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Splitting Client Base

Looking for advice on splitting our client base

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Hi, I have changed my name to keep anonymous

I currently own 1/3 of a practice that I set up with two colleagues from my old employer. Things have gone well and we now have an annual turnover of circa £300k and employ one other full time admin staff member. With this year working from remotely and not having regular contact with my business' partners, it has confirmed my view that I do the vast majority of the work and also take on most of the responsibilities in running the business. They each only bill around £40k per annum whilst I am billing and managing a client base of £220k on my own. There is a large amount of pressure and strain on me to maintain this level and keep the clients happy and they are unwilling or unable to assist. At times when I have passed work to them it has been left until the last minute or errors have been made, which I cant fathom as they should have plenty of time available based on their own workloads.

I am now looking to leave the business and come up with an agreement with them that will allow me to take 1/3 of the client base and work from home full time. This would be my preferred option over purchasing the entire client base as I simply wouldnt have the time or resource available to manage a client base of that size on my own. I also enjoy working at home far more than from our office. I would probably be better off financially than I am currently while doing less than half of my current workload.

I am looking for advice on how I discuss this with my business partners as they may make things difficult for me, knowing that I do the work that provides them an income greater than they are capable of based on their own work. I have spoken to them at length in the past about increasing their own fee base, however they seem unable to produce more than £3/4k per month in billing despite being busy. This is a huge source of frustration to me.

Has anyone had any experience of leaving and taking clients with them as I appreciate they are clients of the business and not my own clients, however most of these would want to continue with me and would not be happy if I left.

It would be good to hear thoughts from fellow accountants as to whether I am being unreasonable or unrealistic in what I would be looking to achieve.

Thanks 

Replies (15)

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By Calculatorboy
24th Feb 2021 21:38

I sympathise , had similar problem years ago , is this partnership at will , with partnership agreement , or Ltd co with shareholder agreement,

you need to give specific info ..otherwise the reply would would be of book length

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Replying to Calculatorboy:
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By OwlAccountants
25th Feb 2021 10:18

Sorry, it is a limited company with a shareholders agreement.

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By Wanderer
25th Feb 2021 00:12

Sounds like you've tried the discussion before about splitting the workload and (unsurprisingly based on your precis) have got nowhere.

You probably need to grasp the nettle, start the discussion and see where this goes.

Have it clear in your mind what you want to achieve and try not to deviate from this.

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Hallerud at Easter
By DJKL
25th Feb 2021 00:28

Is there a partnership agreement?

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A Putey FACA
By Arthur Putey
25th Feb 2021 12:31

Do you each own 1/3 of the shares and have equal voting rights? How do you remunerate yourselves? Equally, salary and divdends? Or based on your own client value? Do you have contracts of employment? Do these or other agreements have non compete clauses? Does the company have model or bespoke articles?

You should consider what shareholder resolutions do not require a 75% majority. These include removing a director!

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Replying to Arthur Putey:
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By OwlAccountants
25th Feb 2021 20:15

We each own 1/3 of the shares in the company and are paid equal salaries each month and dividend.
The dilemma for me is that I don't want to purchase the practice as a whole and I don't want to sell my shares for a cash settlement. My preference is a settlement that allows me to take 1/3 of the client base in exchange for my shares. I don't think the other two parties would be happy with this and it could potentially end with me leaving the business with cash but no clients and having to start again

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Replying to OwlAccountants:
A Putey FACA
By Arthur Putey
02nd Mar 2021 11:20

If you didn't feel the cash offer was sufficient you could be awkward and leave as director and keep your shares, unless the SA has a bad leaver provision. Do you have a non compete clause that would hinder you taking "your" clients with you?

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Replying to Arthur Putey:
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By I'msorryIhaven'taclue
02nd Mar 2021 13:37

Balanced against awkwardness there is of course the overriding director's duty to act in good faith in the interests of the company (Cos Act 2006).

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Replying to I'msorryIhaven'taclue:
A Putey FACA
By Arthur Putey
02nd Mar 2021 18:05

But he'll resign (or be voted out by the others) as a director.

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By I'msorryIhaven'taclue
03rd Mar 2021 15:27

Any residual fiduciary duties, though? Perhaps the conflict of interest of competing with the company post-resignation, as in, eg Industrial Development Consultants v Cooley or Dolphin Ltd v Simonet where directors have been adjudged guilty of acquiring for their own benefits their former companies' maturing business opportunities.

Separately, as a first hurdle in avoiding any director's fiduciary duties, he'd need to steer wide of continuing to act like a director; either by continuing to be held out to his clients as a quasi-director, or by having a say in running the show by virtue of his shareholding ie to avoid any shadow-directorship.

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By frankfx
25th Feb 2021 16:58

May be worth speaking with one of the firms in the merger and acquisition sector.

They will have experience of your situation.

Professional fallout.

You have much to gain and lose.

Risk of disruptive behaviour should not be overlooked.

Be interested to learn how you proceed.

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By Joe Soap
02nd Mar 2021 10:45

The key issue - which a couple have posters have put - but which you have not answered concerns the shareholders agreement. What restrictions does this place on a shareholder/director who leaves?
Do you have to sell your shares and if so how would they be valued and by whom?
What restrictions are there one taking clients? This can be very complicated and subtle. Maybe you would not be able to approach clients to follow you but would you be able to act for a client who approached you?
And then there is really the key question of whether the split would be amicable or not. Amicable is much better! Less stressful and less expensive.
Try and find someone who has been through this and go into it in detail with them. Places like this are far too general because this is a lot about the details..
Good luck

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Replying to Joe Soap:
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By I'msorryIhaven'taclue
02nd Mar 2021 13:51

Added to which you presumably have a 2 directors v 1 director decision-making mechanism. And, with that in mind, maybe it'd be a good idea to put the ball in their court by asking them what they want. Invite them to choose how to divide the firm and its assets (because ultimately they'll do that anyway).

Sounds to me like you'd be a whole lot better off earning £100k for doing £100k of work, rather than earning £100k for doung £220k's worth!

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By jwgrogan
02nd Mar 2021 11:15

OwlAccountants wrote:

knowing that I do the work that provides them an income greater than they are capable of based on their own work.

If they recognise this, can they not be persuaded to ditch the equal remuneration and pay you according to your workload?

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By forgeron
03rd Mar 2021 14:10

I have had the experience of leaving and taking clients with me, but I'm afraid I can't be very helpful for your situation as all went well between us. I took only the clients I wanted, which was well under 50% of the total, we agreed a valuation for both his share of what I was taking with me and my share of what was staying behind, he agreed finance with the bank for the net amount owing and this was paid over to me.
The clients were happy, we were happy, we remained friends and both ended up selling our respective practices to the same firm many years later. This is probably the exception though, and I fear your associates are not going to see things in the same way as you do. Good luck though.
Incidentally, if everything you have said reflects the real situation as it would be seen from an independent point of view, I would say you are being more than generous.

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