50/50 shareholding in limited company and problems with former director over money!

[Kouroush]

Good morning!

I recently started purchased a small takeaway with someone I give a brief history before asking the question.

Limited company was established with equal shares between me and ex Busieness Partner.

My Partner loaned around £50K to help complete the purchase of the business to our Limited Company.

I contributed around £30K in buying equipments etc

After only 3 months my Partner resigned as a Director and is now demanding his money!!!

The business has no money to pay him back. I dont feel that he should have ranaway from our joint responsibility simply because business is not doing as well as anticipated and CEMAND his money!!!

I want to know where I stand legally and what my rights are over this issue and WHAT his rights are and WHAT can he do legally if the new company CANNOT pay him back!!!

Would appreciate and light anyone can shed on this!

Cheers!

Kouroush

[bubblewrap]

Hmm.. I might be wrong here, but this is a limited business with shared personal capital brought in; money wasn't loaned by anyone (a financial institution) to the business; but to the both of you?

Essentially, I believe you only owe him 50% of the value of the business to buy his shares. Otherwise he still owns 50% of the business. He can't force you to buy his shares can he? I mean he owns something (even if business is worth nothing, he owns 50% of nothing).

Current active assets would lead me to believe that in order for you to buy him out (if that's what you want to do), you'll need to get the business valued and you'll need to pay him 50%. But that's only if you want to buy him out.

Resigning doesn't mean loosing your equity.

I reckon you'd need to speak to a solicitor/accountant ASAP. Don't take my word for it; but there's no demands in 50/50% equity shares. Only suggestions, hopes, and a lot of convincing.

Sorry to hear that you're having trouble. Wishing you luck in both resolving that issue swiftly and problem-free (and cheaply).

Elie

Originally Posted by Kouroush

I want to know where I stand legally and what my rights are over this issue and WHAT his rights are and WHAT can he do legally if the new company CANNOT pay him back!!!
Kouroush

[LimeLegal]

Definately one to discuss first with your accountant as to the valuation of the business. Normally a start up is worth less or the same as the share capital.

You then should take legal advice and we can help there, but the first question ANY lawyer will ask is what is the value of the business. It is absolutely core to any legal work to keep it commercially 'real' for both parties.

[DesignandMake]

You must take advice from those that really know is the best advice anyone can give here.

Seems to me though he's trying it on, unless he has a written agreement that you owe him money.

[Iggy]

I wouldn't go as far as getting all "legal" right now. Someone who knows the business, perhaps your accountant, could be a useful third-party to get any problems sorted as well as to give you both a fair view on what the implications of any break-up of the business will be.

Although it's of no use to you now, it is worth remembering the good advice of many business consultants and gurus - someone has to be in overall charge (i.e. more than 50%) which is also why 50/50 partnerships are a bad idea too. Hope it gets sorted for you soon.