Co-founder taking company money

WreckingRalph

I need some opinions. I am a co-founding partner (we are 2 directors) of a limited company that started out the end of last year. Everything went swimmingly as we kicked off doing work for customers and started to invoice them for work done and getting paid for it. It was agreed between the 2 of us that I do the technical bit, while he focusses on the business development. We are in a 50/50 partnership, both being directors and "employees" of the company.

Then a couple of months into it things started going wrong. He started ignoring objectives we agreed upon, dismissing or ignoring deadlines, neclecting business plans, not doing marketing and sales etc and it started to cause tension. Emails started flying back-and-fro with accusations and blame, tit-for-tat and all that, at the same time I am trying to roll out solutions to customers and invoicing them.

Then a month ago he responded to an email of me stating that he wants to resolve the company. As we are in the middle of invoicing customers and doing work, I persuaded him to sit down and discuss an exit strategy rather, as I didn't think the situation was salvageable as he was doing damage to the operations and I wanted him out, instead of dissolving and abandoning customers in the middle of this.

The problem now is that since then, he has distanced himself completely from the business and has not been contributed anything, as we are busy "negotiating" his exit strategy (effectively paying him off to leave).

Now he has taken money out of the bank account, and I don't know what to do.

We've each paid ourselves a very small salary beginning of January, but we have not really agreed on salaries nor taken anything else. The approach has generally been - we would agree who gets paid for what until the company is at a point where we can start taking salaries. In line with this, we agreed that I get paid for work that I would do (I have this on email) and have done so, but now in response to that, he did the same - saying that if I can, he can as well as he is entitled to it. So he has now effectively emptied the bank account.

I do all the work, and he is taking money out of the bank account (we both have access to the online banking facility) without permission. The added complication is that I need to be paid a salary - hence me trying to salvage the company and continuing to do the work, while he doesn't really.

I have been talking various people (including business people as well as a solicitor), and opinions vary from walking away to taking legal action. I would take him to court but there is now no money in the bank account, and I am worried that when we get paid by our customers, that he will simply take that money too.

My opinion is that my partner is now effectively trying to bleed to company dry - he initially wanted to dissolve, but have changed his mind and he wants a cut of the profits but doesn't want to work for it. If he cannot get money from the company, he will squander it away by taking money or spending it on legal fees - as long as I don't get any of it.

Any advice would be appreciated.

punisher5112

Shut it down and start up a new one under your own name, contact all clients and make this clear.

I would do it quickly as he may try the same.

_Brian

Walk.
Set up your own business and start transferring clients over to this new venture. Invoice all work going forward to this new company, have payments made into new account.

Bigus

Yes good advice from both above .

Also To help with your mindset , look at the missing funds as part of the sunk cost in setting up the new clean company 100% owned by you and ultimately a good investment, which you might never have had without his involvement.

You're also lucky it happened now and not when there was something really substantial to fight over .

Make sure the revenue are cleared on the old company , even if it means investment by yourself , to kill it off quickly and completely.
They can put an attachment order on the company bank account to make sure they get paid first ahead of him, but it would not be normal to ask for them to do it , they would usually do this if returns were very late.

Good luck with the new venture , you seem to have the hard donkey work done.

WreckingRalph

Thanks for all the responses so far.

It just feels like such a waste to walk away. And even with that, there is a 50/50 chance that the customer will or will not follow me - because from their viewpoint they would be wanting to protect their own interests and a breakup like this never instils confidence.

The only bit that I am not 100% clear on yet is ownership of the intellectual property. My solicitor seems to suggest that, seeing that I am the author of all original (knowledge base) work, and I don't have any explicit agreement signed with the company, that it belongs to me. Yet another suggested that even though he is not 100% sure, he thinks it could be disputed.

Also, even though we have no debt, we do have a small bit of hardware (probably worth €2500). If the company gets dissolved, a liquidator would probably take that as the fees for the wound-up. Again, hard to see all this wasted because of someone's greed.

BarryD2

WreckingRalph wrote: »

I need some opinions. I am a co-founding partner (we are 2 directors) of a limited company that started out the end of last year. Everything went swimmingly as we kicked off doing work for customers and started to invoice them for work done and getting paid for it. It was agreed between the 2 of us that I do the technical bit, while he focusses on the business development. We are in a 50/50 partnership, both being directors and "employees" of the company.

In fairness, going by above it would appear that he was working and contributing towards the business? You may have been doing the 'real front end' work and dealing with clients but he was presumably dealing with the back office end of things and funding and so on? Or is/ was he just a kind of sleeping partner who invested money into the venture?

punisher5112

Your options as you know are pay him off or start up under a different name.

Businesses do this all the time and assure your customers you are only changing name and you don't need to give other information.

WreckingRalph

BarryD2 wrote: »

In fairness, going by above it would appear that he was working and contributing towards the business? You may have been doing the 'real front end' work and dealing with clients but he was presumably dealing with the back office end of things and funding and so on? Or is/ was he just a kind of sleeping partner who invested money into the venture?

This is what started the tension. He was not delivering. We agreed on his tasks, but he never accomplished them - he was responsible for doing the business plan, coming up with the sales and marketing strategies, finding new business etc. But he never delivered on any of these - he missed every single milestone and ignored or dismissed most of the deadlines. My role was fairly cut out - I did the work for which we delivered and invoiced to our customers.

I don't think I was being unreasonable - in fact - I was more than supportive and patient. If he just did what he agreed to do, then we would never be at this point and still be continuing to make plenty of money - and there certainly is plenty money to make.

BarryD2

WreckingRalph wrote: »

This is what started the tension. He was not delivering. We agreed on his tasks, but he never accomplished them - he was responsible for doing the business plan, coming up with the sales and marketing strategies, finding new business etc. But he never delivered on any of these - he missed every single milestone and ignored or dismissed most of the deadlines. My role was fairly cut out - I did the work for which we delivered and invoiced to our customers.

I don't think I was being unreasonable - in fact - I was more than supportive and patient. If he just did what he agreed to do, then we would never be at this point and still be continuing to make plenty of money - and there certainly is plenty money to make.

Presumably he will argue otherwise, that he worked on sales and marketing strategies, finding new business etc. Measuring success or otherwise of these is not so easy, over just a few months. Just looking at this from the other side and it may well be grey rather than B/W. But if it's irreconcilable, best to move on.

Victor

_Brian wrote: »

Set up your own business and start transferring clients over to this new venture.

This has to be done carefully.

Stationmaster

WreckingRalph wrote: »

Thanks for all the responses so far.

It just feels like such a waste to walk away. And even with that, there is a 50/50 chance that the customer will or will not follow me - because from their viewpoint they would be wanting to protect their own interests and a breakup like this never instils confidence.

The only bit that I am not 100% clear on yet is ownership of the intellectual property. My solicitor seems to suggest that, seeing that I am the author of all original (knowledge base) work, and I don't have any explicit agreement signed with the company, that it belongs to me. Yet another suggested that even though he is not 100% sure, he thinks it could be disputed.

Also, even though we have no debt, we do have a small bit of hardware (probably worth €2500). If the company gets dissolved, a liquidator would probably take that as the fees for the wound-up. Again, hard to see all this wasted because of someone's greed.

If the company has no liabilities and is voluntarily liquidating then the fees will be quite low (less than €1,000).

WreckingRalph

Stationmaster wrote: »

If the company has no liabilities and is voluntarily liquidating then the fees will be quite low (less than €1,000).

What happens to the assets?

Peregrinus

WreckingRalph wrote: »

What happens to the assets?

Whatever is left after liabilities to creditors, the costs of winding up, etc, are all paid (assuming there is something left) is distributed to shareholders in proportion to their shareholdings. In this case, I'm guessing, 50:50.

hullaballoo

This is one of the main reasons legal advice cannot be given on this forum. Some of the advice given here could land the OP in serious difficulty.

This is the kind of issue that requires specialist legal advice.

WreckingRalph

hullaballoo wrote: »

This is one of the main reasons legal advice cannot be given on this forum. Some of the advice given here could land the OP in serious difficulty.

This is the kind of issue that requires specialist legal advice.

Thank you - I am well aware of this. I am currently engaged with a solicitor, I am merely curious to find out if there are other options worth exploring.

Mr. Incognito

I think you need to speak to your solicitor.

If you dont have trust in him speak to another solicitor.

I could give you a detailed exit strategy but i charge for this in real life. i wouldnt type it out here for free

Nor would anyone competent so that leaves you with.....

WreckingRalph

Mr. Incognito wrote: »

If you dont have trust in him speak to another solicitor.

I have no reason to doubt him.

Mr. Incognito wrote: »

I could give you a detailed exit strategy but i charge for this in real life. i wouldnt type it out here for free

I wouldn't take free advice from anyone unless they are willing to show some credentials ...

BarryD2

WreckingRalph wrote: »

I wouldn't take free advice from anyone unless they are willing to show some credentials ...

Then why ask in the first place when you can't verify who's posting here? My sense of this is that it's tricky - two sides to every story and your partner may present a different view. Of course, that could be all bull but there might also be a few germs of truth in it. So who knows?

Glass fused light

Your a director and that comes with responsibility.

A good solicitor is your first port of call and as the other director is prepared to spend on legal fees, invest the time and money in getting this resolved.

The other director is not taking money out of the company bank account without permission unless they are acting in a way not allowed by the mandate. Your solicitor should examine this and discuss options.

To dissolve the company you need up-to-date financial statements and a list of debtors and most importantly creditors. Get an accountant to work out the creditors and other liabilities. IP is difficult one but if it's worth money as a director you can't let the employee (you) do a runner with a company asset.

While this is a very unfortunate situation to be in, you will hopefilly look back in a number of years time and realise that a start up will always be problematic where there there is conflict and no checks and balances to manage this.
Good luck

dccaresuckers

sue him

WreckingRalph

Glass fused light wrote: »

Your a director and that comes with responsibility.

I understand this - at the very least the CRO provides sufficient information as to duties etc, which I am obviously aiming to fulfil. My co-founding partner has completely distanced himself from his duties and responsibilities as director and employee.

Glass fused light wrote: »

A good solicitor is your first port of call and as the other director is prepared to spend on legal fees, invest the time and money in getting this resolved.

Unlikely, the business is still young and there isn't a huge amount of capital in the bank, so litigation might not be economical, in my opinion.

Glass fused light wrote: »

The other director is not taking money out of the company bank account without permission unless they are acting in a way not allowed by the mandate. Your solicitor should examine this and discuss options.

You are suggesting that he has a right to do so, even if he is not doing any work (in order to earn) it? At the very least, it is our responsibility as directors to ensure sufficient capital in the bank, for instance, to pay salaries and revenue. From what I rea, taking the last of the money from the account, might be an illegal act - like being in breach of fiduciary duties... I don't know - hence me talking to a solicitor to get clarity on this.

Glass fused light wrote: »

To dissolve the company you need up-to-date financial statements and a list of debtors and most importantly creditors. Get an accountant to work out the creditors and other liabilities. IP is difficult one but if it's worth money as a director you can't let the employee (you) do a runner with a company asset.

We have no debts, only work we do and get paid for. Small amount of assets but nothing noteworty. IP is all knowledge based, of which I am the author (and my career), and I have not signed any document transferring any ownership to the company. Eitherway, he is welcome to challange me on it - I understand that, as you say, it is very expensive

Glass fused light wrote: »

While this is a very unfortunate situation to be in, you will hopefilly look back in a number of years time and realise that a start up will always be problematic where there there is conflict and no checks and balances to manage this.
Good luck

Thanks.

I wonder how it would pan out if I did the same as my partner - just do nothing - not produce any work, engage with customers or deliver on deadlines. They might request their deposits back (of which we cannot return because the partner took the last of the money), or sue us (which is really not economical in the greater scheme of things). People will become unhappy, and the company will die a slow death until it gets struck off, I suppose.

That seems like such an easy way of life - to cheat honest hard working people out of their money. But I can never be like that, and my guess is that is probably what he is depending on. It is just mind-boggling that - as the person trying to do things "by the book" - there are very little to do in circumstances like this.

But like you say - moving forward - I'll ensure to cross all my t's and dot all my i's better.

Just in line with a previous comment, I understand everybody on this thread responds with their personal opinions, for which I am grateful. But I do not just accept everything as is and I'll ensure to verify with professionals before I use any of the advice given.

Glass fused light

WreckingRalph wrote: »

You are suggesting that he has a right to do so, even if he is not doing any work (in order to earn) it? At the very least, it is our responsibility as directors to ensure sufficient capital in the bank, for instance, to pay salaries and revenue. From what I rea, taking the last of the money from the account, might be an illegal act - like being in breach of fiduciary duties... I don't know - hence me talking to a solicitor to get clarity on this.

Two issues (contactual and directors) with regards to rights and you need a solicitor to explain your options.

WreckingRalph wrote: »

We have no debts, only work we do and get paid for. Small amount of assets but nothing noteworty. IP is all knowledge based, of which I am the author (and my career), and I have not signed any document transferring any ownership to the company. Eitherway, he is welcome to challange me on it - I understand that, as you say, it is very expensive

Work product of an employee
Obligations of both directors.

WreckingRalph wrote: »

Just in line with a previous comment, I understand everybody on this thread responds with their personal opinions, for which I am grateful. But I do not just accept everything as is and I'll ensure to verify with professionals before I use any of the advice given.

Don't rely on any advice given here go get professional advice on how to extract yourself from the company eg how to sell off assets (IP, contracts) how to pay off debt and close the company.

dccaresuckers

this tread was very serious.
i tnhink its been closed

nuac

Mod
Closed for mod review