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Shareholder Impasse

Get out of a 50/50 shareholder impasse by resigning from the company in full

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I recently went into business with someone, we were both Directors and 50% shareholders of a total 100 ordinary shares in the business. The shares are worth £1 each but the company itself isn't really worth anything as it isn't doing anything. They set up the business and I did not have much knowledge on how this was done from their end. Due to an internal dispute, they resigned as a Director and initially I thought they also left as a Shareholder as well transferring all their shares over to me (based on email correspondence I had with them at the time).

I then took them off as a PSC based on the information I had available to me at the time, and was not going to submit a confirmation statement until October when it was due (I spoke to Companies House and sought their advice on this). Unfortunately this does not seem to be the case any longer and as far as I am now aware based on information given to me from a third party who is still in contact, they are still a 50% Shareholder but I still do not know for certain, only hearsay. Partly because I still have their shares certificate so I'm unsure as to whether they actually have any shares or not as I have not heard from them since they last intended to transfer all shares to me.

I have tried contacting them but they are now ignoring me and I have absolutely no idea what to do. Anyway, assuming they ARE still a Shareholder which I now believe to be the case since I received no documentation etc, I want out of all this but I don't see how I can possibly get out of this easily.

I can't close down the company because I need the approval of 75% of shareholders, I can't transfer my shares to them because I need their signature and I can't issue new shares to outvote them because I need their approval to issue them as a Shareholder. I am literally screwed by this and only have until October this year until as a Director I need to file accounts.

Now this doesn't bother me at all in the slightest providing I can sort the Shareholder issue out, because I can resign as a Director whenever I want since I now have the Companies House login. However this would leave the company itself in breach of the Companies Act 2006 because there would be no other Directors, and I want to resign as a Shareholder before I resign as a Director to avoid me being in any legal position to appoint a new Director to this business.

I want out of this business now but I have no idea what to do. I've heard talk about a "Share buy-back" where my own shares can be bought back by the Company itself so I am out. How would this work exactly, what would I need to do? I can't afford a long civil process in the courts under any circumstances because I simply do not have the money available (they do). Are there any other options avilable to me to try and get myself out of this mess? Am I just overinterpreting everything here or is it really this complicated?

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15th Jun 2019 22:12

Simple. Just do absolutely NOTHING whatsoever. Ignore all correspondence. Empty the bank account. Wait.

Eventually Companies House will strike off the company.

Two points I would stress.

1. Do Nothing. Don’t be tempted. Don’t even open letters to the company registered office. Bin them.
2. Next time you get involved in a business take professional advice first.

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to Tim Vane
16th Jun 2019 06:04

I would have thought that if there were a single director that director could apply for strike off with DS01. (Without the agreement of the shareholders)

My preference on a personal basis is to take action to resolve issues rather than for things to just happen.

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By Matrix
to johnhemming
16th Jun 2019 08:43

What do you mean “without the agreement of the shareholders”?

A special resolution would be required which requires agreement of at least 75% of the shareholders.

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to Matrix
16th Jun 2019 09:13

I am assuming that an application is effectively made under S1o03 of the 2006 Companies Act on form DS01. My understanding of this is that the directors can request that it happens, but have to give notice to the shareholders. The shareholders, if they wished, could almost certainly prevent it from happening. However, if the notice is given and they do nothing then it gets struck off.

https://www.gov.uk/government/publications/company-strike-off-dissolutio...

In any event my understanding is that a special resolution at a meeting does not need 75% of the shareholders, but only 75% of the shareholders present and voting.

Obviously a written resolution would require 75%, but that is a different thing.

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16th Jun 2019 10:44

I agree with Tim but AFTER you've resigned as a director

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to bernard michael
16th Jun 2019 11:42

Personally I wouldn't like that on my online directors record at companies house. However, I suppose I am one of the few people that looks up those records.

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to johnhemming
16th Jun 2019 13:54

Quote:

Personally I wouldn't like that on my online directors record at companies house. However, I suppose I am one of the few people that looks up those records.

Disappears eventually anyway.

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By DJKL
to johnhemming
17th Jun 2019 10:24

Well, if one wishes to be sneaky, use different variants of your name- one company use first and last names, another use full single middle name, another use say single middle initial etc.

A fair number of times I have eventually come across a whole treasure trove of other directorships for an individual that are not linked to the company name I have been given to initially look at re approving them to become our tenant.

There is better software to track them than just using Companies House but directors not having unique identifiers is one of the failings of the system of being able to keep tabs on the wide boys.

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to DJKL
17th Jun 2019 11:37

I personally come up with three companies house identities. One is for a secretaryship in a company I am a director for (which is in the process of being struck off voluntarily not a sponge bob). Hence I have two. That is without any attempt to increase the numbers. I am, however, substantially in the public domain given that I have a wikipedia page. Hence I am not as bothered about these sort of things as some people get.

A lot of the companies I created in the past have dropped off now, however.

I still wouldn't like to be on the record of abandoning a situation when a DS01 is only £10 anyway. I am not sure that the authorities will continue to be blase about this over time.

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By DJKL
to johnhemming
17th Jun 2019 12:11

My point was that with a SAL address and a bit of manipulation of one's name nobody can track anyone anyway, or certainly not without effort- a distinct failing re the UK's control of companies and those who operate them and one of the reasons the same individuals can be serial walk away merchants.

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16th Jun 2019 22:39

Resign as a director. Companies House will strike the company off in a few months on the basis that it doesn’t have any directors. As said previously, once you’ve submitted TM01 (director resignation form), don’t do anything else company related.

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By Chris98
to atleastisoundknowledgable...
17th Jun 2019 10:39

My understanding of the Companies Act is that the Company itself will be liable, i.e. meaning that the Shareholders must appoint a new Director if picked up on by the Secretary of State, rather than Companies House simply dissolving the Company.

So if you were to simply resign, and bin all future correspondence, none of this would be an issue and within 3 months for instance it would just be stuck off with no penalties for not filing confirmation statements etc.?

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17th Jun 2019 10:29

A potential solution is to ask that Companies House strikes off the company by filing a DS01. Although that process is supposed to be used only by solvent companies per the link below, the so-called “SpongeBob Plan” is sometimes used, whereby the company writes to all its creditors asking if they would object to that (HMRC can be expected to object to that if there are unpaid taxes, since they would normally prefer to present a winding up petition for the unpaid tax debts). See:

https://www.1stformations.co.uk/blog/appointing-and-removing-a-company-d...

Another potential solution is that you resign as a director per the links below as that should minimise any IA 1986 etc. risks (as you would not be a director when any potential future liabilities arise) and would also prompt CH to strike off the company (although again HMRC may object to that). See:

https://www.ukbusinessforums.co.uk/threads/what-happens-when-a-sole-dire...

https://talkingbusinessblog.gateleyplc.com/2014/05/21/abandon-ship-can-a...

Rather conveniently, there is no sanction against a sole director who resigns and leaves the company directorless.

Also, if you want shot of your shares, you can simply gift them to the company (assuming they are fully paid up).

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By DJKL
to Justin Bryant
17th Jun 2019 11:03

It has always concerned me that the form TM01 requires to be signed by a director/secretary etc, now given at the point it requires to be signed the resigning individual is no longer a director (albeit not yet notified to Co Hse) , he/she does not appear, at that juncture, to have the legal capacity to sign the form for the company, accordingly I have always wondered whether such a notification of resignation, signed by the last resigning director re him/her self, is actually legally competent. (Never liked Company Law and was never very good at it)

However from a practical viewpoint not sure in 99% of cases if anyone will be that fussed about the effectiveness of the intimation to Companies House.

Any thoughts?

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to DJKL
17th Jun 2019 11:14

I am a qualified solicitor and I can assure you the above Gateley note is 100% correct and a sole director resignation is 100% valid.

I agree it's odd that when combined with a gift of a sole shareholder's shares to the company (assuming that's allowed in the articles) that the company thereby becomes directorless & shareholderless.

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By DJKL
to Justin Bryant
17th Jun 2019 12:18

I am not disputing that sole directors cannot resign, I know they can, I am more disputing their ability, following resignation, to inform Companies House that they have resigned, their powers to act as a director surely fall upon their resignation as a director so they cannot sign the TM01 as a director as at that juncture they are not one, so what is the legal position vis a vis the company of the one notifying Companies House?

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to DJKL
17th Jun 2019 13:00

The point here is that no English judge would allow such a nonsense circular problem to prevail, so I wouldn't worry too much about such an irrelevant academic point like that.

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By DJKL
to Justin Bryant
17th Jun 2019 13:53

Irrelevant academic points are interesting.

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By Chris98
17th Jun 2019 11:59

Can I thank you all for your replies, I'm very grateful. So from what I have understood, there seems to be two easy routes out of this:

1- I just resign as a Director, leaving all legal responsibilities behind me (including confirmation statements, accounts .etc.) and effectively the company will be dissolved by Companies House automatically within a few months. I can gift all my shares to the Company to get out of being a shareholder (which I would prefer to do if possible so that I am 100% out).

2- I submit the DS01 form which would dissolve the Company, and as the sole Director, providing I *INFORM* the other shareholder of my actions, I have the legal power to just wind up the Company?

If I'm correct, option 2 seems a lot easier to simply dissolve it so I'm slightly leaning towards that.

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By Matrix
to Chris98
17th Jun 2019 12:03

My understanding was that a special resolution would be required to wind up the company so you would have to call a shareholders meeting and at least 75% of those present would have to vote in favour. However others seem to think a Director can just file the form which doesn’t sound right but maybe they could explain.

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to Matrix
17th Jun 2019 12:14

Obviously calling a meeting is possible and the resigned director is unlikely to turn up. Without the meeting there is the question as to what the consequences would be of the director winding up the company without explicit authorisation of the shareholders. Arguably this would potentially be ultra vires depending upon what is in the articles of the company (even if companies house are entirely happy with the situation). The question, then, is what damages might be payable. I have difficulty myself in seeing that any damages are payable. Hence there would be no sense issuing proceedings for that.

It is, however, a fact that Companies House do not require a resolution of the shareholders before the sole director makes an application to strike off a company.

Hence I don't understand the practical legal problem with just following the DS01 procedure. Perhaps sending a note to the ex director in advance would be well advised, however.

If you think there is a real legal problem perhaps you could explain that?

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By Matrix
to johnhemming
17th Jun 2019 13:14

I got the impression that Chris wanted to do things properly. While I agree that Companies House will accept any old rubbish, I was just pointing out the requirements of the Companies Act.

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to Matrix
17th Jun 2019 13:36

I agree that calling a shareholders meeting would be the best thing to do. I really don't like the idea of just abandoning the company.

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to Chris98
19th Jun 2019 10:02

I would opt for option 2 as my understanding is that if it is a solvent company then the majority of directors have to decide to close the company (in this case just you). It is only if the company is being liquidated (either by MVL or CVL) that 75% or more of the shareholders must agree to closing the company. So my view would be that you just sign a DS01 form and submit to Companies House. You should also file final accounts to HMRC if not already done so and advise them the company is being closed (if the company hasn't traded since the last accounts were filed then you can write to HMRC to advise them the last set of accounts can be treated as cessation accounts now). If the company has VAT or PAYE schemes active, you should also ensure these are de-registered. Once the company is closed the business bank account will be frozen, so it's important to remove any funds from the account prior to sending the DS01 form.

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By Chris98
17th Jun 2019 13:48

As far as the Articles of Association go, they are the model articles by Companies House which were adopted.

As the sole Director left, I'm not sure whether we'd be able to form a quorum for a shareholder meeting without the other Shareholder. Am I correct in saying this?

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to Chris98
17th Jun 2019 14:13

That's a good point and it may depend on the articles, but it may not be avoidable directly. Obviously if you issued a share to someone else who then turned up you would have a quorum.

Hence it appears that there are three options
a) Issue a share to someone else, call a meeting, pass a special resolution and go to DS01
b) Give notice to the other shareholder with a deadline and failing a response go to DS01
c) Resign as director (that's the one I don't like - that's just a personal thing though)

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19th Jun 2019 10:28

Clearly you are not an accountant.

As director, if the company meets the requirements, you may apply to have it struck off.
To keep the record clean, if the company is "Dormant", file a change of accounting date to the date of your application, then file a Dormant company account for the period to that date.
Also, file a Dormant Co CT600 with HMRC.
Job done.

Under our convoluted Company Law rules, an interested party is supposed to keep tabs on the company file at Co Hse. If that person does not do so, tough.

this is not an unusual scenario.

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19th Jun 2019 10:29

Clearly you are not an accountant.

As director, if the company meets the requirements, you may apply to have it struck off.
To keep the record clean, if the company is "Dormant", file a change of accounting date to the date of your application, then file a Dormant company account for the period to that date.
Also, file a Dormant Co CT600 with HMRC.
Job done.

Under our convoluted Company Law rules, an interested party is supposed to keep tabs on the company file at Co Hse. If that person does not do so, tough.

this is not an unusual scenario.

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19th Jun 2019 10:38

The comment that a sole director may resign leaving the company "Director-less" is a fact.
Based on personal practice experience:-
HMRC may not be so forgiving. If HMRC so believes and circumstances suggest, they may pursue the ex-director personally on the grounds of facilitating tax evasion.

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19th Jun 2019 11:27

I have had three of these over the past 2 years. Case one, sign the DS1 and submitted to Companies house. Company now struck off. The resolution , special ordinary or otherwise is a red herring. the application is made "on the company's behalf by its directors or by a majority of them" in my case the other director objected after the event but was told in no uncertain manner by lading barrister taht on behalf does not require resolution at all. he wrote to companies house who told him the same thing, and added he should have objected.

Case 2 Sold shares back to company at par, then resigned as director after making sure no outstanding debts, thengot registered office changed to companies house under the new provisions to move it when the company is no longer connected with an address, and it got struck off by Companies house about 6 months after the confirmation statement/accounts not filed. the address change ensured that no reputational damage

3rd case that is fool proof but costs, applied to high court for compulsory buy back of shares at par on grounds of deadlock. they ignored it all so granted, but if they did object they would have to come to court and then the court would sort it out. This works when there are assets or indeed liabilities (in which case the application is to wind up, not buy back).

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By Chris98
to timothyvogel
22nd Jun 2019 19:11

I'm leaning towards option 2 here, although I have no idea how to sell my shares back to the Company.

We have the model articles adopted. This link suggests we'd need a Shareholder meeting with over 50% of those voting members voting for a resolution to buy back my shares. Is this the case? What requirements are there for buying back shares?

Thanks

https://www.lawdonut.co.uk/business/business-ownership-and-management/sh...

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to timothyvogel
23rd Jun 2019 21:21

“got registered office changed to companies house under the new provisions to move it when the company is no longer connected with an address”

Eh? A company can have CoHo as its registered office?

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By towat
19th Jun 2019 12:34

Going back to an earlier point, I know that when transferring shares the transferor needs to sign the STF but I don't recall that the transferee needs to sign? Probably not relevant now if you go down the striking off route.

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to towat
23rd Jun 2019 21:19

They don’t, which I have always thought a little weird.

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24th Jun 2019 09:36

Cos House is the default address where there is no other available following permission being refused/cancelled to use the original RO

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