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Removing a shareholder from a limited company – is this possible?

03/12/2013
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From UK Business Forums: http://www.ukbusinessforums.co.uk/forums/showthread.php?t=221094 Bit of a long story but I’ll try to make it as clear as possible… In January 2010 myself and another individual decided to set up a limited company with each of us holding a 50% share (one £1 share each). We both benefitted equally from the company financially, although neither of us made any financial investment in the company at start-up as we built up trading gradually, off the back of another project, with neither of us receiving a salary in the beginning. Both myself and the other individual were directors of the company, with him handling all of the clerical/admin/accounting side of the business and me managing the manufacturing. In February this year, […]

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From UK Business Forums:
http://www.ukbusinessforums.co.uk/forums/showthread.php?t=221094

Bit of a long story but I’ll try to make it as clear as possible…

In January 2010 myself and another individual decided to set up a limited company with each of us holding a 50% share (one £1 share each).

We both benefitted equally from the company financially, although neither of us made any financial investment in the company at start-up as we built up trading gradually, off the back of another project, with neither of us receiving a salary in the beginning.

Both myself and the other individual were directors of the company, with him handling all of the clerical/admin/accounting side of the business and me managing the manufacturing.

In February this year, the other shareholder came to me and told me he was fed up with the industry, didn’t want to continue with the business and was giving me one week’s notice that he was leaving. He then infact left, with (surpisingly) no particular bad feeling, at the end of that week and I haven’t heard from him since. At that point I decided to pick things up and continue the business without him.

When the shareholder left, he handed me a letter resigning as a company director and told me he would take care of the rest of the paperwork from home. As far as I was (perhaps naively) concerned, the shareholding he had was returned to me at this time also, backed up by the fact that he hadn’t made any further contact since and told me when he left that he didn’t want anything from me or the business except a “clean break” and the chance to walk away.

At the point when he walked out, the company had just taken on responsibility for an £8500 debt, for which both myself and the other shareholder had personally signed as guarantors. We agreed before he left that I would ensure the business paid this off over the next six months and that all ties would be cut between us once the final payment had been made.

This has since happened and, by coincidence, when I was getting together copies of the paperwork to send to the other shareholder in the post, confirming the debt had been settled, I discovered that he was still in possession of his 50% shares and had not infact signed them over in February as I had thought.

I have since tried to make contact with him via email, letter, telephone and text to sort this out, but he has been completely unresponsive. I finally resorted to going to his house about three weeks ago with a letter explaining the situation and a stock transfer form for him to sign and return to me, as a formality of our agreement. He refused to sign the form there and then but did say he would post it back to me once he had checked through it. At the time I didn’t see any problem with this, as he himself seemed surprised that the situation with the shares hadn’t been sorted out, as he’d thought, at the beginning of the year.

Three weeks later I have still received nothing from him and he is once again unresponsive to any form of contact. Business is slowly but steadily improving and I would like to have him out of the picture officially to concentrate on the growth of the business.

My question is, based on the current situation, what are my rights with regards to the company if he won’t give up his shareholding voluntarily? Or, more importantly, won’t even speak to me to say whether he will or not?

The company has no assets and I have already been advised that one option would be to set up again from scratch and wind the company down, but I’m reluctant to do this after all of the hard work that myself and the staff have put in over the last 7 months to try and turn things around.

Having done manual work all my life and not having any experience in this area whatsoever I am finding it impossible to know what to do for the best, including perhaps seeking legal advice, which would no doubt be costly when money is already tight. Nevertheless, if this is what’s required then I’m more than willing to consider it to get the situation resolved once and for all.

Any advice offered would be very much appreciated.

Thank you in advance.

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How many shares did the company have at registration (usually it’s 100 or 1000, but can vary depending on how you registered)?

Your option would be to buy the rest of the shares, if 98 are left, you buy them and he effectively only owns 1% of the business, if it’s 998 shares then he owns a lot less.

Even if he does not transfer the 1 share, his entitlement reduces dramatically.

Thank you for your reply.

It was the other shareholder alone who handled the initial registration of the company and as I said initially, he was solely responsible for the paperwork side of the business so this wasn’t something I looked into in any detail at the time.

All I know for definite is that we are both 50% shareholders and that from speaking to the company’s new accountant, he has advised I should be able to buy ******’s share in the company for £1, which is the same value it had when the shares were created. I had presumed there were 2 x ordinary shares (1 per shareholder), worth 50% per share?

With regards to buying the shares back I’m not sure how this would work, for the following reasons:

The other shareholder hasn’t indicated he wants any money from me and won’t communicate with me on the issue to enable me to find out if/what he wants.
The company, according to a brief financial analysis by the new accountant, probably has very little (if any) monetary value, having no assets and only a short period of trading to establish any profit.

Do I, then, need to have a formal valuation done for the company and, if so, by whom? Can I appoint the person or does ****** need to be consulted/give his agreement?

Many thanks in advance …

what would happen if he turned up next week and demanded you sell him your shares?

exactly.

really all you can do is close the company, send him his money due (if any) and start out fresh again. He may take legal action to prevent you closing the company though.

Smile
My understanding is you are not allowed to dilute someone share holding, if the company sells more shares they must be offered to all shareholders at the same rate and proportional to their existing holdings
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This is also what I have been told, however with the other shareholder being completely unresponsive, it might be still possible to effectively dilute him out of the company.

It might be possible to issue 998 new shares, of £1 each, and offer him “his” portion on equal terms to you.

Give him 28 days to accept and fully pay up the shares, and when he does not respond, you buy them yourself.

His shareholding will now have dropped from 50% to 0.1%

Repeat this to further dilute him as much as you like.

There is a “risk” that he will actually buy his lot to stay a 50% shareholder, but then you will at least know his intentions.

I am not a lawyer and suggest you check with one before you do any of this, specifically you need to check the agreements between you (if any), and you will have to actually purchase your portion of shares within the deadline.

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Do you need the 75% of the shareholders to vote increasing the shares numbers and setting a price?
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Do you need the 75% of the shareholders to vote increasing the shares numbers and setting a price?
That depends on the articles for your company. Some leave it up to the Directors to decide on increasing the share capital, others require a special resolution (75%) for it to be passed.

http://www.ukbusinessforums.co.uk/forums/showthread.php?t=221094

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