Can a majorty shareholder - also a director - force a change in accountants

Can a majorty shareholder - also a director -...

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We have a situation where there are two directors and shareholders

Director Mr A holds 54% of the share capital,

Director Mrs B holds the balance

Director A and B are falling out big style, and Director A wants to sack the existing external accountants.

Can he do this on his own back without consulting Director B - who is normally responsible for the day to dat running of the company?

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Euan's picture
By Euan MacLennan
05th Nov 2012 15:20

A majority shareholder

... (Mr A) can pass a Members' Resolution to remove the other director (Mrs B) from office.  As the sole director, he could then sack the existing accountants and presumably, replace them with another firm of accountants.

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Basset Hound
By Cuchulainn
05th Nov 2012 14:59

Yes he can but.......

It's not necessarily black and white. You need to have regard to:-

1. The particular circumstances of the situation;

2. the provisions of any shareholders' agreement in existence between the parties; and

3.The company's articles of association regarding anything which may have been written in regarding the augmentation of the voting rights of a director facing a resolution for removal.

Removal of a director is a drastic step and I would only contemplate this in extremis, after all other avenues of remedy have been exhausted. The taking of legal advice would also be a good idea.

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By vicspaine
10th Nov 2012 02:08

Yes!!! he can

As Director A is the ultimate controlling party i.e owning more than 50% of the shareholding, he can pass a oridinary resolution for the change of the external accountant or auditor, provided the article of association allows such an action.

Shareholder agreement will not be effective as I presume that they are under the same class of shares, entitle to the same voting right in accordance with their stake in the business.

However, the article of association is important which has to be taken into consideration and as most SMEs or closed companies do use the standard article of assoication that do allow such action to be taken by the controlling party.

Therefore Mr A can take such an action.

 

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David Winch
By David Winch
10th Nov 2012 10:32

One route to this

It seems to me that one route for Mr A would be to require that the company's accounts be audited (even where ordinarily the Companies Act would not oblige the company to appoint auditors) then he could (by shareholders' resolution) oblige the company to appoint auditors of his choosing.

It would not be necessary for Mr A to attempt to remove Mrs B as a director in order to get the result he desires.

In practice the better option might be for Mr A to discuss the position with Mrs B, perhaps pointing out that if necessary he could force the appointment of auditors in the way I have described, and suggest it would be better all around if they could reach some sort of agreement on what to do.

David

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