DaveK156 started this topic @ 11:48 on 20/08/2004
Hi There
I run a Ltd company and have made a mistake with the shareholding. Basically 1 of the shareholders has decided to terminate his involvment but will not give his shares back. He owns 20% of the shares in the company.
He will not accept any money for his shares and intends to keep them.
I am unsure about what the options are for me here.
I have so far thought about passing articles to make shares dependant on employment. I have also thought about closing the company down, letting One of the shareholders buy out the company in full and also have thought about re-issuing shares in order to water down this shareholders stake. Although I have enough shareholding in agreement to perform all of these actions, I am unsure about the law and what the rogue shareholder could do in response.
I want to keep legitimate but any advice would be gratefully received.
Regards
DaveK156
RE: Problem with Shareholder
Ian J | 20/08/2004 12:12 PM
It is a difficult question to answer here as each situation where this happens is different.
Is the shareholder being bloody minded for the sake of it as whatever steps you take will be time consuming and expensive. The sensible and cost effective action really depends on the situation of the company's finances, whether or not it is profitable and what the assets are worth etc.
20% shareholders don't have a great deal of power and one possible remedy is to set up a holding company which can either buy the assets or continue the trading but either way it isn't difficult to ensure that there is nothing worthwhile left in the company for him to have 20% of.
It's still easier to negotiate with him if at all possible
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Ian
Factoring ,
Invoice Discounting ,
Trade Finance and
Asset Finance specialist broker.
Founder member of
Independent Factoring Brokers Association
RE: Problem with Shareholder
James Smith | 20/08/2004 12:14 PM
Dave,
You need to get some proper legal advice on this, don’t rely on forum answers as you want some indemnity insurance to back you up at each step with something like this.
Minority shareholders have quite a lot of rights to prevent most of the tactics suggested above, closing the company out may well be the best way to get rid of them as you then you force the break. The valuation of the goodwill however (ie the value of the business when sold on) may become contentious and will trigger a charge to tax. The threat of the sale may well be enough to force the rouge shareholder to sell up at a reasonable rate as it is going to happen by force if they refuse.
If you don’t have a lawyer, I suggest you give you accountant a call as they will no doubt have some contacts and know more about your business and therefore give appropriate advice. Don’t do anything rash – the trick in these circumstances is to keep everyone on side and settling as amicably as possible.
Regards,
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773
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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
RE: RE: Problem with Shareholder
DaveK156 | 20/08/2004 12:44 PM
Hi Guys
Cheers for the advice, I will definitely be getting some Legal advice on this before I do anything but it is proving very worthwhile havng a discussion here first.
A little more info is that the company has very few assets and has very little money in the bank at the moment. It has high goodwill but it would be very painless to close it down. My main conern with doing this is that I am worried that the shareholder would have a holding on future earnings and would mount a challenge on this pretence.
The problem I have is that I need to offer his replacement some shares and I want to raise capital whilst keeping the current shareholders happy.
Would closing the company and re-forming with largely the same shareholders minus the rogue one be deemed as being a little un-creditable in the eyes of the law?
DaveK156
RE: RE: Problem with Shareholder
Ian J | 20/08/2004 01:01 PM
With little in the way of assets and cash in the bank much of it will come down to a valuation of goodwill which is what the company is worth over and above the asset value.
As James suggests, you need to take expert advice as the law can be a bit of a minefield in this area and if you feel that the value of the company is rising you need to take the advice as soon as possible so that the value of the ex employee's shares is crystallized at the current value of the company.
------------------------
Ian
Factoring ,
Invoice Discounting ,
Trade Finance and
Asset Finance specialist broker.
Founder member of
Independent Factoring Brokers Association
RE: RE: Problem with Shareholder
DaveK156 | 20/08/2004 01:14 PM
Hi Guys
many thanks for the help. I will now get some legal advice on this but you have been most helpful to talk to.
Regards
Davek156
