Major shareholder wants the others out.

I hold 40% shares, the other 3 directors have 20% each. I would like more shares.

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Hi

I run a recruitment business (Ltd Company) where I own 40% of the shares. It is 2 years old and has become quite successful in a short space of time. The other three directors own 20% each. They invested in the business in the first year and this has all been paid back. They have not yet taken dividends. The business has grown because of the work I do and of the clients I have secured. The other 3 directors have no daily involvement in the business at all or revenue generation - they run their own businesses and their attention is there. It is now very clear that they see the business I run as a 'money pot' as it is quite profitable. This is my first directorship so I am still learning but I think I now know enough to go it alone. What is the best way to do this? I suppose I could buy their shares if they want to sell. Or could I leave - they buy my shares and I could set up another business? All the clients and the business would follow me to my new business.

Thanks

Replies (31)

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By Ruddles
07th Nov 2017 14:40

If I were you, I'd be asking my accountant for assistance. Probably my solicitor as well.

Out of interest, how have you managed to be so profitable if nobody knows who you are?

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Replying to Ruddles:
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By Alex1165
07th Nov 2017 15:26

My accountant is their accountant so I need to seek independent advice. I didn't want to put my details on here in case they might also be on here as it would reveal my business name and my name.

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Replying to Alex1165:
By Ruddles
07th Nov 2017 15:31

Ooops!

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By johngroganjga
07th Nov 2017 14:38

Yes of course you can offer to buy their shares.

Whether you can leave and set up in competition without facing any adverse consequences is something you should take legal advice about first.

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Replying to johngroganjga:
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By Alex1165
07th Nov 2017 15:32

Yes I understand that - but if I left my team would come with me. The three other directors do not sell or recruit and do not know how to in my recruitment specialism any way. All the clients I work with and my team are clients I brought in. If I and my team left the other Directors have no-one in their other businesses who knows how to recruit in my specialism. Plus all the business would follow me any way....even if i didn't actively take it, clients would get in touch via linked-in

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Replying to Alex1165:
Stepurhan
By stepurhan
07th Nov 2017 15:33

You misunderstand. Adverse consequences in this context is not potentially having to start over. Adverse consequences is getting sued for stealing the business from under your fellow shareholders noses.

The fact of the matter is that, regardless of the work put in, they own 60% of that business. For that matter, would you have been able to reach this stage without the investment they put in? It is extremely unlikely you will be able to just walk away like you think.

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Replying to stepurhan:
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By Alex1165
07th Nov 2017 15:46

I am not saying that is what I want to do I am just exploring all options - me buying them out etc If they bought me out my clients would just follow me to a new business anyway. Maybe I can just buy the remainder of the business from them.

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Replying to Alex1165:
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By andy.partridge
07th Nov 2017 16:04

Believe me, just because you are in a specialist recruiter doesn't make you irreplaceable. For some knowing too much can be an impediment to making a 'sale'.

Some of the best accountancy recruiters I have known wouldn't recognise a ledger if it fell on their head.

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RLI
By lionofludesch
07th Nov 2017 14:49

What was the plan when you set out ?

Why did you take a minority holding when you do all the work ?

Or have I misunderstood?

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Replying to lionofludesch:
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By Alex1165
07th Nov 2017 15:30

We didn't know if this recruitment business would work or not so that is why I guess I took 40% and they 20% each. We do have a shareholder's agreement. The business has worked and is working very well but it is through my efforts as they do not contribute at all which is why I'd rather go it alone.

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Replying to Alex1165:
Stepurhan
By stepurhan
07th Nov 2017 15:34

Quote:
We do have a shareholder's agreement.

Then I suggest you read it, and see what it does (and does not) allow you to do. Just because you feel a sense of entitlement to the business does not mean you have a legal leg to stand on.
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Portia profile image
By Portia Nina Levin
07th Nov 2017 15:40

Before you fudge off and find yourself a lawyer, as you really ought to do, it's worth pointing out that you are not the major shareholder.

You only have 40%. You got yourself into this [***] when you took their money. Now you're going to need to pay for advice to help get you out. That's all there is to it.

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Replying to Portia Nina Levin:
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By Alex1165
07th Nov 2017 15:49

I intend to pay for advice. All their investment has been paid back.

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Replying to Alex1165:
By Ruddles
07th Nov 2017 16:09

Can I PM you our bank details, then?

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Replying to Alex1165:
paddle steamer
By DJKL
07th Nov 2017 16:22

Surely not re their share capital which they still hold, surely only any loans etc they made to the business that have been repaid.

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Replying to DJKL:
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By Cheshire
07th Nov 2017 16:24

The fundamental mistake of many!

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Replying to Alex1165:
Stepurhan
By stepurhan
07th Nov 2017 16:31

Quote:
All their investment has been paid back.

So?

If their investment has simply been back then they haven't received a return for it. Even if they have been paid interest on the sums invested, they may want a bigger return.

If you have been sensible when setting up the shareholders' agreement, it will include provisions for this exact situation. The fact that you are even asking this question makes me think it might not. After all, the company has only been in business for 2 years and that is the sort of detail I'd expect you to remember otherwise.

Did you rely on free forums for advice then as well? Might be time to get paid-for professional advice before you dig yourself a bigger hole.

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By Ruddles
07th Nov 2017 15:48

3 ... 2 ... 1 ...

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Replying to Ruddles:
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By andy.partridge
07th Nov 2017 16:08

Like me, you probably already identified the company, have looked at the company website and feel you know the characters involved!

That anonymous button - catches everyone out, dammit.

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Replying to andy.partridge:
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By Alex1165
07th Nov 2017 16:15

Oh so does that mean I'm not anonymous?

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Replying to Alex1165:
By Ruddles
07th Nov 2017 16:16

Correct, Mr Low

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Replying to Alex1165:
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By andy.partridge
07th Nov 2017 16:16

Quote:

Oh so does that mean I'm not anonymous?

Rather less so than you hoped, I'm afraid.

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Replying to andy.partridge:
By Ruddles
07th Nov 2017 16:15

Yep - I've "met the team" :)

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Replying to andy.partridge:
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By Cheshire
07th Nov 2017 16:18

That anonymous button - catches everyone out, dammit.

[/quote]

Even when they have changed their business name on their profile

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Replying to andy.partridge:
Red Leader
By Red Leader
07th Nov 2017 16:20

Following on from your post I followed up and sure enough I now know the name of the limited company, seen a list of the shareholders and details of the principals on the company website! The Anon option does catch people out, you're right.

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By andy.partridge
07th Nov 2017 15:59

This is an age-old problem. They took a punt with you, it worked, but now you feel you don't need them any more. It happens.

You mention a shareholder's agreement, but you don't say what it contains. I would have thought it might contain the process you have agreed to put in place when one of you doesn't want to do this any more (under the same arrangement).

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Replying to andy.partridge:
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By Alex1165
07th Nov 2017 16:03

Yes I do need to look at that and of course I will before doing anything. I was just interested in the scenarios that people have experienced and encountered. Yes they took a punt and it worked beyond everything we all expected. I probably would feel less inclined to do something if I had over 50% shares or if they were putting something back into the business.

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Replying to Alex1165:
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By andy.partridge
07th Nov 2017 16:15

The scenarios might be limited by the content of the agreement. No point in laying out an infinite number of hypotheses.

Are you saying, 'if only I had 51% of the business there wouldn't be problem?' I am not convinced.

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By Maslins
07th Nov 2017 16:14

You can buy them out...the main issue there is how much they'll want for their share. If you can't agree on a price that you can afford and are prepared to pay, and they're prepared to accept, then it's a stalemate.

Potentially you could try to start up independently of the existing company (leaving it to die a death), but don't expect the other shareholders to be overly happy about it.

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paddle steamer
By DJKL
07th Nov 2017 16:21

Reading the agreements/contracts is all well and good, taking legal advice assists, but at the end of the day the big question is, are these other shareholders people with financial backing (and often silent investors are), do they have the temperament to make your life hell if you walk with the business, irrespective of legal position, and do you have deep enough pockets (and the time) if they decide such a response is how they want to react?

Also, if no restrictive covenants/non solicitation agreements you may want to ask yourself what happens re the staff you have recruited if they later walk with chunks of the client base; you may reap what you sow.

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RLI
By lionofludesch
07th Nov 2017 17:00

You need to speak to the other shareholders and thrash out a deal.

Maybe you can acquire enough shares to jack up the holding to a majority one.

A dead golden goose is no good to them. Nor is a prolonged legal battle.

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