If you we're in a Limited Company which has two Directors and is doing badly or losing money what are the options. Please. Can one Director shut down the business if one wants to carry on? Both shares are equal. Do both Directors have to agree and sign to receive an investment or can one almost be sidelined. Does one have to buy the other out and is a legal document necessary. All help or where advice can be gleamed is appreciated. Thanks.
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Business Help Please
- Thread starter mrhairy
- Start date
Cadiz Seagull
Grey bearded old man
Depends on the shareholding. If it's 51 49 one can outvote the other
If it's 50 50 then there's a problem (never a good idea IMO to have a 50 50). If it is 50 50 then the shareholder agreement should have provision for what happens in a tied vote. If it doesn't then you have a problem. Worst case scenario the courts will decide.
Golden rule when starting any sort of business - give serious thought as to how things are going to be resolved in the event of a dispute AND PUT IT IN WRITING. The time to do that is when setting up the business when both parties are enthusiastic and want to succeed, not when the relationship has broken down
Yes one Director can buy out the other. The problem is, the selling director almost always has an unrealistic value of his or her shares. They don't realise - or more likely don't want to accept - it's a buyer's market with usually only one buyer.
One other point. If the business is insolvent both directors can get into trouble, and not just financially. Trading when insolvent is a serious offence.
If it's 50 50 then there's a problem (never a good idea IMO to have a 50 50). If it is 50 50 then the shareholder agreement should have provision for what happens in a tied vote. If it doesn't then you have a problem. Worst case scenario the courts will decide.
Golden rule when starting any sort of business - give serious thought as to how things are going to be resolved in the event of a dispute AND PUT IT IN WRITING. The time to do that is when setting up the business when both parties are enthusiastic and want to succeed, not when the relationship has broken down
Yes one Director can buy out the other. The problem is, the selling director almost always has an unrealistic value of his or her shares. They don't realise - or more likely don't want to accept - it's a buyer's market with usually only one buyer.
One other point. If the business is insolvent both directors can get into trouble, and not just financially. Trading when insolvent is a serious offence.
Don't get me started
One Nation under CCTV
- Jul 24, 2007
- 349
You should be able to step down/resign as a director, speak to your accountant about this
- Thread starter
- #4
Thanks but we have been going for over ten years and there is a potential investor who wants to put money in but does not seem to want me. However, he states that he doesn't need to pay me anything as the business is virtually worthless. My take is why should I resign to let them harvest the business and move forward. Can I be awkward and put my foot down to stop them to proceed or even say I'd rather shut the business down than walk away.
Ninja Elephant
Doctor Elephant
- Feb 16, 2009
- 18,855
Is it a Limited Liability Partnership?
If not, get out as soon as you can... All the best Mr Hairy. You don't know me, but we spoke on a train once coming back from a game at Swindon.
If not, get out as soon as you can... All the best Mr Hairy. You don't know me, but we spoke on a train once coming back from a game at Swindon.
- Thread starter
- #6
Thanks. I don't know you but feel I do. It's a Limited Co. still doesn't feel right handing it over on a plate.
Weststander
Well-known member
If you don't want to hand over your 50% equity, and don't want to resign as a director, then nothing can force you.
Do not sign anything, and do not allow a fresh issue of shares, which could dilute your holding meaning you could be outvoted at general meetings.
If eventually, it is going nowhere, you might want to pull out. If you are certain there is value there (goodwill), not indicated by the losses but indicated by the keenness of the other 2 to get their hands on it, perhaps they will buy out your shareholding for a compromise price. In the meantime, don't sign a thing, until you get your hands on the cash.
Do not agree to the appointment of the other as a director, otherwise you will be outvoted as a Board.
If it gets nasty, check the Companies House website regularly for your company, in case an appointment of a director or share issue is done behind your back.
Do not sign anything, and do not allow a fresh issue of shares, which could dilute your holding meaning you could be outvoted at general meetings.
If eventually, it is going nowhere, you might want to pull out. If you are certain there is value there (goodwill), not indicated by the losses but indicated by the keenness of the other 2 to get their hands on it, perhaps they will buy out your shareholding for a compromise price. In the meantime, don't sign a thing, until you get your hands on the cash.
Do not agree to the appointment of the other as a director, otherwise you will be outvoted as a Board.
If it gets nasty, check the Companies House website regularly for your company, in case an appointment of a director or share issue is done behind your back.
Beach Hut
Brighton Bhuna Boy
If the buyer believes they can take the company forward the surely there is a value ?
"This"
saafend_seagull
Well-known member
Why not sell your share for 0 and you are due x % of future profits?
Weststander
Well-known member
But then he would have no say, no access to the books, and 'profit' could get to the others one way or another prior to the level where he gets a %age.
Either stick to his guns, or go for a clean break at the right price in cash.
Don't accept a conditional sale paid in stages. Something often goes 'wrong' before the vendor receives all their dues.
Weststander
Well-known member
The monthly income thing ... Be careful, you might be duped.
Helen Chamberlains Quim
Member
Shareholding and Director are two different things and should not be confused, shareholders cannot generally form policy or declare dividends, that is the directors job.
Shares - you could quit and keep them, be entitled to percentage declared dividend and only be liable for the value of the share issue.
Director - if one resigns as a director, they could remain an employee, the two posts are different, so resignation as director and employee is a must.
At 50 / 50 one Director cannot shut the business down / force winding up.
If one buys the other out you are strongly advised to get a compromise agreement formed by lawyers or face possible suits for dismissal plus also protect against grab back in the future.
Insolvent trading is a massive no-no, dont be tempted to run into the ground knowingly.
Does either of you want to leave?
I am at the end of sorting one of these out myself and have just shelled out £380 + VAT for a compromise agreement. I could have done it online for £100 + VAT but not really understood what was needed leaglly etc.
HTH
Shares - you could quit and keep them, be entitled to percentage declared dividend and only be liable for the value of the share issue.
Director - if one resigns as a director, they could remain an employee, the two posts are different, so resignation as director and employee is a must.
At 50 / 50 one Director cannot shut the business down / force winding up.
If one buys the other out you are strongly advised to get a compromise agreement formed by lawyers or face possible suits for dismissal plus also protect against grab back in the future.
Insolvent trading is a massive no-no, dont be tempted to run into the ground knowingly.
Does either of you want to leave?
I am at the end of sorting one of these out myself and have just shelled out £380 + VAT for a compromise agreement. I could have done it online for £100 + VAT but not really understood what was needed leaglly etc.
HTH