How to force out a director & shareholder

Other director & shareholder refusing to go

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I have a small limited company client, two directors and shareholders.

They are a franchisee of a business for football for small children. At the minute it is part-time, but one of the directors & shareholders wants to really expand it and move it on. The other one isn't interested at all. He has been offered £10K to buy his share but he refuses.

The company's shareholder funds at last year-end were only £6419, there are no assets except Goodwill. The DLA introduced was £3500 each.

If the person won't accept £10,000, what option(s) does the other person have as otherwise he is in limbo and stuck with a fellow director and shareholder in an acrimonious relationship!

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Out of my mind
By runningmate
22nd Feb 2017 19:40

Your client is the company - so avoid taking sides with either director / shareholder.
Is there a shareholders' agreement? If so, follow what that says.
If not, what do the company's Articles of Association say?
If there is no obvious solution then each of the directors should seek legal advice from solicitors.
(One option may be to wind up the company & start a new one.)
RM

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Replying to runningmate:
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By Accountant A
22nd Feb 2017 20:33

runningmate wrote:

Your client is the company - so avoid taking sides with either director / shareholder.

From the tone of the question, that boat has already sailed!

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Replying to Accountant A:
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By SpreadsheetUser
22nd Feb 2017 20:38

I haven't taken either side. I've only taken the call from the director wanting to expand this afternoon and repeating what he said.

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By Ruddles
22nd Feb 2017 19:56

Nothing to do with accounts or tax. As noted above they need to take legal advice.

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By James Green
22nd Feb 2017 21:14

Why doesn't the one who wants to drive things forward leave and set up again?

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Replying to James Green:
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By SpreadsheetUser
22nd Feb 2017 22:38

He has considered that, he is going to speak to the franchisor as well as a solicitor

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Jennifer Adams
By Jennifer Adams
23rd Feb 2017 09:36

You might be interested in this article:
https://www.accountingweb.co.uk/any-answers/how-to-force-out-a-director-...

which says..."The Model Articles are silent on the matter of director removal. Without express provision in either the service contract or Articles, it may take time to force a director out as the only way will be under s 168 CA 2006 – removal by ordinary resolution by shareholders - otherwise the company must to go to court to force the resignation."
An ordinary resolution is a majority resolution which will be rather difficult with 2 shareholders.
As Ruddles says - a matter for a solicitor.

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paddle steamer
By DJKL
23rd Feb 2017 10:00

I am not in the run to solicitor camp re these, that may be where they have to eventually go but to me there does not appear, from what we are told ,to be enough meat on the bone to justify the cost.

If I was the director/shareholder wanting to buy out the other (not you, you need to stand aside) I would:

1. Arrange to meet fellow shareholder/director, face to face.

2. Establish whether reluctance to sell is re a principle or is re price.

3. If principle there is likely an unsolveable issue, rational thought has gone, so he likely needs to look to fold company and reacquire franchise agreement elsewhere, but mindful of director's legal duty of care to the company.

4. If price, try to find out basis of prospective seller's valuation, why does he/she consider current offer light?

5. Subject to 4 see if there is scope for valuer to prepare figure for both parties at least to create talking point/centre ground.

Not to be hard on our legal brethren, but generally I have found their involvement does not improve matters, negotiation generally works better than threats.

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Replying to DJKL:
Stuart Walker Yellow Tomato Copy
By winton50
23rd Feb 2017 13:18

I agree,

Given the small size of the company it is likely to be dwarfed by any legal fees incurred.
I'd suggest spending a bit of time talking it over. If one doesn't want to sell do they want to buy the other out? Why don't they want to expand? Could some form of payment over time be agreed? Would they try mediation?

There are loads of different ways an agreement could be reached before spending hard earned cash down at the local solicitors office!

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Jennifer Adams
By Jennifer Adams
23rd Feb 2017 18:49

Seems I posted the wrong link to the article - its here:
https://www.accountingweb.co.uk/business/finance-strategy/resignation-or...

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