# Limited Company, One Director giving problem!



## Rock123 (23 Oct 2008)

Hi everybody,

I need help on information for one of my dear friends. My friend has a limited company in partnership with another guy, so each of them hold 50% shares of the company.

The other director of the company almost vanished from company before two years for about a year as he was busy building his property portfolio, in the mean time my firend still kept of pushing company and booked some goods profits.

The other director comes back at the start of this year and is giving trouble to almost everybody in the company the reason is that his properties are down in price and now he want money from the company to pay banks for his own property portfolio. So he is after people in the company who make good money, he is insulting them, bullying them...so they have no other choice except to leave...

My friend who is the other director has a family and he knows that if his partner keeps on coming and disturbing the company operations, then company will go busted....

Is there any way that my friend can stop his partner from bringing the company down...

any advice or suggestions are very welcome...

Thanks


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## MOB (23 Oct 2008)

Your friend needs a good solicitor.   He needs to confront this behaviour;  But make sure you have the full story before offering advice.  For example, did the troublemaker put in money to the company? More, perhaps than your friend?  Is there a possibility that both hold - in good faith - different views as to what the company's priorities should be?


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## Rock123 (23 Oct 2008)

Hi MOB,

thanks for reply,

The other director did put money in company in the start which was in year 2001, but he took almost all the money out of the company to pay deposits for his property portfolio in 2006....so basically the money which he invested in the first place, he has taken it out already....

now he is getting a fixed wage of a director, he does not turn up to work at all sometimes, and now because he needs money...he trying to get rid of managers which are on good wages so that he can give himself a pay rise or may be take a good chunk of money from company as bank are after him for mortgage payment...

is any sort of technical of legalized body or an authorization which my friend could consult to....

thanks


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## Pique318 (23 Oct 2008)

Isn't taking company funds for private ventures illegal ? Apart from dividends of course ..


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## Rock123 (23 Oct 2008)

is it really illegal, can you report this to somebody......

or can my friend take any action on this....

the bottom line is....that my friend wants to stop this other man's effort to bring the company down....

thanks


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## tatler (23 Oct 2008)

Hi Rock,
I advise not going down the legal route. They are partners and positions become more entrenched than and adversarial than in a divorce. (I Know)
Best advice is for them to have a meeting and see if he (or indeed one or more of the management team) can buy him out.
In a small company I would suggest that the auditor and/or solicitor be given the task of mediating if things get too heavy.


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## papervalue (23 Oct 2008)

What type of business is it?. 
1.Is it possible to leave and set a new company with key staff or is it out of question?
2.Sell your share. 
3.Is it possible to buy out present director share?.
4.What does shareholder aggreement say-or is their one.


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## Rock123 (23 Oct 2008)

Thanks for the reply,

My friend has tried his level best to sit down with this guy and see if he can buy him out, this guy wants around million for him, thought the real worth is around 200-250k according to evaluators and auditors....

and specially looking at the present economic climate...it will be hard for my friend to buy him out....

is there any other way that my friend can bar this other man from company for a certain period of time...may be this will stop him in bringing the company down....

thanks


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## Rock123 (23 Oct 2008)

papervalue said:


> What type of business is it?.
> 1.Is it possible to leave and set a new company with key staff or is it out of question?
> 2.Sell your share.
> 3.Is it possible to buy out present director share?.
> 4.What does shareholder aggreement say-or is their one.




1. It is possible to set up a new company but my friend hasn't got enough funds at the moment.
2. Can my friend sell his share to somebody else...what is the other man did not agreed?
3. The other director is asking for crazy money which is impossible .
4. It is a reatail business with one of the best location in the country...


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## papervalue (23 Oct 2008)

I would not think their is any thing to stop him selling his shares, He could offer the other director first refusal and them offer them to a third party. 

If the business is cash rich get both legal and accounting advice of the best thing to do.

The best thing is to meet accountant and solictor and go in with a load of questions to clarify position and go from their.


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## nuac (23 Oct 2008)

Was there a shareholders' agreement on setting up the company?   

If so this may have provisions re dispute resolution.

try to arrange mediation by someone with businees/commercial law/accounting experience.


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## asdfg (23 Oct 2008)

Any help here Remember your friend is the shareholder/remaining shareholder


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## Kate10 (28 Oct 2008)

Hi Rock,

A good shareholders' agreement would contain an "offer round" procedure for buying each other out.  In other words, if one person wishes to get out, they would offer to buy the other for a price they set.  If that person does not wish to sell, then they must buy out the offering shareholder at the price offered.

Do you know what I mean?

This is triggered usually only in particular circumstances.

Both director-shareholders should also have Directors' Service Agreements - ie. employment contracts for directors.  These contracts would require them to behave in certain ways.  If one of them is not complying with their contract the contract can be terminated, which again might trigger a requirement to sell the shares back.

All of this documentation should be put in place when a company like this is set up.  Unfortunately, it often is not, as people are reluctant to pay the relatively tiny legal fees.

Your friend needs to go to see his solicitor and discuss the matter.  There are very complex provisions governing director's duties, and shareholder rights and responsibilities set out in legistlation, even if the proper contracts weren't set up in the beginning.

There is a lot your friend can do, but I can't advise on the limited information available on a public forum.

Your friend should see a good solicitor with experience in Company Law.

Good luck,

Kate.


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## BurritoQueen (3 Nov 2008)

Joining/Lcreating A limited company or company as a co-founder with another person is like getting married....only without the months/years of courtship period when you get to know each other. I'm in 100% agreement with Kate10's comments especially _'There are very complex provisions governing director's duties, and shareholder rights and responsibilities set out in legistlation, even if the proper contracts weren't set up in the beginning'._

How were the Shareholder and Memo and Arts and Director agreements written? were they just off the shelf? Did they engage a lawyer and mutually go over the details of the company legal structure such as compensation and the rules and regulations surrounding the withdrawal of company funds for personal use outside of the (clearly defined?) Directors fees and employment salary and dividend release structure? 

Why did the Board allow the withdrawal of company funds outside of the dividend release agreement? Was it taken as a 'personal loan'?  Did all the Directors get an equal value of company funds released at the same time?  

Did the Board have a meeting and authorise the release of these funds to only ONE Director?  Do they both have the same 'value' of shares ( A versus B, common versus preffered). Do they have the same voting rights on the board? 

Are there Board minutes in which the responsibility and corporate duties of each Director are defined, agreed and voted into the company mandate? Usually just becasue you're a 'Director' doesn' mean you're automatically allowed to run around the company operations bothering employees, customers etc. Who is the MD/CEO? Directors meet regulary and direct the governance of the company and puidance and provide guidance to the MD/CEO NOT all the employees, just the senior manager during the 'Director/Manager' Board meetings. 

Sounds like they need service of a 'corporate managment advisor' rather then a lawyer. But when a person is burdaned with increasing financial pressures they often are responding to trying to find a solution to their own problem at any cost.....not intentially trying to be a 'bully' but perhaps manicaly searching for a way out of their situation and incorrectly trying to grab some quick cash money from 'their' company. 

BTW: In my American/International business experience...never, never, NEVER get into a 50/50 business relationship with ANYone.....it's a recipe for disaster. Someone must be the 'point-man' the final decision-maker the 'tie-breaker'....the most common conflict issues that have often stalemated the foreward movement of a business were when 50-50 owners who couldn't agree. Goodness you can have 50/50 'equal' salaries or 'equal' dividend allocation or whatever but not in ownership......somebodies gotta have the majority....in my opinion.


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