A client, is a director and 50/50 shareholder of a company he no longer wants anything to do with (there is one other director and 50% shareholder). I do not act for the company only for the director personally. I understand how he can resign as director, but my question is how does he get rid of his shates? The co director does not want to allow my client to remove himself from the company due to the conflict. Any advice would be appreciated.
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If he feels so strongly he can give them to the other shareholder, but you will no doubt advise him whether it is in his best interests to do so.
He/she needs to persuade the other shareholder to buy them out, otherwise there is little else to do.
The perils of running a 50-50 owned business without a shareholders agreement!
He could gift the beneficial interest in them to someone under a declaration of trust, so that he becomes a mere nominee legal owner (the donee's consent is not needed as far as I am aware).
Would potentially Model Articles (if appropriate) be an impediment?
"Company not bound by less than absolute interests
23. Except as required by law, no person is to be recognised by the company as holding any share upon any trust, and except as otherwise required by law or the articles, the company is not in any way to be bound by or recognise any interest in a share other than the holder’s absolute ownership of it and all the rights attaching to it."
Share transfers might also under same potentially be an issue.
Frankly, if an impasse, probably needs to pass 50% to Tony Soprano to deal with, he had a niche in taking "interests" in other business entities
Yes; good point, although a bare trust would be an absolute beneficial interest and a bare trust is not really a trust proper, so it's possibly a bit of a grey area although there are many court cases like that below where a nominee shareholder has been readily recognised for one reason or another under English law and an express DoT is normally conclusive in the absence only of fraud, sham and undue influence (or mistake - for you need to go to court to set it aside).
“97. If this were a purely domestic case there would be no possible doubt of the effect of the declarations of trust: they give the beneficiary “the paradigm of an equitable interest in property”: Snell’s Equity, para 2-002. “Once a trust is established, as from the date of its establishment the beneficiary has, in equity, a proprietary interest in the trust property, which proprietary interest will be enforceable in equity against any subsequent holder of the property (whether the original property or substituted property ...)”: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, at 705.”
https://www.supremecourt.uk/cases/docs/uksc-2015-0009-judgment.pdf
Sorry, that DoT idea does not work after all for the rather obvious reason that the donee can simply ask the donor to hold it beneficially for the donor instead.
Aren't we over-thinking here? The question is how to get rid of shares (not, by the way, whether it is in the OP's client's interest to do so without compensation). The answer it seems to me is the one I gave in my first response. All the other stuff - trusts etc., or requiring payment for them before doing so - is much more complicated and fails to achieve the allegedly desired objective of the client divesting himself of the shares in their entirety immediately.
The shareholder who wants to leave could try making himself a bloody nuisance at every opportunity.
Spot on. For starters, he will potentially screw up any tax-efficient profit extraction that the continuing director may be considering.
I do not understand why the client needs to (or wants to) rid himself of the shares. I can understand why he no longer wishes to be a director.
David
So what? Whether or not there is an outstanding debt has nothing to do with his resignation as director nor disposing of his shares. If there is an outstanding debt, then he would be well-advised to retain the shares and ask for his share of any dividends to be offset against the balance.
Otherwise, the debt (or not) is a matter to be dealt with entirely separately.
Sorry - forgot my caveat
"This comment is provided for general information only. It is not intended to amount to advice on which you should rely [unless said advice is to sod off]. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this comment.
I make no representations, warranties or guarantees, whether express or implied, that the content of this comment is accurate, complete or up-to-date - and is in fact more likely than not to be a load of b*llocks."
Have you told us everything relevant
You mentioned
"The co director does not want to allow my client to remove himself from the company due to the conflict"
What conflict