My co-director has just dropped a bombshell - she wants out

[EYEZIK]

Hi there,

please can someone help me - my ex-colleague and i started a business 3 years ago. She had no managerial experience so i ran the company and we now employ 8 staff. The business is a going concern and we both recieve very good dividends each year - in excess of 30k. The business is such that we both have to work full time providing 'our service' - so basically we make the money from our own work and from top slicing the money that we charge for our employees labour. Well just a few days ago, my 'friend' just let it slip that she wants to leave and that if I don't pay her 30k she will force the dissolution of our company. The company, nor I can afford to pay this money and the business will suffer (profits) when she is no longer working (hiring someone else to fill her shoes in not a solution). So what do I do?. She wants to leave at CHristmas. I worry about the other staff members - to tell you the truth I feel sick. Can she do this? PLEASE HELP ME

[JamesS]

Whats the share of ownership between the two of you?

She won't be able to dissolve the company by herself. Even more so if you have taken control over the general company operation, i.e. accounts, companies house filings etc.

[EYEZIK]

Hi James,

we both have 50% each.

[Peter Bowen]

This is a tough one but all is not lost.

I've been through an unfriendly split and know it can play havoc with your life. Right now there are a whole lot of emotions floating around which probably make it difficult for either of you to manage the process in the best way.

If it's not too late you probably want to ensure that this news remains confidential (from staff and customers) until you can present it in a way that won't harm your future prospects.

If you have a partnership agreement or some other founding documentation it may deal with how the business is to be divided. If it is specified you will be bound to follow these terms.

If you're able to do so the first thing you should try and find out is what your ex partner really wants. Is she planning on stopping work, working in another field, competing with you? The answers to these questions will help you determine how you will handle the process.

Has your company committed to anything like leases, hire purchase arrangements etc that have either of you as surety?

Dissolution of the company might not necessarily be such a bad thing if it can be done properly. You can also start another company doing exactly the same things and hire in the best from the old company and cherry pick the best clients.

It's time for reflection and perhaps some professional advice


Good luck


Pete Bowen

[bwglaw]

You do need to take specific legal advice. A lawyer can advise you, assist with negotiations and draw up agreements to effect the termination of the Director. This will ensure minimum disruption to your business.

Are you both Directors/Shareholders of a Limited Company? Or are you both Partners in a Partnership?

Happy to advise further if you email direct

Jonathan

[EYEZIK]

hi there,

we are both equal share (50%) directors of a private limited company.

Thanks

[bwglaw]

Still need specific legal advice and for any documents to be scrutinised i.e. articles, shareholder agreements, etc. Given that there is time before the other Director leaves then you need to get pro-active by getting legal advice, start the negotiations and get a deed drafted and agreed to prevent the matter getting messy.

The Director, if a shareholder will be entitled to any unpaid dividends, subject to any resolutions saying otherwise.

[EYEZIK]

hi there, since my last post my co-dircetor has said 30K or forget it and she wants to close the business down. No negotiations - 30K plus dividends or nothing. Our mem of articles just says that she must sell to me and no-one else. These is no other agreements in existence and the likelihood of putting one in place seems impossible now. This is so bad. She now has informed mye that she has an appointment for us with the accountant to dissolve the company. Can she force me to do this or can i force her to remain with the company as a silent partner and I get a managing director salary. Thanks for reading the ravings of a mad woman - sorry

[Peter Bowen]

I can well understand why you're a mad woman but lets look at one possibility

Can I suggest that for your own peace of mind you get professional advice on this one. I know it hurts to pay a lawyer but you're going to lose way more in lost business and sleep than the cost of a consultation.

Let's assume that she can close the company down (and I'm not sure that she can) and that the hassle in fighting her over this is not worth it. What does this mean to you personally?

Assuming that there are no nasty clauses in your agreements and that the company doesn't owe her money that you have guaranteed. Then, as far as I can see:

1. You won't have to pay her asking price
2. Whatever proceeds come from the sale of the business are divided amongst the two of you
3. Whatever personal sureties you signed on behalf of the company disappear
4. You can start another company doing exactly the same as you were before but with all the experience that you've gained over the last few years.

None of this sounds too bad to me?

Cheers


Pete

[bwglaw]

In any event, if the company does not have £30k in reserved profits then she won't get it. Start negotiating now with the advice of a lawyer.