie director to be interfering in your website - you want his input at top level but to leave the finer details to yourself if you're the sales/marketing director.

I don't think you can ever "share" a role. But, you do need a board "leader" - whether the name is chairman, or managing director, or whatever, you need someone to take charge at board meetings and to be the co-ordinator between you all. It's important is to get an agreement on what will happen if you are split 50:50 i.e. 2 want to do project x but the other 2 don't - someone will need a casting vote - how do you plan to deal with that scenario. To be honest, 4 directors isn't a good number, you'd have been better with 3 or 5 to avoid stalemate.

From my experience, sharing roles just leads to duplication of effort as you trip up over each other doing the same thing, and more disagreements and arguments as you interfere with each other.

Surely, between the 4 of you, you can nominate one of you who is the most level-headed, most organised and most open-minded person, who you can jointly agree to be a fair "leader" of the board. Then whatever you call that person is really pretty irrelevant.

 

[KateCB]

Do away with the title. He is a Director, you are a Director, the others are Directors - don't title it.....then everyone 'feels' equal.

You do as has been pointed out need someone to chair meetings, someone who can see both sides etc, and the stalemate position may cause problems with the equal numbers, however as sensible, 'Directors' compromise should be able to be reached.

If the person who wants to be MD is acutally responsible for the running of the business on a day to day basis, he can be a Director for legal purposes, but operate under the title of 'general manager' who 'generally manages' everything, if that would ease everyones ego - and sadly thats what it is - being a Director means nothing, you set up a LTD company and automatically you are a Director - the perceived prestige of the title is worth more to most 'Directors' - I am Managing Director of my company, but I sign all emails/correspondence as 'Design Team Leader'.......as this is where the majority of my time is spent, and I am happy with that.

If someone calls and wants to speak with the 'Managing Director' we put them through to whoever can help with their query - and thats not always the MD!

 

[richmondfloyd]

Thank you.

I probably did jump the gun in my reply and say unequivocally that I thought one person managing all wouldn't work and it should be a partnership. I am a little uneasy as the person putting themselves forward has previously struggled as an MD of his own company and has been very honest in stating he is not good at time keeping and structure. Meetings often are elongated. So far I have set the pace and kept us organised with action plans and strategies. I suppose in some ways I feel I would be better suited to the role and maybe feel threatened. But I have made clear that I don't think the company should have an MD, and we should all be responsible for our own work areas, discussing this where required and challenging each other if we miss deadlines. Granted we need a chair for meetings. Invariably this has been me, but I always offer it up every time.

The next bit your going to cringe at. It was three directors, but the person I mention above suggested his partner comes on board as a joint director. Which she now has. This obviously confuses things somewhat, but I was out voted and didn't want to be the only one that said no. I also thought it would motivate him, which it did (as you can see!).

How would you set about making decisions in a stalemate?

For the record, although it sounds like a difficult set-up and it probably is, we do all get on and respect each others opinions. Otherwise this would have no hope if working.

 

[KateCB]

Ouch, yes, I did cringe - never good when a life partner joins......not that there is anything wrong with the partner, just that it could turn out to be a formidable opponent if things are not going their way? Did this person put an equal amount into the business then, or is she an executive Director - i.e. a paid employee rather than a board member?

Obviously she has skills that your two other Directors feel would add value to the company?
If the stalemate is a major issue, I would involve with the agreement of all directors, a mediator - someone impartial, unbiased, who could listen the the reasoning of both sides, and then give what the Directors would accept (by prior written agreement) was the best/least expensive/most lucrative etc decision - if it is a minor point, then drawing straws is for some reason still seen as fair - as long as you get a 5th person to hold the straws of course!

I have given you your first thanks (the button at the bottom of the post) for being so honest and telling us about your cringe addition, and having the guts to admit that perhaps you DO feel threatened a little, which is natural - welcome to the forums, hope to see you around in the future

 

[richmondfloyd]

Thank you.

Yes, we put in an equal amount. There is always the possibility that it could go one of two ways, 1. they form an alliance, 2. they become enermies as working and living together is too much. My guy seems to tell me that won't happen (based on their personalities) but best to be prepared for all outcomes.

She adds something we all lack, attention to detail and a journalism background. As a team, we all have different unique skills, which is good, and we all filled in a document (very honestly) exploring our strengths and weaknesses as well as our perceived potential. I suppose what concerned me is the guy who wants to be MD, rated himself the lowest (2/10) for time management - this concerns me. Not because he scored low necessarily, but because I see this as a key skill for an MD.

I think it's a great idea to get someone impartial. I'll suggest that at our next meeting.

PS - No point not being honest in my opinion. Both because you won't get accurate information back to help you find a resolution and you can harbour things in the long run if they are not discussed (never good).

 

[richmondfloyd]

Btw - how do we go about making the business work best without someone assuming an MD role?

 

[Digital Investments]

First, get a solid shareholders agreement in place!

Second, it's good to have one designated MD, one designated Operations Director, financial Director etc - it creates clarity between roles, and will prevent huge confusion as soon as things get a little tough. Just make sure you all know your place and if the MD is co-ordinating events, then he's not necessarily in charge of you all, he's simly the glue that brings all the operations together

 

[Chris Ashdown]

Unless someone takes charge you will have endless discussions on every subject that go on forever and reach no desision, You really do need someone to be free to anaylise all the options and decide what is the best route to follow when there is disagreements.

I assume the wife of the other director has no shares in her own name so a shareholders vote would exclude her and be limited to the original team

You do need someone quite forcefull to over sea the meetings as otherwise they just waste time and reach no agreement, if the directors cannot agree then put it to the shareholders which will reduce the numbers and be easier to reach a vote

As said before the most important thing is the shareholders agreement for which you really need a solicitor

 

[richmondfloyd]

Thanks.

We all have voting rights and shares equally. The partner (although not wife) as a share the same as the rest of us.

I hear what your saying, but I'm still not comfortable.

Can it work if we are all responsible for our respective work areas and make judgement calls on that without consulting the group? We would therefore cut down on the need to discuss everything. The big decisions would have to be discussed as a group surely with an MD or not. It's difficult as I know the guy who wants to be MD won't want to deal with customers or media, plus he's technical and could lead us down technical solutions (if that makes sense) that don't always need to be solved.

What I'm saying is that he won't want all the responsibilities an MD role carries and therefore maybe best to split the role and call it something different.

Also, surely we need this bottomed out before we sign a shareholders agreement?

Thanks

 

[Chris Ashdown]

So one family has 50% of the company and basically can control the company as they between them,selves can stop any motion

You say this person who can control 50% is no good as a MD

There is no Shareholders agreement

What makes you think there is a positive outcome to this company 2 years hence unless you all site around the table and fully discuss your plans and objections etc, call a emergency general meeting and sort it out

The way I see it is that with disagreements and difference of opinions now, the most likely outcome will be the 50% family will control the company and the other two will in effect be employees with a grand title

Can you afford to bring in your wife or parents etc as a shareholder to spread the shares around a bit

Partners with one controlling 50% is not a partnership, what sort of money did you all put in a few thousand or tens of thousands

 

[richmondfloyd]

I know it doesn't sound great on paper...

The girlfriend has not taken an active involvement in terms of decisions and where she has she has sat on the fence rather then make a favourable decision with her partner. I don't think they are the type to use their percentage to side.

I agree that making him MD will make us glorified employees which is why I oppose it. Having said that, we'll still have a 25% share.

Do you not think my idea is valid or workable?

I'll think of who could be included as another joint director...

Kind regards,

 

[kulture]

I am sorry, you have taken nearly a WEEK to discuss who is called MD. In business, if you want to survive, you make decisions, then you act on them. You use your time to build the business. Not endlessly prevaricate over who is called what.

 

[Digital Investments]

I am sorry, you have taken nearly a WEEK to discuss who is called MD. In business, if you want to survive, you make decisions, then you act on them. You use your time to build the business. Not endlessly prevaricate over who is called what.

Absolutely

 

[Chris Ashdown]

you know yourself you will never be happy with this set-up so why continue with it, some things are just not meant to be and this and all your other posts indicate failure somewhere along the line when you find you cannot work the professional way you want to

Get what you can back and continue with your own company

 

[richmondfloyd]

Thanks for your input, but I am not willing to give up on our business. The posts I've put are are one sided (on the negative) as I'm discussing a particular issue. We're a great team in many ways and have a truly unique business concept that has the potential to be huge.

We've all got other commitments and therefore we haven't been able to meet and discuss this. We wanted to do it in person then over email. We're meeting Saturday. Until the business earns enough, it's difficult to devote more then 35 hours each and one of us works a 9-5 at the mo so this makes things more difficult.

I really just after some alternatives now to one person taking an MD role.

If you have any suggestions, please put them forward, I'd appreciate your input.

I don't plan on going it alone in the long run with my own business as I feel it's a lonely road and the business I'm in is not one that can yield the financial outcomes I want.

Thanks

 

[Mustaka]

I suppose in some ways I feel I would be better suited to the role and maybe feel threatened.

There's your problem. You would be happy to have the MD role but you are unhappy if this other Director has it so wish to look for options to split the role. This is basically a power struggle of which you seem to be on the losing end. This WILL cause resentment down the line. It is easy calling yourselves a good team when things are rosy. It is when the business comes under pressure, as every single one does at some point, that the cracks and the resentment will show.

As others have said you need a rock solid share holders agreement. All issues like this need to be covered within that share holders agreement. In that agreement you will need a stalemate clause. Usually this consists of terminology to the effect if a voting stalemate occurs any shareholder or group of shareholders can offer to buy out one or more of the other shareholders at a fair valuation. If parties cannot agree an amount then an independent arbitrator is appointed with all parties agreeing before arbitration to abide by the arbitrators decision.

Often times people become unreasonably entrenched in a view point and cannot see it. An arbitrator can often get people back on track.

After the shareholders agreement each party should be delegated duties and responsibilities which they should sign as a side letter to the shareholders agreement. This way everyone knows what they are responsible for and can be held to task if they do not complete.

After that the actual title someone has means absolutely nothing. An MD title means about as much as Space Exploration Director, or Chief Executive Pole Dancing Director.

 

[richmondfloyd]

Thanks.

It's interesting you think I'm losing a power struggle. What gives you that impression?

It is interesting as I created an alternative structure, which created a role of 'chair'. Similar to MD but the rest of the MD role is delegated to the other directors. Maybe I misunderstand the MD role in a small Ltd company, I only know of it in the big corporate role.

I came into business to have a very active role in steering the business. Creating an MD role which my partner has feels somewhat like I'm losing that. Maybe I'm wrong?

Sometimes he can have a firely streak and a very undiplomatic approach to things he doesn't agree with. Somehow I'm not sure he has the qualities for an MD role - which will lead to resentment as you say. He's also lacking (as he admits) in time management and organisation, aren't these qualities you need too?

What I'm interested in is an alternative approach. Is there one that works? Will a rolling 3 month chair work instead?

Thanks

 

[Mustaka]

Sometimes he can have a firely streak and a very undiplomatic approach

Those are certainly not MD qualities wouldn't you agree?

A Directors role regardless of title is to actively steer or control the direction of a company. The issue here as I see it is you want that role and resent the other Director from taking it fully so are splitting out or diluting normal MD tasks. As far as what those tasks are in a small limited company is as wide and varied as there are small limited companies.

For example my company has 2 Directors. My business partner does everything technical within the company, I take care of everything else. For example one day I am the sales director, the next the business development director. When meeting with our investors I am the MD. Sometimes I am just the lowly support guy. Point being in small companies there is a lot of bleed between roles.

If you are so concerned about title right now I cant see this partnership lasting all to long. This resentment will fester and eventually drive a wedge between you and this other Director. Either deal with it by speaking openly with all the Directors present or drop it and get on with your job.