Removing a director

zig · 15-08-2016 9:05am #1

Hi Im looking for some advice,

So 4 of us set up a company nearly 3 years ago. In our naivity we never made formal agreements except what was required through a solicitor (in terms of being a limited company). It was agreed to be 25% each.

The comprises of

- Myself and a colleague who basically run the company and get paid. Really its our "baby".

- A third guy who invested half the money to help buy computers etc and who has contributed to the company over the years in helping get sales. He also gets a % of our wage based on the work done etc.

- A fourth guy who also invested half the money but contributes nothing and takes no wage.

This money has now been paid back.

The issus is the 4th guy. From day 1 he did nothing. We have never really had a problem with this because he isnt taking a wage. Its worth noting we never really took a wage either for about a year and half.

The 4th guy has had absolutely zero interest from day 1 and I guess that was a fine set up for everyone because we're not earning enough to talk about profit share. I'd say we met him 3 or 4 times since the company was set up and that was only by coincidence as he was in the area (this is just to give you a perspective of how little involved he is)

The issue is we have new ideas and we may end up making more money (or not we dont know). These ideas arent related to the initial company set up.

He has asked for a fairly large sum of money to be bought out. We have absolutely no interest in paying this, we cant even afford it anyway. Plus on a personal level myself and my colleague barely know the guy. So we this as us having to pay what feels like a stranger a big chunk of money so we can carry on with our own creative ideas.

My question is, is there anything stopping us from winding up that company and setting up another one with just the three of us? Or even setting up another company just for new ideas etc and keeping the current one.

We're not really in a rush with this as the reality is that at the moment whether he's in the company or not its not affecting us. However it is affecting the planning of ideas.

While I acknowledge that if someone invests and owns 25% of the company then theyre perfectly entitled to ask for something but in a real sense we invested far far more than 2 or 3 grand by not taking wages for such a long period of time.

Bandara · 15-08-2016 9:23am

I'm not versed in the legalities of closing and then reopening.

But if you can't go that route you can dilute him via another more blunt tactic

the three of you all vote to inject more cash into the business, say 20k for example, your silent person now has to do the same. I'm imagining he won't be happy with doing so, so you then present him with two options, either inject the cash, or his shareholding will be reduced proportionally.

So even though its not ideal, you can get his shareholding % down significantly

Water John · 15-08-2016 9:30am

The director Loans and the shareholdings are separate.
Because he has over 20% you cannot force him out.
Live with it.

If there is are new, separate ideas, a second separate business needs to be set up. It cannot impinge on the activities of the first co.

Your always minding that he is not leant on as a minority shareholder.

Opinions, not advice.

duploelabs · 15-08-2016 9:37am

Watch 'the social media', that's one way of stiffing someone you're in partnership when it comes to shares in the company

gargargar · 15-08-2016 10:37am

You can setup a new company with the three of you, however you will not be able to just appropriate the assets of the existing company. If the existing company is a services based one it might be easier to just wind up. Let the existing director know your plans. Tell him that if he can find a buyer then great, if not the assets will be sold off. You would need to take advice on approaching existing customers.

mrawkward · 15-08-2016 11:14am

If he puts a value on his 25% of X, then ask him to buy the remaining shareholders out at the same share valuation, he is not obliged to do so but it does put the issue in play properly. It is unclear that he is a director, if he his, your memo and articles will set out the rules for his removal but you are stuck with him as a shareholder. A proper shareholders agreement would have covered this current situation, but too late for that now!
You are probably best to set up a new separate company for the new activity that does not "swing out of" the revenues or assets of the old one, as this would be an oppression of his shareholding value.

Pro Hoc Vice · 15-08-2016 11:19am

zig wrote: »

Hi Im looking for some advice,

So 4 of us set up a company nearly 3 years ago. In our naivity we never made formal agreements except what was required through a solicitor (in terms of being a limited company). It was agreed to be 25% each.

The comprises of

- Myself and a colleague who basically run the company and get paid. Really its our "baby".

- A third guy who invested half the money to help buy computers etc and who has contributed to the company over the years in helping get sales. He also gets a % of our wage based on the work done etc.

- A fourth guy who also invested half the money but contributes nothing and takes no wage.

This money has now been paid back.

The issus is the 4th guy. From day 1 he did nothing. We have never really had a problem with this because he isnt taking a wage. Its worth noting we never really took a wage either for about a year and half.

The 4th guy has had absolutely zero interest from day 1 and I guess that was a fine set up for everyone because we're not earning enough to talk about profit share. I'd say we met him 3 or 4 times since the company was set up and that was only by coincidence as he was in the area (this is just to give you a perspective of how little involved he is)

The issue is we have new ideas and we may end up making more money (or not we dont know). These ideas arent related to the initial company set up.

He has asked for a fairly large sum of money to be bought out. We have absolutely no interest in paying this, we cant even afford it anyway. Plus on a personal level myself and my colleague barely know the guy. So we this as us having to pay what feels like a stranger a big chunk of money so we can carry on with our own creative ideas.

My question is, is there anything stopping us from winding up that company and setting up another one with just the three of us? Or even setting up another company just for new ideas etc and keeping the current one.

We're not really in a rush with this as the reality is that at the moment whether he's in the company or not its not affecting us. However it is affecting the planning of ideas.

While I acknowledge that if someone invests and owns 25% of the company then theyre perfectly entitled to ask for something but in a real sense we invested far far more than 2 or 3 grand by not taking wages for such a long period of time.

So I a nutshell a guy you hardly know invested half the money to get 25% of the company, now ye want to shaft him. Expect legal proceedings.

mrawkward · 15-08-2016 11:25am

Just strikes me now, how did he get his money back? . Was the stake money a loan or an investment for shares? Loan repayment or share re-purchase? Have the shares actually been issued to him and was there consideration?

mrawkward · 15-08-2016 11:27am

Pro Hoc Vice wrote: »

So I a nutshell a guy you hardly know invested half the money to get 25% of the company, now ye want to shaft him. Expect legal proceedings.

Why? Wanting to get rid of him is not legally actionable!!

Pro Hoc Vice · 15-08-2016 11:30am

mrawkward wrote: »

Why? Wanting to get rid of him is not legally actionable!!

Did you read the OP a guy invested half the money and was to get 25% of the shares. Now the OP wants to set up a new company and exclude the guy. The OP has a duty to the shareholders and to the company.

mrawkward · 15-08-2016 11:34am

The guy may have invested (presently unclear!) in one company. That does give him any rights in any new one!

Water John · 15-08-2016 11:39am

If he has been notified regularly of ordinary Board meetings and hasn't given a satisfactory reason for not attending, he can be removed as a Director.
His shareholding however cannot be reduced or diluted.
One could issue extra shares and each has the option of buying them, then he may opt not to invest and thus dilute his shareholding.

If you are looking also at a completely different income stream not connected to the original business, a new co between the three for that business is OK.

One must always guard against the oppression of a minority interest.

Pro Hoc Vice · 15-08-2016 11:40am

mrawkward wrote: »

The guy may have invested (presently unclear!) in one company. That does give him any rights in any new one!

What the OP said,

"A fourth guy who also invested half the money but contributes nothing and takes no wage."

And "in terms of being a limited company). It was agreed to be 25% each."

"My question is, is there anything stopping us from winding up that company and setting up another one with just the three of us? Or even setting up another company just for new ideas etc and keeping the current one."

The issue I have is the winding up of the company.

mrawkward · 15-08-2016 11:45am

Pro Hoc Vice wrote: »

What the OP said,

"A fourth guy who also invested half the money but contributes nothing and takes no wage."

And "in terms of being a limited company). It was agreed to be 25% each."

"My question is, is there anything stopping us from winding up that company and setting up another one with just the three of us? Or even setting up another company just for new ideas etc and keeping the current one."

The issue I have is the winding up of the company.

Read it all! including the line "This money has now been paid back."

Pro Hoc Vice · 15-08-2016 11:48am

mrawkward wrote: »

Read it all! including the line "This money has now been paid back."

Yes but he still owns 25% of the company. If he did not there would be no problem. The OP also said they did not enter into a shareholders agreement.

mrawkward · 15-08-2016 11:53am

Pro Hoc Vice wrote: »

Yes but he still owns 25% of the company. If he did not there would be no problem. The OP also said they did not enter into a shareholders agreement.

So? Your point is unclear. The majority of the shareholders can decide to wind up a company for any reason they choose. Are you actually familiar with The Companies Act 2014 and it's antecedents or just offering your opinions?

Water John · 15-08-2016 11:56am

But they cannot wind up the company to start another one that includes the same business as the first one. It would have to be a very separate area otherwise it would simply have been wound up to suppress the interest of that sleeping shareholder.

Bandana boy · 15-08-2016 11:56am

mrawkward wrote: »

So? Your point is unclear. The majority of the shareholders can decide to wind up a company for any reason they choose. Are you actually familiar with The Companies Act 2014 and it's antecedents or just offering your opinions?

Yes but the assets would still have a value , be that a customer list , brand name , premises , website etc

If you want to start a fresh and still use these he is entitled to compensation and name his price to buy him out , which he appears to have done. Or for the company to be put on the market to see if a buyer can be found.

mrawkward · 15-08-2016 12:05pm

If the shareholders decide to wind it up and there is a residue after all costs are met for a winding up carried out with proper probity, the 4th guy would be entitled to 25% of that sum, provided he had proper legal title to the shareholding. Given the company is stated to be unprofitable by the OP, it wont be much if anything at all. Obtaining best value for the assets is the responsibility of whoever takes on the winding up. We have no information as to the value of these assets or goodwill. If there is no shareholders agreement in place there is unlikely to be any restrictive covenants in place on trade/information etc.

mrawkward · 15-08-2016 12:08pm

Water John wrote: »

But they cannot wind up the company to start another one that includes the same business as the first one. It would have to be a very separate area otherwise it would simply have been wound up to suppress the interest of that sleeping shareholder.

Far from clear and most likely incorrect after a winding up, unless you have other information.

Pro Hoc Vice · 15-08-2016 12:09pm

mrawkward wrote: »

If the shareholders decide to wind it up and there is a residue after all costs are met for a winding up carried out with proper probity, the 4th guy would be entitled to 25% of that sum, provided he had proper legal title to the shareholding. Given the company is stated to be unprofitable by the OP, it wont be much if anything at all. Obtaining best value for the assets is the responsibility of whoever takes on the winding up. We have no information as to the value of these assets or goodwill. If there is no shareholders agreement in place there is unlikely to be any restrictive covenants in place on trade/information etc.

I must have missed where the OP said the business was unprofitable, can you point out where he said that.

mrawkward · 15-08-2016 12:14pm

"because we're not earning enough to talk about profit share". In this scenario, I would wager the shareholders working in the business draw what is available for their salaries not what they would like or see as their market value.

Pro Hoc Vice · 15-08-2016 12:17pm

mrawkward wrote: »

"because we're not earning enough to talk about profit share"

That's does not say the company is not profitable. In fact it shows the business is not losing money. The duty of the directors is to make sure the company does not make a loss.

twowheelsonly · 15-08-2016 12:30pm

Pro Hoc Vice wrote: »

So I a nutshell a guy you hardly know invested half the money to get 25% of the company, now ye want to shaft him. Expect legal proceedings.

This is it exactly.

Without this guys initial investment you'd now have zero company and zero wage. Legally you can probably do all of the things mentioned earlier but morally you're acting the maggot. The fact that he has nothing to do with running the company is completely irrelevant. He's an investor that got you on your feet and as such has as much a vested interest in the company as you have.

Potentially in the future you may grow the company even more and his involvement is still irrelevant. Potentially also, you may in the future be looking to expand even further and be looking for investment to do so. Picture the scenario when the next potential investor looks into your company history and makes inquiries and discovers that you shafted the initial investor. Never say never, things like this can and do happen.

Suck it up and continue as you are. You've now got a lot more than you had 3 years ago and a lot more than if had never invested in you.

Pro Hoc Vice wrote: »

I must have missed where the OP said the business was unprofitable, can you point out where he said that.

mrawkward wrote: »

"because we're not earning enough to talk about profit share"

"Not earning enough to talk about profit share" doe not necessarily mean the business is unprofitable. The fact that two people are earning a wage within 3 years of a start-up is decent enough in itself (dependent on the type of business obviously)

Hollister11 · 15-08-2016 12:46pm

duploelabs wrote: »

Watch 'the social media', that's one way of stiffing someone you're in partnership when it comes to shares in the company

The Social Network is the name of the film you are referring to.

Pro Hoc Vice · 15-08-2016 1:00pm

Hollister11 wrote: »

The Social Network is the name of the film you are referring to.

Yup and if I'm not wrong the Winklevoss settled for $65 million.

mrawkward · 15-08-2016 1:04pm

Pro Hoc Vice wrote: »

The duty of the directors is to make sure the company does not make a loss.

Hogwash. no such legal duty obtains. see http://www.irishstatutebook.ie/eli/2014/act/38/enacted/en/print

Pro Hoc Vice · 15-08-2016 1:07pm

mrawkward wrote: »

Hogwash. no such legal duty obtains. see http://www.irishstatutebook.ie/eli/2014/act/38/enacted/en/print

I should have been more clear there is among other duties a duty not to trade while insolvent. are you going to say I'm wrong in that statement.

mrawkward · 15-08-2016 1:09pm

Extraordinary commentary on this here. A guy invested in or loaned money to a startup. He did not acquire a life interest in the efforts of the other shareholders in any other business. It is a complex area but by taking the proper steps can be resolved without too much difficulty. The "moral" argument is out of the payground, this is business not croquet.

mrawkward · 15-08-2016 1:11pm

Pro Hoc Vice wrote: »

I should have been more clear there is among other duties a duty not to trade while insolvent. are you going to say I'm wrong in that statement.

Can only comment on what you write, which was hogwash as stated.

Pro Hoc Vice · 15-08-2016 1:13pm

mrawkward wrote: »

Extraordinary commentary on this here. A guy invested in or loaned money to a startup. He did not acquire a life interest in the efforts of the other shareholders in any other business. It is a complex area but by taking the proper steps can be resolved without too much difficulty. The "moral" argument is out of the payground, this is business not croquet.

No one said it can not be resolved but the OP would be advised to tread carefully. Look how much it cost Facebook yes tiny money but still $65 million. Best to do it right than face litigation.

duploelabs · 15-08-2016 1:13pm

Pro Hoc Vice wrote: »

Yup and if I'm not wrong the Winklevoss settled for $65 million.

It wasn't the Winklevoss' I was referring to. More the issuing of shares to dilute an existing partner's share of the company. And yes, sorry, Social Network!

Pro Hoc Vice · 15-08-2016 1:15pm

mrawkward wrote: »

Can only comment on what you write, which was hogwash as stated.

You really need to take a chill pill, this is a forum where people give advice if you have a problem with that then go play with yourself. For some reason only know to yourself you seem to be taking this personally seriously ease up on the insults.

Pro Hoc Vice · 15-08-2016 1:17pm

duploelabs wrote: »

It wasn't the Winklevoss' I was referring to. More the issuing of shares to dilute an existing partner's share of the company. And yes, sorry, Social Network!

Yes many companies do a share issue to dilute a share holding that can be a legitimate process but it could also lead to litigation. There is also a risk that the other shareholder has and will invest the required money.

mrawkward · 15-08-2016 1:21pm

I am serial investor in startups both new and second stage, so do have some clue on the topic. There have been posts on this very thread that are wrong, misguided or just uniformed opinions. The OP is looking for advice and some guidance which I have tried to offer but based only on the information provided. I have also requested more on specific areas. Getting all antsy when presented with facts adds nothing to any discussion.

gargargar · 15-08-2016 1:24pm

It may come down whether you intend to continue trading in the same business after the wind-up. If you are you may want to take some advice.

In relation to new products/services (sounds like a tech offering) then you should be clear to set a new company up for these. You would still want to have some clear division between the new and old or the existing shareholder could make a claim that the IP (if a tech company) belonged to original company e.g. in the case where it could be proved it was build on original companies time.

Pro Hoc Vice · 15-08-2016 1:28pm

mrawkward wrote: »

I am serial investor in startups both new and second stage, so do have some clue on the topic. There have been posts on this very thread that are wrong, misguided or just uniformed opinions. The OP is looking for advice and some guidance which I have tried to offer but based only on the information provided. I have also requested more on specific areas. Getting all antsy when presented with facts adds nothing to any discussion.

The only antsy person is you, I simply said to the OP that one of his proposals could lead to litigation. What facts, you made a claim that the company was unprofitable when what the OP had said was they had decided not to give a dividend, as a serial investor like you must be well aware many profitable companies do not give a dividend.

I agre the OP is looking for advice which I why I warned him at least one of his proposals could lead to litigation.

twowheelsonly · 15-08-2016 1:31pm

mrawkward wrote: »

Extraordinary commentary on this here. A guy invested in or loaned money to a startup. He did not acquire a life interest in the efforts of the other shareholders in any other business. It is a complex area but by taking the proper steps can be resolved without too much difficulty. The "moral" argument is out of the payground, this is business not croquet.

mrawkward wrote: »

I am serial investor in startups both new and second stage, so do have some clue on the topic. There have been posts on this very thread that are wrong, misguided or just uniformed opinions. The OP is looking for advice and some guidance which I have tried to offer but based only on the information provided. I have also requested more on specific areas. Getting all antsy when presented with facts adds nothing to any discussion.

Likewise, and have been involved in a few businesses.

Would you be happy if you were the 4th party in this arrangement ?

The idea of investing in a business is not to be charitable (though it may be in some cases) nor to 'get your money back'. It's a gamble but now that this business has started to have a little success they want to cut 'you' out of the equation. If they did cut you out then I'm sure you'd be telling anyone you knew about it and to avoid these guys. If their business had failed within 6 months who would have taken the hit ? It didn't so now they have no interest in that initial investor.

That's where morals come into it and the lack of same comes back to bite you in the ass !!

StupidLikeAFox · 15-08-2016 1:37pm

mrawkward wrote: »

Extraordinary commentary on this here. A guy invested in or loaned money to a startup. He did not acquire a life interest in the efforts of the other shareholders in any other business. It is a complex area but by taking the proper steps can be resolved without too much difficulty. The "moral" argument is out of the payground, this is business not croquet.

I think this is the nub of the issue - there is a difference between investing and providing a loan.

If the OP wanted a loan initially, he should have set up a loan agreement (with appropriate interest) with this guy or else gone to a bank. Instead he set himself up as a share holder, meaning that the guy owns a share in the profits (or losses).

Unfortunately, the OP has no automatic rights to oust a shareholder just because they are perceived to have recouped their initial investment.

mrawkward · 15-08-2016 1:45pm

twowheelsonly wrote: »

Likewise, and have been involved in a few businesses.

Would you be happy if you were the 4th party in this arrangement ?

The idea of investing in a business is not to be charitable (though it may be in some cases) nor to 'get your money back'. It's a gamble but now that this business has started to have a little success they want to cut 'you' out of the equation. If they did cut you out then I'm sure you'd be telling anyone you knew about it and to avoid these guys. If their business had failed within 6 months who would have taken the hit ? It didn't so now they have no interest in that initial investor.

That's where morals come into it and the lack of same comes back to bite you in the ass !!

I mind my investments, the guys hardly know guy 4. They offer to buy him out, he puts a mad number on his price, he also has had his stake back apparently. He puts money in with no shareholder agreement if it was actually an investment for shares, which is still unclear. If the lads walk, the shares/company are toast is my guess.

Pro Hoc Vice · 15-08-2016 1:50pm

mrawkward wrote: »

I mind my investments, the guys hardly know guy 4. They offer to buy him out, he puts a mad number on his price, he also has had his stake back apparently. He puts money in with no shareholder agreement if it was actually an investment for shares, which is still unclear. If the lads walk, the shares/company are toast is my guess.

Which could cause an issue under section 212 of the 2014 Act.

dbran · 15-08-2016 1:54pm

Guys

There is no need to bring down the tone of the thread by slagging each other off. So can we just cool it and agree to differ.

I note the the OP has not commented so far on the thread.

But my reading of the situation is simple enough. The guy has 25% of the share capital of a private limited company. He does not have control. Therefore his shareholding is worth next to nothing other then nuisance value at best. That is the key.

You sit him down, amicably, and tell them how it is. They can ask for crazy money and get absolutely nothing, or they can be reasonable and get something reasonable in return. You gave us a loan when we needed money and we are grateful for that. But we have repaid you that money (presumably with interest) and you have been properly rewarded.

With the skill set that the company needs now to move it forward we think the best thing to do is for us to move on without you.

If they then do not see sense then unfortunately you just vote him off the board with your 75% of the shares and then they are irrelevant. If you make us do that you will get nothing for your 25%.

It should be quite easily resolved with a bit of tact and a dose of reality.Morals do not enter into it.

Best of luck with it.

dbran

Pro Hoc Vice · 15-08-2016 2:02pm

dbran wrote: »

Guys

There is no need to bring down the tone of the thread by slagging each other off. So can we just cool it and agree to differ.

I note the the OP has not commented so far on the thread.

But my reading of the situation is simple enough. The guy has 25% of the share capital of a private limited company. He does not have control. Therefore his shareholding is worth next to nothing other then nuisance value at best. That is the key.

You sit him down, amicably, and tell them how it is. They can ask for crazy money and get absolutely nothing, or they can be reasonable and get something reasonable in return. You gave us a loan when we needed money and we are grateful for that. But we have repaid you that money (presumably with interest) and you have been properly rewarded.

With the skill set that the company needs now to move it forward we think the best thing to do is for us to move on without you.

If they then do not see sense then unfortunately you just vote him off the board with your 75% of the shares and then they are irrelevant. If you make us do that you will get nothing for your 25%.

It should be quite easily resolved with a bit of tact and a dose of reality.Morals do not enter into it.

Best of luck with it.

dbran

So what do they do if he says I don't want to sell, thank you i will sit on my 25% shareholding and wait, or even better he sells his 25% to another person. Also the company must be very aware of section 212 which now allows the oppressed minority share holder to sue for damages.

The old section 205

http://www.pearse-trust.ie/blog/bid/101205/Legal-Remedies-For-Oppressed-Shareholders-An-Overview-Of-Section-205

The new section 212
http://www.pearse-trust.ie/blog/increased-minority-shareholders-protection-and-compensation

http://www.irishstatutebook.ie/eli/2014/act/38/section/212/enacted/en/html

dbran · 15-08-2016 2:42pm

Hi

They say good luck to you sir.

You have 25% of the shares. Most decisions are made at the AGM of the company by simple majority. Thats the law. No court in the land is going to change that fact. We call an EGM of the shareholders giving the relevant extended notice of 28 days. The agenda of the EGM is the removal of you as a director. 75% vote in favour of the resolution and it is carried and you are gone.

Now they will be able to block some certain things such as change of name, voluntary winding up etc so he does have some nuisence value going forward which is why we really want to buy you out.

But at the end of the day we dont have to do anything and you will be effectively sidelined.

Who in their right mind would BUY 25% of the shares in a private limited company??? Firstly, you cannot simply go to another person and sell the shares to them. It is down to the company itself to register any transfer of shares and they may indeed decide to not register it. That is the difference between a PLC and a private company. Secondly you have no entitlement to dividends, no entitlement to become a director. So I cant see that happening in reality. No sane person is going to give money for a non controlling interest in a private company.

You are correct in that they will need to be mindful of oppression of the minority issue. However where is the oppression? Has their shareholding value been diluted or damaged by the actions of the majority. I dont think so. And even if they are successful, the courts will not ever change the fact that it is majority rule. They will rule that the minority should be bought out or compensated at a reasonable price which is after all what they want to happen in the first place.

So the guys with the 75% really have the upper hand in reality but they still need to negotiate to get a reasonable settlement or it could go on for years like this.

Dbran

twowheelsonly · 15-08-2016 2:45pm

mrawkward wrote: »

I mind my investments, the guys hardly know guy 4. They offer to buy him out, he puts a mad number on his price, he also has had his stake back apparently. He puts money in with no shareholder agreement if it was actually an investment for shares, which is still unclear. If the lads walk, the shares/company are toast is my guess.

That's the nub of the problem. They went into this with seemingly no or a very loose agreement. It sounds like it's their first time going into something like this and they didn't tie up the loose ends from the off.

Why has he put a 'mad' number on his price though ? It's quite possible that this company, that he helped with a start-up, is doing quite well and has plenty of scope for further improvement. We don't know that. Given his position, from what little information we have, I'd be doing the same. He's quite possibly willing to accept less or is open to further negotiation. No point in him going in low - again depending on the nature of the business and how successful it's perceived to be. Like it or not, this fella has helped them to where they are today and deserved to be recompensed as was probably his understanding first day.

IMO their accountant is the fella that should be dealing with this. Bottom line though is would I invest in them were they to come looking in the future ? Given what we know the answer would have to be no. SMEs' usually need a lot of goodwill to survive and they wouldn't inspire confidence in me.

Pro Hoc Vice · 15-08-2016 2:48pm

dbran wrote: »

Hi

They say good luck to you sir.

You have 25% of the shares. Most decisions are made at the AGM of the company by simple majority. Thats the law. No court in the land is going to change that fact. We call an EGM of the shareholders giving the relevant extended notice of 28 days. The agenda of the EGM is the removal of you as a director. 75% vote in favour of the resolution and it is carried and you are gone.

Now they will be able to block some certain things such as change of name, voluntary winding up etc so he does have some nuisence value going forward which is why we really want to buy you out.

But at the end of the day we dont have to do anything and you will be effectively sidelined.

Who in their right mind would BUY 25% of the shares in a private limited company??? Firstly, you cannot simply go to another person and sell the shares to them. It is down to the company itself to register any transfer of shares and they may indeed decide to not register it. That is the difference between a PLC and a private company. Secondly you have no entitlement to dividends, no entitlement to become a director. So I cant see that happening in reality. No sane person is going to give money for this.

You are correct in that they will need to be mindful of oppression of the minority issue. However where is the oppression? Has their shareholding value been diluted or damaged by the actions of the majority. I dont think so. And even if they are successful, the courts will not ever change the fact that it is majority rule. They will rule that the minority should be bought out or compensated at a reasonable price which is after all what they want to happen in the first place.

So the guys with the 75% really have the upper hand in reality but they still need to negotiate to get a reasonable settlement or it could go on for years like this.

Dbran

As set out above but to make it really clear,

) Any member of a company who complains that the affairs of the company are being conducted or that the powers of the directors of the company are being exercised—

(a) in a manner oppressive to him or her or any of the members (including himself or herself), or

Then what can a court do,

(3) The orders which a court may so make include an order—

(a) directing or prohibiting any act or cancelling or varying any transaction; (b) for regulating the conduct of the company's affairs in future;

(c) for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital; and

(d) for the payment of compensation.

So a minority share holder can not be oppressed by the majority and that has been the law for years. My reading of the OP is that number 4 is only a shareholder and even if he was a director, removing him from that role is fine, but to do anything that oppresses him will not be allowed by the court so any reduction in his shareholding, or forced sale or the change of the Articles or Memos to reduce his shareholding can be stopped by the court.

I am basing the above answer on the idea from the OP to close down the cpmpany and start up another one. Of course there is noting stopping the OP setting up new company to do the new business, but of course will have to be careful of any overlap.

mrawkward · 15-08-2016 2:53pm

I generally only invest in second or third time arounders! They are much more business savvy and dont think that getting venture capitalists to invest is them "made". These VCs own them and they become the same as employees in many cases. I like scenarios where a few bright young people with experience want to get something up and running, not the next FB or Google but a nice business that someone bigger will want to own. The might do this a few times until they have a nice wedge of their own to back their own ideas. Generally I would never invest is any non-tech sup as they rarely get sold for decent money but rather serve to give an income to the promotors.

Water John · 15-08-2016 3:05pm

An AGM is not the place to remove a Director. Absolutely not.
This is done at an ordinary meeting of the Directors, instructing the Co Sec to file a B10 to that effect.

At 25% he can block the sale of the company.

A third party to mediate may be a way forward.
This as said above was a high risk loan to a start up. He got his money back. OP seems to consider that his reward. Eaten bread is soon forgotten.

The diff to the 3 is owning 25% rather than 33%.

I can tell you from experience. The 2 things you get at the start are, a good sol and a good acc.

mrawkward · 15-08-2016 3:14pm

dbran actually posted EGM not AGM!
I got the impression that the 3 other shareholders were interested in buying him out on the basis of a fair valuation of his shareholding in the business but he was seeking a looney price level. I can see him ending up with nothing unless he starts to play smart.

There are other directions this could take, like the two director/shareholders resign their roles as Directors and possibly as employees for instance. They could start up a new company to exploit the new product and stay on as employees of the original company etc etc.

Trojan · 15-08-2016 3:19pm

From hard-earned experience (of being a co-founder, not an investor), I strongly urge anyone in this situation to do everything in their power to resolve this amicably through frank but friendly negotiation. Going down the hostile route will take up far too much time, energy and money - the only winners will be solicitors.

dbran · 15-08-2016 3:26pm

No it is an EGM. And you have to give the director extended notice that this is going to be moved. Simply filing a B10 at a meeting of the directors would be an invalid way to remove the director and proper procedures need to be followed.

They may be able to block a "potential" sale, but again why would they if the alternative is to get nothing. Clearly leaving the final negotiation until such an event was to happen would not be a great move.

I am assuming that we are dealing with a rational business person who is open to negotiation.

dbran

Water John wrote: »

An AGM is not the place to remove a Director. Absolutely not.
This is done at an ordinary meeting of the Directors, instructing the Co Sec to file a B10 to that effect.

At 25% he can block the sale of the company.

A third party to mediate may be a way forward.
This as said above was a high risk loan to a start up. He got his money back. OP seems to consider that his reward. Eaten bread is soon forgotten.

The diff to the 3 is owning 25% rather than 33%.

I can tell you from experience. The 2 things you get at the start are, a good sol and a good acc.

Removing a director

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