Who has greater authority over company property - major shareholder vs co. director?

[martinRPS]

Many years ago, I signed a web development contract with John Smith, owner and sole director of Small Company Ltd.

The contact was agreed directly between myself and John (as opposed to being 'on behalf of' Small Company Ltd). It didn't specify the exact work to be done, just some general T&Cs, and that I would carry out X hours per month

5 years later, Small Company Ltd sold a minority shareholding (say 25%) to Jane Jones, who came on board as a second director.

1 year later, John Smith resigned as a director but maintained the majority shareholding of 75%.

Jane Jones and Fred Smith are now in a dispute over the company's social media accounts and I am being given conflicting instructions. I am inclined to follow the instructions of John Smith, as he is my longstanding client and we have a good relationship. (I am aware this may hold little water legally).

John Smith is the one who pays my bills, but from the company bank account.

If I make the requested changes to the social media accounts I am worried about getting into trouble for messing with 'company property'.

My questions are:

- Does John still have any authority over company property as the majority shareholder?

- Or does Jane Jones trump him, as she is a director?

- Does the fact I signed the contract with John Smith directly have any relevance as he is no longer a company director?

[R0b]

Directors have overall day to day running of the business, make decisions as to how the business should be run etc. Shareholders are the ultimate owners of the company of which directors will report into them.

You've said that the contract is between John Smith and yourself directly and if that we are to take what you have said literally, then Small Company Ltd is not privy to the contract as it is personal between you and John Smith, not Small Company Ltd. Unless you mean the contract is between Small Company Ltd and yourself, and the contract was signed by John Smith on behalf of the company.

I'm a bit confused however, because you refer to Jane Jones and Fred Smith are in a dispute but then you go on to say that you are inclined to follow the instructions of John Smith. When you said Fred Smith did you mean John Smith? If not, what part does Fred Smith play in all of this?

Assuming you meant John Smith and not Fred Smith, you should follow the instructions of John Smith as he was the contracting party. If, however, the contracting party is Small Company Ltd, then I think you ought to follow the direction of Jane Jones as she is the only director of the company following John Smiths' resignation.

As above, directors have day to day running of the business, not the shareholders. If John Smith isn't happy with the way Jane Jones is doing things, he can, as a majority shareholder, remove Jane Jones as a director (through a resolution) but he would need to appoint a new director as there always needs to be one director of a business.

[martinRPS]

Assuming you meant John Smith and not Fred Smith...

Correct - sorry about that. I had been trying to simplify the post, but I think that backfired on me.

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The purpose of the contract is to perform work for Small Company Ltd. However the contract is between the two individuals directly.

An example:

John Smith wants me to make Small Company Ltd's website red. But Jane Jones says please leave it pink.

If I make it red, I am going against the wishes of the company director. But if I leave it pink I am not following through on my contract with John Smith. who is still the majority shareholder.

Which course of action could land me in the most hot water?

[des8]

....and now it is even more confusing.
Does pink actually exist as a colour? A lot of scientific debate over that regarding the colours of the spectrum and how the brain interprets what the eye sees!
And any way pink is only a tint of red, so use a dark pink and satisfy nobody. lol

[martinRPS]

lol, obviously just an example. I personally would opt for bright blue text on a green and black bg

[R0b]

I think the starting point is to go back to the web development contract you signed, but as we don't know what the terms of the agreement were, its difficult to actually help you. It seems odd that the director would contract personally rather than for and on behalf of the company.

Therein lies the predicament, and really difficult to say what you should do and I guess it would be a matter of interpretation. John Smith is obviously the contracting party (which he would be personally liable) but the services are for the benefit of Small Company Ltd and therefore one argument is that John Smith entered into the agreement on behalf of Small Company Ltd and since he is no longer a director but a shareholder, your instructions to follow would be Jane Jones.

On the other hand, the opposite argument may be given in that despite the work being carried out for the benefit of Small Company Ltd, you should follow all instructions from John Smith since he is the contracting party.

Its difficult to say anything without actually seeing the terms of the web development contract. We know that John Smith is no longer a director (but presumably he signed it when he was a director?) so logically, it would make sense to follow Jane Jones as she is the only director now for Small Company Ltd but strictly speaking, the contract is with John Smith and if you don't follow his instructions, you may be held liable.

Have you considered terminating the agreement and re-entering into a new one where the contracting party is Small Company Ltd? Or have you considered suggesting not carrying out any work due to conflicting instructions being given?

[martinRPS]

Many years ago, I signed a web development contract with John Smith, owner and sole director of Small Company Ltd.

He was the only director at the time I believe. I'm not 100% sure.

The circumstances of the situation are extremely unusual (and I kept some of the crazier stuff out to simplify).

JS has been a very good client of mine (financially and personally) for many years, so I wanted to do as he had asked. But I didn't want to get in trouble by going against the company director. But they are now bickering among themselves about other stuff, so thankfully I haven't had to act either way.

Thanks Rob, for your advice and insight. I was pretty lost at sea and your comments have given me some perspective.