Shares from a private limited company

[DCASTLE]

Hello all

I am in a very awkward situation and I wonder if someone can give me some advice please.

I setup a company with 3 business partners 8 years ago. We are all directors and have the same amount of shares in the business. Two months ago, I decided to leave the business, so I told my fellow directors about my departure and I asked my company to buy my shares back. As soon as I have said I was going to leave, my fellow directors have not invited me to any directors meetings anymore. I did not know they were not allowed to do that until I spoke to someone who knows a bit about laws.

Anyway, 3 weeks after my leaving annoucement, I was called in to a directors meeting for the first time. In the meeting, I was presented to a piece of paper which turns out as a fake/make up balance sheet. Basically I was told, based on this fake balance sheet, the business could only offer a small amount of money to buy my shares. It worked out 40% of what I was entitled to. I told the fellow directors I needed to consult some legal advice first, so I took the fake balance sheet away and left the meeting.

I spoke to the same friend who I mentioned here earlier, he told me not to resign as a director yet because once I have resigned, the fellow directors do not need to include me in a directors meeting. After another month passed by, I have still heard nothing about my shares, so I asked the fellow directors about it again and again every few days.

I have set my final day at the company, it was on Friday just gone. When I asked about my shares again before I left the building, I was told by the fellow directors that the company will not look into it currently. The reason being is the company may lose a major account in a few months time. Therefore the directors do not want to pay me any money for my shares now just in case the major account goes and the company folds, then the remaining directors will end up with nothing. I told the directors that they are basically using my money to gamble the future of the business even I have made it clear that I am out now.

So now I am stuck in an awkward position that the business has not bought back my shares, I am no longer working for the business but still remain as a director and a shareholder. And also, the fellow directors are using my money to gamble the business’ future against my wish.

In such sitation, what can I do to resolve my shares? I really prefer a clean cut from the business, but I do not want to resign as a director until I have my shares bought back by the company. How can I make the fellow directors/my company buy back my shares?

If anyone can give me some clues of what I can/should do next, that would be very much appreciated! Thank you!

[des8]

I doubt there is anything you can do, unless the articles of association cover this point.
You cannot force the directors nor the company to buy your shares.

It is a bit unfair IMO to accuse your fellow directors of gambling with your money.
Buy shares in a company and you are a shareholder for profit or loss, and there is no guarantee of being able to sell at any particular time.

Did you have any knowledge that the company was on the verge of losing a major account?
As a director should you have this knowledge?
If you did there could be an argument that you have insider knowledge and hence want to bail out

Not accusing you.... just pointing out how it could look from a different perspective.

[2222]

It is quite common for the articles of a small company like this to have provision for shareholder exit. It depends whether the company was carefully formed by professionals with the long view in mind, or whether you just grabbed the nearest shelf company when you were busy setting up the business.

Anyway, the way forward is to look carefully at the memo and arts. It may also say whether you are entitled to act as a director. Did you specifically resign your directorship, or were you voted out? Or have you been excluded without them bothering with the formalities?

As to valuation, clearly that depends on asset values and long-term prospects. The prospective loss of a major client can affect both. For example, the value of intellectual property depends on whether the company will continue to have enough business to utilise it.

When couples get divorced, there are countless small companies that are apparently just a stone's throw from receivership until the day after the divorce settlement is finalised. This is no different, and it would be absolutely standard practice for your co-directors to exaggerate the likelihood of the major client being lost and the likely effect on the business.

[DCASTLE]

I doubt there is anything you can do, unless the articles of association cover this point.
You cannot force the directors nor the company to buy your shares.

It is a bit unfair IMO to accuse your fellow directors of gambling with your money.
Buy shares in a company and you are a shareholder for profit or loss, and there is no guarantee of being able to sell at any particular time.

Did you have any knowledge that the company was on the verge of losing a major account?
As a director should you have this knowledge?
If you did there could be an argument that you have insider knowledge and hence want to bail out

Not accusing you.... just pointing out how it could look from a different perspective.

Hello and thanks for your comments...

Regarding the bit that I said the fellow directors are gambling with my money, the reason I said that is because I gave my notice at the beginning of December, I agreed to stay for 3 further months so the company could arrange whatever it needed. At the beginning of the 3-month period, I have informed the other directors that I would like my shares to be purchased.

We had 2 meetings in total to discuss my shares. In the first meeting I was offered £30k to buy my 24.75% shares based on £280k in the shareholder fund. I rejected the offer. Two weeks later, I called for a meeting to discuss my shares situation, I proposed to sell my shares at £62k. The other directors rejected my proposal. At that time, as far as I knew, the company was operating as normal but in the final 2 weeks of my serving, I heard that a major account of my company was planning to go somewhere else. Therefore I was told that my shares situation will not be looked at again until the company knows whether the major account stays or goes. I started my shares negotiation 2 months before the threat of losing a major account, so it is not a matter of me knowing the major account may go then I wanted to sell my shares.

The other directors simply do not want to buy my shares now just in case the major account goes and they will end up with nothing. But I announced my leaving well before the drama happened . The fellow directors were interested to buy my shares but now they force me to stick with them so we ALL lose everything together if things go bad, I just don't think that is fair to me.

I am entitled a £69k profit share if I remain with the company. But now I leave and sell my shares, the fellow directors offered me £30k, how does that work?

You are right that the company doesn't have to buy my shares, but I discovered the fellow directors were planning to set up a new company between them so that they could transfer the assets from my company to their new company, they were aiming to de-value my company. If you were in my shoes, what would you do?

I don't see you were accusing me, and I am more than happy to explain my view.

[DCASTLE]

It is quite common for the articles of a small company like this to have provision for shareholder exit. It depends whether the company was carefully formed by professionals with the long view in mind, or whether you just grabbed the nearest shelf company when you were busy setting up the business.

Anyway, the way forward is to look carefully at the memo and arts. It may also say whether you are entitled to act as a director. Did you specifically resign your directorship, or were you voted out? Or have you been excluded without them bothering with the formalities?

As to valuation, clearly that depends on asset values and long-term prospects. The prospective loss of a major client can affect both. For example, the value of intellectual property depends on whether the company will continue to have enough business to utilise it.

When couples get divorced, there are countless small companies that are apparently just a stone's throw from receivership until the day after the divorce settlement is finalised. This is no different, and it would be absolutely standard practice for your co-directors to exaggerate the likelihood of the major client being lost and the likely effect on the business.

Hello and thank you for your comment too.

I sent a copy of my company's AoA to a solicitor friend, she went through it unfortunately there is nothing mentioned about shareholder exit.

I am entitled to act as a director and I have not yet resigned as a director cos my solicitor friend warned me if I am not a director the other directors do not need to invite me for any director meetings. This is where the dodgy activities happen. The company secretary is no longer doing minutes in meetings. She was told by our so-called 'whiter than white' accountant not to do minutes if we were going to discuss things that cannot be shown in the court. I think that is a very bad unprofessional advice. Anyway that is a different problem of my company.

I do see the affect of losing a major account to the company, but no one knows what will happen in the future, when should I stop and decide that is the right moment to sell my shares? I have been working with these guys (fellow directors) for over 11 years, I am shocked to see the way they treat me now.

[des8]

Taking the minutes at board meetings is a legal requirement in the UK. Directors can be held criminally liable for non-compliance
The Companies Act 2006 mandates that accurate minutes be kept on file for 10 years. Failure to do so is punishable by fines, or, if there is specific director responsibility, criminal charges could be brought against the negligent director.

Perhaps the other directors should have their responsibilities brought to their attention.

I cannot see that you can do anything about your shares.
You want to sell, they don't want to buy!

[DCASTLE]

Taking the minutes at board meetings is a legal requirement in the UK. Directors can be held criminally liable for non-compliance
The Companies Act 2006 mandates that accurate minutes be kept on file for 10 years. Failure to do so is punishable by fines, or, if there is specific director responsibility, criminal charges could be brought against the negligent director.

Perhaps the other directors should have their responsibilities brought to their attention.

Thanks again for your comment.

While you have flagged it up about the the minutes should be taken at board meetings, just thought to give you another example of what the fellow directors have done illegally here.

When I was in the first meeting to discuss my shares situation, I was presented a FAKE balance sheet by the company secretary to show the business could only afford £30k to buy my shares. I took the balance sheet away from the meeting and studied it closely myself. The company secretary claimed the business needed to pay £75K for the corporation tax, but on the accounts report which was generated by the accountant 3 months before the meeting it said the corporation tax was only £52K. The balance sheet also claimed £24K VAT to be paid. It's true that the company must pay the VAT, but the VAT money has never been the company's money, the business only collected the VAT on behalf of HMRC and it was kept separately from the business' earning, but now the company secretary has put it down as an outgoing money. Then there was a £23K credit card bill to paid while the business has not bought anything essential recently at all. The balance sheet is just full of nonsense!

Not that it changes the fact about the company doesn't have to buy my shares, but I just wanted to prove my point that the fellow directors are dodgy and dishonest, as a result I must sort out my shares before the other directors have pocketed all my money behind my back.

If selling and buying my shares is not an option, what else I can do here legally please?

[des8]

It is unusual, but as there is nothing in the articles about shareholders exiting, I believe you can sell those shares privately to anyone else.
Perhaps you could advertise them, but with the possibility of loss of major customer it might be difficult to find a taker at any price.

Was the fake balance sheet produced by the accountant who audits your accounts?

[DCASTLE]

Was the fake balance sheet produced by the accountant who audits your accounts?

Hello and thank you for your comment again, sorry I have just read it now.

The fake balance sheet was produced by the company's secretary who is also a director (owns 1% of the ownership of the business) and one of the 5 directors (owns 24.75% of the ownership). I still obtain the fake balance sheet here.

I am not sure if the accountant was aware of this fake balance, but the accountant, in my opinion, is not any better than my dodgy fellow directors. The accountant has advised our company secretary not to do minutes in meetings to avoid giving evidence in court! The accountant also told us (before I left) that all communications between my company and him should be made via telephone calls only if the communications are NOT decent enough to be shown in court.

I wouldn't mind to report this accountant at some point to be honest!

[DCASTLE]

I just thought to give an update here about my post...

I have now left my company and it has been two full months now since my departure, unfortunately I have still not resolved my shares situation.

My next question is, does a private limited company have to give dividends to its shareholders when there is a profit?

My company's year end was July 2018 and the financial year for 2018/19 has just passed. As I said previously, the accounts report shows there is a £280K profit/shareholders fund by the company's year end, but since then I have not received any dividends/profit shares for this £280K.

So can my company or my fellow directors hold on with the profit and not to give any dividends to the shareholders after the company's year end and the end of a financial year?

[des8]

Unfortunately for you, unless there is something to the contrary in the articles, the company does not have to pay a dividend to shareholders.
It may pay dividends (assuming there is enough in the bank!) as frequently or infrequently as it decides.