Share dispute

M

Morton

Guest
Hi
Any advice appreciated

2 directors run a business that is profitable from day 1 and has accumulated profits . Majority shareholder decides to go off and set up another company and gifted the minority shareholder a minor share in this new company. The majority shareholder had total involvement in company 2, the minority shareholder had no involvement.

New company loses money 2 years running and has an accumulated loss.
Is the minority shareholder of the first company liable for part of the losses of the second company?

There was no agreement that this would be the case. Company 2 was not run particularly well. Can the majority shareholder force the minority shareholder to share the losses?
 
Hold on are you talking about Limited Companies?

The clue is in the name - LIMITED company, as in the liability of the shareholders is limited to the amount of the shares they've subscribed to.
 
Hi Mandelbrot,
Thanks for taking the time to reply. My concern was not being reasonably liable as yes both companies are limited.

Example
Mr a and mr b start a company (compan 1), mr b is majority shareholder. After 2 years accumulated profits are 400k


Mr b starts a related company (company 2) and although mr a will not be involved, mr b gifts a minor stake in recognition of his part to play in company 1.

Mr b does not run company 2 particularly well resulting in say net losses of 200k. Would it be right that mr a would have to pay his share of those losses from his accumulated profits in company 1. I wouldn't have thought so but just wanted to get another opinion
 
I don't see how a shareholders' agreement could impose liability for the debts of one limited co. on another company. Because that is what the OP is suggesting - it's irrelevant that the shareholders in the two companies are the same individuals; OP seems to be talking about money being extracted from company 1 to cover the losses in company 2.

In the absence of a "golden share" type group arrangement being set up, they won't be able to do it (legally) anyway.
 
I mention the shareholders agreement as this is the one document that governs the relationship between shareholders in this type of company and this is what seems to be the kernel of the issue here.

It hasn't been said clearly by the OP but my guess is that the dispute revolves around what was agreed at the outset of the 2nd company.
Most likely there are some issues surrounding the financing of the 2nd company, personal loans, guarantees, etc etc. Most of these issues should be bedded down in a good shareholders agreement.

For all we know the story from the "other" shareholder is at odds with the OPs story. I sincerely doubt that we have the full story or both sides of the story
 
Mr A is a minority shareholder in Company 2.

It is a limited liability company.
The shareholders' liabilities are limited to the share capital of the company, so Mr A has no liability beyond this, unless

Mr A has guaranteed the loans of Company 2.
Mr A is a director of Company 2 and the company has traded fraudulently. If Mr A is just a shareholder and not a director, then he has no liability.

Indirectly, Company 1 may have guaranteed the liabilities of company 2, so the accumulated profits of €400k could be at risk.

Brendan
 
Thanks folks

Importer
Naturally you don't have both sides of the story. I am looking for advice, not support.

Company 2 is funded by the majority director. There are no personal loansa, guarantees etc etc. It is clear cut.
There is no mention of any funding in any shareholder agreement or anything so I am just looking for confirmation that while majority shareholder has funds to continue to invest in company b, I would not find it acceptable that a minority shareholder (gifted shares) would be expected to pay towards from funds in company 1.

Thanks brendan, no issue of fraud, just a director that has ran with an idea for a business and does not run a tight ship.
 
OK, so its getting a bit clearer now

Company B is in deficit and the majority shareholder (in both company a and company b) wants to take "funds" from Company a to fund company b.

What is the nature of this funding ?
Does the majority shareholder want company a to grant company b a loan ?
Does the majority shareholder want company a to take shares in company b
Does the majority shareholder want company a to give a gift of funding to company B

We dont know what % majority, the majority shareholder holds in company a, but if it is greater than 75% then he can usually make any decision he wants about what company a does with its funds.

Am I on the right track here ?
 
OP, I think maybe the terminology used in this thread is causing some confusion.

Lets say your friend owns 25% of company a. This means that he owns 25% of the share capital. It does not mean that he owns 25% of the accumulated profits although I do understand why he might think like this.The accumulated profits are not his. The accumulated profits belong to the company.

Decisions in a company are made by its directors and the directors are ultimately appointed by its shareholders. A shareholder with 75% stake has pretty much full control in a company.

In your example, if the majority shareholder holds > 75% shareholding
in company a, then that shareholder has sufficient power to decide what that company does with its funds. A minority shareholder really doesnt have much power or say at all.

So if I understand it correctly when you asked a question whether the minority shareholder in company a is obliged to invest funds from company a into loss making company b, I think what you really mean is :
Does a majority shareholder in company a (> 75%) have the power to invest funds from company a into company b, then the answer is , most likely, YES.

The accumulated profits belong to the company and the company is fully controlled by a > 75% Shareholder
 
Does a majority shareholder in company a (> 75%) have the power to invest funds from company a into company b, then the answer is , most likely, YES.
Click to expand...

I would have thought that the answer to this is most likely, NO.

A company cannot just give money to another company.

A majority shareholder cannot make a decision which oppresses a minority shareholder.

The majority shareholder may control the company, but the directors must act in the best interests of all the shareholders.

It may be difficult for a minority shareholder to enforce their rights, but if a director abused his powers, the minority shareholder could report them to the Office of the Director of Corporate Enforcement.
 
Brendan

In my experience, a 75% shareholder holds the cards ALWAYS.

Its all very well saying that a minority shareholder cant be oppressed.
Enforcing it in a court of law is nigh impossible.

The directors have a fiduciary duty to act in the best interests of the company and if the majority director in this case says that he believed that investing funds in the shares of company b presented an "opportunity" for company a, who can say that he was not performing his duties diligently.Who can really contradict him........

Minority shareholdings are not good news. Full stop.
If anyone can point to any case where a minority shareholder has
won out against a majority SH, Id be genuinely gobsmacked, shocked.
 
Importer said:
If anyone can point to any case where a minority shareholder has won out against a majority SH, Id be genuinely gobsmacked, shocked.
Click to expand...

In the case of One 51, didn't the minority shareholders create a hell of a fuss that the Management have to take notice and act accordingly.
 
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