Removal of director/shareholder

Removal of director/shareholder

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Small company with three directors each jointly owning the one share in issue. One director isn't pulling his weight and the other two basically want him out.

I believe they can vote to remove him as director but what about his 1/3rd interest in share capital and entitlement to dividends? Can they issue new share class and make current class not entitled to dividends or is there some monority shareholder type protection that they would need to be wary of? Otherwise, they are talking of closing company down and commencing trade from new co.

Any ideas or pointers please!
Michelle

Replies (17)

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By geoffwolf
24th Apr 2008 17:06

logical
Neil

If your supposition is correct how do you explain signature spaces for up to 4 transferors on a stock transfer form?

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By neileg
24th Apr 2008 11:54

Geoffrey
There is no legal requirement for the company to record anything other than the first named shareholder in the share register. It is the person named in the register that has the powers of the shareholder. It follows that, if only one name is in the register, then the company will do nothing if that same person remains the first named shareholder even if the other shareholder(s) change.

The legal psotion of joint shareholders is not determined by company law. There may be a trust or a partnership agreement that limits or controls the actions of the first named shareholder, but the company is not party to those arrangements.

If you do not agree with my position, what is the basis of your disagreement? I am happy to be corrected if I am in the wrong!

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By geoffwolf
24th Apr 2008 10:38

share transfer
If the parties come to an agreement a share transfer will be required because the disposal will need to be signed by all three joint shareholders to be valid. Although the company corresponds with the first named shareholder the single share is in the register with all 3 names. I hope this clarifies your query.

Sorry Neil, but I do not agree with your analysis of the legal position re shareholders

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By neileg
22nd Apr 2008 10:48

Progress
Shareholders are now trying to arrange date to thrash out a settlement and lets say the third director agrees to settle and sell his 1/3 share:
Is a stock transfer form required showing the sale to the remaining two shareholders thereby leaving them holding a 50% interest in the one share in issue?
Well, since there is no legal requirement to show joint owners in the share register, it depends what is shown there.

Can further shares then be issued to them as individuals and does the original share have to remain jointly owned or can one sell his interest to the other? Thinking about Neils earlier point regarding bonus issues.
Can they not agree to issue shares in whatever way they wish if agreement of all shareholders?
It's usually a tax issue rather than a company law issue that complicates the situation. You can probably issue a bonus share and then the joint shareholders agree to swap their interests in the shares so that they each own 1 share absolutely. Providing there is no change in control of the company, HMRC shouldn't have a problem. Trouble is that in company law, the first named shareholder has control. I'm not a tax practitioner, but I would have thought that clearance from HMRC would be desireable, if it is possible.

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By User deleted
21st Apr 2008 17:38

Moving forward..
Shareholders are now trying to arrange date to thrash out a settlement and lets say the third director agrees to settle and sell his 1/3 share:

Is a stock transfer form required showing the sale to the remaining two shareholders thereby leaving them holding a 50% interest in the one share in issue?

Can further shares then be issued to them as individuals and does the original share have to remain jointly owned or can one sell his interest to the other? Thinking about Neils earlier point regarding bonus issues.
Can they not agree to issue shares in whatever way they wish if agreement of all shareholders?

Think I need a couple years work placement with Jordans!

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By Chris Smail
17th Apr 2008 17:26

Divi paid per share
Ergo divi is paid on each share unless waiver in place, which would have to be done by the first named shareholder and would apply to the whole of the divi on that share.

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By neileg
18th Apr 2008 09:31

Jointly owned shares
Each share is regarded as being in single ownership for company law purposes. Therefore the issue of dividends, voting power, stc, are determined by that single owner. The share register may list other joint owners but that is neither a legal requirement nor prima facie evidence of ownership.

What may well exist behind the shareholder entered on the register of members is a different matter. There may be a trust, either bare or explicit, a nominee company, a partnership and so on. Thus a different legal framework may control what powers the first named shareholder may legitimately do with their rights over the share and this is not determined by company law.

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By User deleted
17th Apr 2008 16:20

Interesting thread
Have similar ongoing case and don't mean to hijack thread so will try and keep relevant to Michelle's case.

If the first named person has the voting power then can't he decide to issue further share class etc and amend Mem's & Arts if necessary to do so?

Was also hoping someone would advise where it says that you cannot waive your dividend entitlement on jointly owned shares?

Guess continued drawings against directors loan accounts of the two working directors will have to be taken/cleared as salary/bonus payments if dividends can't be voted without giving away to third non-working director?

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By neileg
17th Apr 2008 14:20

My appologies
I had not realised that there was only one share in issue. However, this does preclude the issue of bonus shares unless these are also in joint ownership. So still a square one position.

In company law terms, any share that is in joint ownership of any form is regarded as being owned by the person who's name is first in the share register. It is this person who has the voting power. Not sure how this influences the situation, but I doubt it makes it better! I agree that it is impossible to waive the dividend on one third of a share, however.

If the third director is off work with stress, there's the added complication of the DDA. While stress is not recognised as a disability, stress related conditions such as depression are.

What a mess. Seems like only two choices, agreement or court.

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By joncape666
17th Apr 2008 12:18

Does the 75% majority requirement count?
if there were 3 shares then I would agree, but surely if there is only 1 share held jointly then the simple majority controls that share and that share has a 100% vote? Unless there is an agreement saying otherwise, obviously.

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By User deleted
17th Apr 2008 11:26

Quite agree re proper legal advice needed
and will try once again to encourage them to do so if they remain intent on not hammering out some settlement direct with other director.

Likewise, I have always advocated the use of shareholders agreements but must confess that I was not aware of Geoffrey's point that you could not waive your dividend entitlement on jointly owned shares?

Where is this written? I'm not doubting what I am being told just that I do like to read and understand new areas for future reference.

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By geoffwolf
16th Apr 2008 19:02

loggerheads
Neil

This is a loggerheads situation.

My first comment related to the difficulty with each party only owning one third of the one share in issue.

If Michelle thinks there is no prospect of coming to an amicable agreement I agree they should have had a shareholders aagreement which is what I always advise unrelated shareholders to enter into.

They haven't.


Michelle you can't waive a dividend on one third of 1 share.
You would seem to need to advise the 2 directors who want the3 other one out to consult a competent lawyer.

If the company is really of some value then they would have to purchase the businest from my suggested Liquidator.

Clearly this situation cannot be allowed to continue without some resolution of it.

Neil' my suggestion of issuing more shares before going down the liquidation route was simply to enable them separate out at least part of the shareholdings. It would also help to answer Michelle's point about a dividend waiver by the 'sick' participator

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By User deleted
16th Apr 2008 17:15

Thanks for comments
They seem to think that they can dump one third of machinery on this chaps lawn and start trading again through another company without him!!!! To complicate matters, this director has been absent from work now for over 6 months as signed off for some stress related matter I believe. Not sure how much longer he will be prepared to sign dividend waivers though.

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By neileg
16th Apr 2008 14:33

Bonus Issue?
Geoffrey, I don't understand how issuing a further 6 shares makes any difference to the situation.

Michelle, changing share classes and things like that needs a 75% majority which the two shareholders don't have.
You can't simply sack a director even if you have a simple majority of shares. You can wait until the director retires by rotation and then not re-elect.

How are the two shareholder going to 'close the company down'? Bear in mind that directors have a fiduciary duty towards the company. The third shareholder could have the basis of a claim against the two directors if their actions jeapordise the viability of the company.

The obvious solution is for the three shareholders to sit down and talk it through.

This emphsises the value of a shareholders agreement. It is much easier to deal with such issues through contract law than using the numb companies acts provisions.

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By geoffwolf
16th Apr 2008 11:22

dissolution
I didn't suggest you helped to issue the share.

If there really is no likelihood of agreement the I would suggest that the alternative is to go through liquidation of the company. Because of the share structure this may have to be through the court.

Onwe other idea might be to have a bonus issue of 6 shares and issue 2 of them each to the existing joint shareholders. Once that is done the
company can pass a resolution to have a membe5rs' voluntary liqidation which requires the use of an insolvency practitiomer. who would also be able to advise on any other statutory requirements.

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By User deleted
15th Apr 2008 18:02

Little chance of settlement I fear
..and no I was not instrumental in setting up the company having only recently commenced acting.

Are any of my proposals viable/allowable/legal ?

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By geoffwolf
15th Apr 2008 13:45

Value
Does the company have any value?

If it has, then the only correct way to deal with the matter is to come to an agreement which satisfies all parties.

Whoever dreamed up 3 individuals owning just 1 share jointly presumably knew what they were doing.

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