Partner selling shares privately

[Julynian]

Hollo people

Ok I am a director of 2 ltd companies and a partner in one LLP All three companies are closely linked in the services they supply. All 3 companies are suffering a severe downturn in trade. The biggest of the 3 companies has 2 directors myself and business partner. My business partner recently announced that he wanted to concentrate on a new business he set up and offered to sell his 50% share of the company to me, as we always agreed we would offer eachother first. However no other agreement other than the Articles Etc

Basically the business is worth nothing due to the recent downturn it's suffered, in fact it's now nearly £20,000 debt although at the time of the offer a lot less, I still declined his offer of sale as I expected this downturn to worsen as it has.

I month later he informed me that he was selling half of his 50% share to a friend, a private sale. Soon after I found out that the sell price was £10,000 Which I was astounded at, as I wouldn't pay £1.00 for the shares LOL. The transfer of my business partners shares are currently in progress, and I will need to sign off the already filled in share certificates.

The problem is that today I spent the whole day assessing the financial situation of the company, and under the rules it's clear that the company is no longer viable as it's debt levell has now surpassed any asset value.

I met the proposed purchaser of these shares yesterday, and enquiried glibly, (you do know what you're buying in to do you) a little taken aback he said yeah. And a meeting between the purchaser and my business partner went ahead in my absence.

My problem is, that it's blatantly clear that the information this purchaser has recieved from my business partner must be very far from the actual truth as to the real trading situation of the company. In fact in last months board meeting on the agenda was the discussion as to the viability of the business and there should be a full audit of the companies finances and it's viability, which as stated i finished today. The next board meeting was due to happen on the 23rd June. However in light of the figures gleaned today I have now requested that the board meeting be brought forward to the coming tuesday. That's the earliest it could be arranged as we have a business & tax advisor that chairs the meetings, only recently taken on following a decision to gain some expert help. Unfortunately he's unavailable until the actual day of meeting on the 8th, and I want to go into this meeting well prepared and armed with good information.

My basic questions are as follows.

1. If I'm aware that the sell of these shares by my business partner to a third party is possibly based on misinformation given to this purchaser as to the true state of the company, do I have a responsibility to inform the purchaser of those shares.

Of course morally I think I should.

2. Do I have a right to object to the sell of shares to a third party or block them. I do have to sign off these shares aparrently according to our advisor.

In addition we recently had a rival company offer to buy us out. The offer was small so we declined. (hindsight LOL) We have a good relationship with this company, and they are weathering the downturn a lot better than us being a larger company who's international services are keeping them well afloat and I know they would love a foot hold into our location. I will have to suggest at the board meeting that the company is no longer viable, and under the rules there's no doubt that the company has to be put into liquidation. The rival company mentioned may well be interested in taking our company over, possibly absorbing all the debt and purchasing the company for a token sum. This would be much more preferable than going into liquidation, however if my business partner objected to giving the company away for a token sum, could he force a liquidation?

If he did this, wouldn't the rival company have the option to do so from the liquidator anyway?

I know this last question seems daft, but there's some information that I can't give that makes the question very relevant.

[MikeH]

I will try to help on a few of the basics.

1. The sale of the shares is a private agreement between the two shareholders. You are presumming that there was misinformation, there maynot have been. I do not believe that you are under any obligation

2. Your Mem & Arts may have clauses regarding the sale of shares to a third party. Many state that they should be offered to other shareholders. It may be argued that you were offered the shares. If you have concerns about the new shareholder then you may need to get professional legal advice.

[Julynian]

Hi Mike

Thanks for the reply, I managed to speak to our advisor today and he's basically said the same.

My main concern was any comback if this person bought shares in a company that was failing but was unaware of that fact. It seems that's an issue for him and the seller, buyer beware LOl as I he hasn't requested information from myself, and i haven't parted any.

It seems also that I can object to the shares being sold under certain grounds, the information i got today was over a mobile phone conversation which was intermittant so can't remember the grounds for objection, but is somewhere in the Mem & Arts aparrently.

I've browsed them earlier,but couldn't find a specific answer, but it's there somewhere I was told.

Anyway thanks again.

[MikeH]

It will be in the Articles, most likely under 'transfer of shares'. There may/should be something relating to pre-emption clauses. However, some M&A supplied by formation agents are not very detailed. Our M&A docs are about 8 to 12 pages long depending on the company. We see many versions only 2 pages long.