Useless business partner

[Maverick77]

Myself and my "business partner" are 50/50 on a limited company we set up to sell broadband.

Frankly, he's less useful than a chocolate teapot.
I've put in all the money while he has done absolutely nothing.
Whenever it comes to him needing to put his hand in his pocket, or actually do something, it never happens.

He's ok with owning 50% of a limited company while I put in all the effort.
He's also almost totally unreachable by text, phone, WhatsApp, etc.

Now I've had enough.

I've told him in no uncertain terms that we are not going to work as business partners because I'm not working my balls off so that he has 50% of a business for doing absolutely nothing.

Luckily, I am the one with access to Companies House, HMRC and accounting software.

Can I just remove him as a director and add somebody else who wants in?

 

[Chris Ashdown]

No you cannot, he owns 50% of the company
Yu options are to either buy him out, get the new person to buy him out or close the company and start again although I think you need 75% of the votes to close the company down

 

[WaveJumper]

As above and perhaps if in its infancy with no turnover to speak of maybe easier just agree to close down and both go your own ways, might prove less stressful

 

[Mark T Jones]

OK - someody has to say it..

What does the shareholders' agreement say?

 

[Maverick77]

OK - someody has to say it..

What does the shareholders' agreement say?

I'll have to read through it tbh. However, we both have authority to add and remove directors.

EDIT: we used the standard articles of association.

 

[Paul Norman]

This is such a common question.

Two people set up company. One person feels they do all the work and starts to resent the other. How to unravel it all.


It sounds as though you do have a shareholders agreement. Which may be useful.

In addition, if you are working in the company, it would be great if there was a contract under which you do that.

But simply, you cannot just ask this person to leave. They own half the company, and if you wish to gain that half you must pay them for it. And they may not wish to sell it to you. You can, of course, remove them as a director (as they can you, by the sound of it). But they would still own half the company.

My view remains the same on these matters. You need to sit down and have a proper, grown up, and potentially tense, conversation and work out what would be a good way forward.

If that proves possible, they it is over to the legal profession, I guess.

I would certainly encourage getting the conversation going very quickly indeed. And keep proper minutes of it.

 

[fisicx]

As already said, you remove him as a director but they still own the shares and are entitled to see the accounts and collect dividends. You can offer to buy their shares but they are not obliged to sell. If they wanted they could sell them to somebody else.

 

[NickGrogan]

Frankly, he's less useful than a chocolate teapot.
I've put in all the money while he has done absolutely nothing.
Whenever it comes to him needing to put his hand in his pocket, or actually do something, it never happens.

He's ok with owning 50% of a limited company while I put in all the effort.
He's also almost totally unreachable by text, phone, WhatsApp, etc.

Why did you start a business with him, what did you expect him to bring to the business?

 

[MBE2017]

Awkward lesson to learn, but who chose him as a partner to begin with, and why?

Not trying to defend him, but you need to learn from your mistakes, almost everyone on the forum has been there and got the T shirt at some point in their life.

 

[Deleted member 335660]

My colleagues here have said most of the usual things, I would just ask:

1. How much money have you put in and for what?
2. What’s stopping you starting up on your own?

If you have merely paid for a website and companies house fees etc then these can easily be put into a different name. Whatever his response, whatever he promises to do, his track record has shown you need to dump him.

If you stop doing things then your partner will have 50% of nothing. The company will become dormant and eventually closes down.

It may cost you more money, but in the long run staying together will cost you a a lot more.

 

[Frank the Insurance guy]

Hi @Maverick77 ,

In the interim, whilst you are sorting things out - talk to your accountant about putting you on salary (assuming there is money to pay). It needs to be at "market rate" for your role and work involved, but would mean that there is money directly going to you that isn't shared with the other director and reduces potential dividends that are split 50/50.

You will of course need to review any shareholders agreement etc, which may have specific terms on paying directors salaries.

 

[Paul Kelly ICHYB]

Where's Mr 2%?

 

[Maverick77]

Where's Mr 2%?

?

 

[Paul Kelly ICHYB]

@The Resolver can offer a service where he gets 2% of a 50/50 company to act as an independent adjudicator if there are issues. You would be surprised how many businesses would benefit from this

 

[The Resolver]

No you cannot, he owns 50% of the company
Yu options are to either buy him out, get the new person to buy him out or close the company and start again although I think you need 75% of the votes to close the company down

You need 75% to go into voluntary liquidation (close down the company ) ,however :-

a) you could effectively close down the business by yourself by terminating contracts, gathering in revenue from debtors and paying off creditors. The company can then become 'dormant'. Howver there are liklely to be prob;ems:-

1. You may become subject to penalties or breach of contract claims from suppliers. Not a problem if , following close down of the business, there is no cash left to be at risk of a breach of contract claim. You, therefore, need to have a detailed review of all supply /licensing/other (tenancies?) contracts and review the financial situation to identify whether there is likely to be surplus cash.

2. Your co-shareholder may argue that close down is a breach of your duties as Director eg to promote the success of the company etc.

Any cash left is to be equally diivided so you may want to follow the advice of Frank TIG and award yourself a market rate salary first of all.

b) You could petition the court to liquidate the company under s122 of The Insolvency Act 1986 on the basis that it is "just and equitable" to do so. This is usually proven by showing that , although you traded through a limited company, in reality, it was a joint partnership venture on basis you agreed that you would both worked together to run the company by joint effort but your co-shareholder undermined that objective.

c) You should review all emails/letters/notes at the time you agreed to form the company to see if you can show that he agreed by contract to work equally with yourself in the company so that you would also have a claim for damages flowing from his breach.

But before any decsiions as above are taken you must check if there is indeed a Shareholders Agreement (not to be confused with the Articles of Association available from Companies House). That is because most will contain clauses to more easily, eg throgh a forced sale of shares, resolve a problem that has arisen with your co-shareholder

All of the above provides lots of fodder for costly litigation that is in neither of your interests. The most sensible step is for you both to subject the problem to mediation. My Mr 2% service would not be appropriate as that should be put in place before disputes arise.. You are welcome to book yourself into a 30mn free advice call with myself (at www.SeeYouOutOfCourt.com/book-online )-but perhaps first look at my videos and info on mediation for shareholders/directors at www.BoardroomResolve.com

 

[The Resolver]

@The Resolver can offer a service where he gets 2% of a 50/50 company to act as an independent adjudicator if there are issues. You would be surprised how many businesses would benefit from this

To clarify, Paul, I will always mediate any disputes first, but with the ability to exercise my 2% vote if no agreement is reached. I also will generally not receive dividends for my share (my 2% will be a separate non-dividend class) although in some cases I may agree to take a dividend share. I agree either a charge for my time or a retainer or a mixture. It depends on the nature of the business. I'm just setting this up now with a pilot and, to help me with the service detail, am happy to offer a totally free of charge/dividend service to one UKBF member.