Widower selling business partners shares?

[katie1976pink]

Good morning all,
I am looking for advise regards to where I stand on company shares being sold.

I own 47% of a LTD business, I am a Director & sadly 2 months ago my other business partner died.

Jan 2020 it was agreed due to illness getting worse, he would take a back seat from the business & sell his shares to me.
We agreed I would buy his share out by him taking a small lump sum payment & then a monthly dividend salary which would then wind down to a zero balance on the set price we both agreed, in a 5 year plan. This agreement was put into effect August 2020.

Unfortunately he died at Christmas, & his wife is now in control of the shares. I had a meeting with her 2 weeks ago & we agreed to carry on the same agreement that myself & my business partner had.
However yesterday she sent me an email saying she now wants me to pay half of the share sale price sum by end of the month, followed by a shorter time scale for the monthly payments, otherwise she is selling her shares to an interested party.

Where do I stand, & ultimately can she do this? Advise would be much appreciated.

 

[Mr D]

Someone who wants to buy shares in a limited company? And you do not know who it is?
Would be pretty rare.

Possibly (likely?) A bluff.

You had 47 percent, how much have you purchased with the payment made so far? Or is it all waiting until full payment made?

 

[katie1976pink]

Someone who wants to buy shares in a limited company? And you do not know who it is?
Would be pretty rare.

Possibly (likely?) A bluff.

You had 47 percent, how much have you purchased with the payment made so far? Or is it all waiting until full payment made?

No I don't know who it is. I bought into the business in 2016 with an initial 35k for 40% share. Since last August I have now paid enough to obtain 47%. I'm 9k away from 51%.

 

[Clinton]

99.99% she is bluffing.

Investors take a lot of time and do a lot of digging and due diligence into finances and what not - months of it! - before coming up with an offer.

And they tend to not do it for a 53% stake. Why? Because if the 47% owner doesn't cooperate with them they lose their entire investment. They don't like getting into bed with people they don't know. So, it's highly unlikely she's got an investor.

But technically, yes, she can do this unless you have a Shareholders Agreement to the contrary (which I highly doubt as I get the impression yours is a business that doesn't invest in professional advice on matters like these, you just wing it with handshake deals like the one you did on "a monthly dividend salary").

 

[DontAsk]

I'm sure the other investor would want to meet with you before parting with their cash. Just make it clear you are not happy and that you will do the bare minimum to stay within the best interests of the company. Anyone with any sense would walk away.

If she can't sell them, tell her you no longer want to pay the previously agreed price.

 

[Mr D]

No I don't know who it is. I bought into the business in 2016 with an initial 35k for 40% share. Since last August I have now paid enough to obtain 47%. I'm 9k away from 51%.

Its quite possible you will be the only customer for the shares.



Ideally you never want major shareholders up against each other though. Each can cause problems for the other - quite legally.

@The Resolver - perhaps you can work with the two parties?

 

[katie1976pink]

I have a shareholders agreement which just having looked over states "a shareholder can only sell all or any of his shares with written consent of all other shareholders", & I won't be consenting!

 

[WaveJumper]

Whats the betting another family member is behind this ........ death as sad at it is sometimes brings out the worst in families

 

[WaveJumper]

I have a shareholders agreement which just having looked over states "a shareholder can only sell all or any of his shares with written consent of all other shareholders", & I won't be consenting!

BINGO .......

 

[katie1976pink]

BINGO .......

Yes... this has been at the forefront of my mind tbh.

 

[The Byre]

However yesterday she sent me an email saying she now wants me to pay half of the share sale price sum by end of the month, followed by a shorter time scale for the monthly payments, otherwise she is selling her shares to an interested party.

There's always a chance that she is not bluffing - but would imply that the other party is a novice to business in general and an idiot in particular. There are two or three ways to own a business. I don't mean now legal structure, but what really goes on.

1. One person owns and runs the show. They are the guiding light and the vision and what that person wants is what happens.

2. One person runs the show, but has shareholders. This can be a PLC or a PE or whatever - but for effective leadership, it is still one person.

3. There is a partnership and the partners magically get along and do not try to kill one another.

According to what you have written, the company is worth £225,000 - well, at least that is what it seems to be worth to you as you valued 4% at £9k. So our mystery buyer is going to drop over £119k without talking to you in-depth? Does that sound likely?

Before making any offer (for example "Stuffed/get - rearrange in a well-known phrase or saying!") talk to someone who understands English company law. Here, once again, I recommend calling our good friend @The Resolver.
http://www.boardroomresolve.com

Then and only then, armed with a clear idea of where you stand legally, can you talk to the widow of your deceased partner.

 

[Frank the Insurance guy]

I had a meeting with her 2 weeks ago & we agreed to carry on the same agreement that myself & my business partner had.

Was this documented? If she has agreed to carry on with the current arrangement, she has already agreed to sell you the shares and on what bases and over what period. As such I find it hard to see how she can now cancel the deal made with you and make another.

Was the original agreement with the deceased partner documented?

If contract/agreement is in place for the purchase/sale of the shares, you should be on good ground.

I suggest you get some legal advice to make sure.

 

[Mark T Jones]

It's clearly an emotive issue, but whilst showing compassion & empathy, rour role here is to protect your interest in this business.

Sub-text, smart-ass family member has got involved and come up with a'clever' scheme to up their inheritence.

Why not respond asking if this interested party would like to buy your shares as well?

Well done on having a shareholders' agreement, BTW

 

[Chris Ashdown]

Would the courts take the view that the majority shareholder is held back from selling just on the basis of the shareholder agreement. That could tie up the finances for ever

How can payment be made by dividend as surly they must be distributed to all shareholders so of no real benefit to the dead person

 

[katie1976pink]

It's clearly an emotive issue, but whilst showing compassion & empathy, rour role here is to protect your interest in this business.

Sub-text, smart-ass family member has got involved and come up with a'clever' scheme to up their inheritence.

Why not respond asking if this interested party would like to buy your shares as well?

Well done on having a shareholders' agreement, BTW

Funny you should say that, I've been thinking of asking that!

 

[katie1976pink]

Before making any offer (for example "Stuffed/get - rearrange in a well-known phrase or saying!") talk to someone who understands English company law. Here, once again, I recommend calling our good friend @The Resolver.

Thanks for links, I will check out now

 

[Paul Kelly ICHYB]

I am not an expert in this, but he shares are part of the estate. You need to speak to whoever is managing that (which could be the wife).

Also, I assume that you are now the sole director and could use that to your advantage.

As mentioned, maybe you need a bit of legal advice.

 

[Mark T Jones]

Funny you should say that, I've been thinking of asking that!

It could open an interesting discussion

 

[eteb3]

We agreed I would buy his share out by him taking a small lump sum payment & then a monthly dividend salary which would then wind down to a zero balance on the set price we both agreed, in a 5 year plan. This agreement was put into effect August 2020.

If consideration (payment) has passed under the agreement, even in part (and you say it has), then my understanding is that the contract is set and neither party can vary the terms without consent of the other. It's like buying something on instalment plan. And (again afaik) the estate is the deceased's liabilities as well as their assets, so you may even have an equitable charge over the shares.

Agree you need legal advice, and there's no doubt who people think is suitable! (Including me)

PS If the dividend really was salary for services performed to the company, then presumably that obligation ceased once your partner passed away (though it might be a flinty heart that tries to wriggle out of it).

 

[The Resolver]

There are a lot of intertwined issues here so that advice would depend on more details. For now. let me say the following .

In talking to you on this matter, and given the short timescale since death, I imagine the widow is acting as executrix (i.e on behalf of the estate of her late husband) .The shares are part of the estate and indeed the will or rules of intestacy may give them to her but she is bound by the contract the husband entered into to sell them to yourself either in your own name or as director acting pp the company as buyer. Her duty is to complete the transfer of the shares under the terms of that agreement. She cannot amend the terms without your agreement.

If you did not sign any formal document evidencing the contract to sell the shares to you,I imagine you can prove its existence through correspondence plus what is called "part performance" i.e the fact of the payments you or, given the reference to dividends, the company (assuming the company has the funds as "distributable profits" to enable it lawfully to buy them ) made to him.

Even if you cannot prove the existence of such a contract to sell to yourself. the estate is bound by the Shareholders Agreement and thus any any onward transfer would require your consent.

Does the Shareholders Agreement not also contain a clause directing as to what happens to shares on the death of a shareholder?

Another issue in your favour is that you are (assuming there was only yourself and the deceased on the Board) the sole director. Directorships cannot be bequeathed. As such you have the power to refuse to register any transfer to a third party. You need , by the way, to change the online login details at Companies House just in case the widow has them and tries to file a false update as to share ownership under a Confirmation Statement.

Whilst the above may be of some comfort I would imagine you would like , if possible, to avoid creating tension with the widow. Better to come to an agreed resolution so the widow should be invited into shareholder mediation. That may help preserve a positive relationship that will be helpful should there be a need for conversations in the future over company matters.

As well as the transfer of the shares you need to decide if they are to be bought by yourself personally or the company. What is the source of the funds paid so far? This needs to be put on a proper footing. I can sort all this out for you. You are welcome to book a free of charge advice call to me as in the link in my sig.

 

[Michael Loveridge]

It seems that thee are a lot of red herrings being raised here, many of which are irrelevant, and are merely complicating the situation.

Essentially this is a fairly straightforward contract issue between yourself and your former fellow shareholder. You entered into what I would consider to be a binding contract for the purchase of his shares at an agreed price on agreed payment terms. Although the payment plan was somewhat bizarre - there's no such thing as a `dividend salary', for example - I don't think the details of how the payment was to be made really matter. The important thing is that the basic terms of the contract can easily be determined.

The contract is enforceable against his estate in the same way as if he had agreed to sell his house before dying. Assuming the widow is the executor of his estate she is bound by the contract, and if she attempted to sell the shares elsewhere she would be in breach of the original contract.

But from a practical point of view it would be impossible to sell the shares to a third party. Even ignoring the fact there's an existing contract for the sale of the shares and that there's a shareholders' agreement the company's articles of association would, assuming they are the standard form articles, restrict the transfer of the shares to a third party.

It's obviously a very unpleasant situation to be in, but the widow needs to be told in no uncertain terms that she's bound by the contract and that she has to transfer the shares to you. If she continues her legal obligations then you may need legal representation and the threat of legal action to get the message across.