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Ash
Ash, Solicitor
Category: Law
Satisfied Customers: 10916
Experience:  Solicitor with 5+ years experience
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I seek urgent advice from an expert in regard to my company

Customer Question

I seek urgent advice from an expert in regard to my company position and my legal rights. I'm a Director with 70%shareholding in my business. My business is a pre-revenue start-up although I have designed and produced my first collection of luxury shoes in the form of samples. In January 2014 I was approached by an gentleman who proposed the following:
*To invest £50K in return for a 30% share in my business with a time frame of £25K to be paid in mid April 2014 and £25K to be paid in mid May 2014. It was agreed that this would be used as cashflow to be used to pay for shoe samples, 3 month trip to Italy to produce the collections, pay suppliers and agents, for Exhibitions such as London Fashion Week, marketing material, e-commerce website, financial planning, sales agents, PR agency costs etc
*He would connect the business with relevant contacts to build the brand in line with other luxury shoe brands.
*A fee of £1,250 was requested by him to enable him to raise further investment of £100K+ which the business would require within the first 6 months of trading.
*He was asked to become a company Director but without day-to-day operational responsibilities.
* No articles were produced governing the investor relationship or recording his obligations. The agreement was made electronically without an official shareholders agreement.
*He requested a share certificate for the full 30% before giving the funds which I sent him
The following transpired:
*He paid £15K in mid April followed by £8.5K at the end of April (thus falling short of £1.5K of his obligation)
*In July during my business trip in Italy while making the samples with the factory, he communicated that he was unable to pay the rest of the funds stating he was having some financial issues. He indicated that he would be able to pay the remaining amount by Sept 2014, an extension which I did not agree to. The business stated accumulating overheads at this point.
*Between July and October 2014 additional amounts were paid totalling £7.5K with the remaining amount still outstanding and with no intention to pay it.
*He failed to raise additional funding as promised and therefore connected with other funding consultants totalling fees to a minimum of £7.5K of which the business still has £5K outstanding to pay. Paying for these extra services has not lead to any additional funding and has put the business in debt.
*He has become an absolute nightmare interfering in every aspect of the business, treating me with disrespect from every angle. His behaviour is condescending, manipulative, unprofessional, inappropriate and aggressive.
*He attends social events and parties where he damages the brand in conversation through his unprofessional and inappropriate behaviour.
*He enters into business relationships "willy nilly" without my permission resulting in contractual relationships and "appointed suppliers" that do not reflect the high end brand image and resulting in obligations to the business.
Damages incurred:
*Broken trust relationship with him
* Damaged to relationship with Italian Development team - unable to cover their costs which is a fundamental part of the business
*Agent for production of factory relationship which had to be terminated
*Loss of three shoe styles in the collection resulting in loss of future business
*Termination of Accountant
*Unable to produce a second season collection for which I am now too late to produce
*Cancellation of London Fashion Week place and Paris Fashion Week place
*Loss of future orders due to inability to establish distribution network (including PR, sales agent etc)
*Disrespectful behaviour and severely damaging the brand through the way he publicly conducts himself.
*Failure to raise additional funding resulting in incurring debt
Legal question:
1. How do I remove him as a Director altogether/can I remove him altogether from the business?
2. Can he act as just a silent investor with no function in the business?
3. Can I offer to pay him off the amount he has so far invested minus fees and expenses paid to him when the business is in a position to do so?
4. How can I register that he does not have a 30% shareholding but an 18% shareholding?
5. Can I just close the business and what are the implications?
6. If I close the business can I open another one exactly the same but as a 100% shareholder?
Submitted: 2 years ago.
Category: Law
Expert:  Ash replied 2 years ago.
Alex Watts : Hello my name is ***** ***** I will help you with this.
Alex Watts : For now please let me know whether you still own 70%?
JACUSTOMER-o25537c1- :

Hi Alex, yes I do.

Alex Watts : 1. You can pass a resolution to remove him as a Director, as you own 70% it will oass
Alex Watts : pass
Alex Watts : 2. Yes, he can vote at the agm but that's it
Alex Watts : 3. You can but he may not accept. He owns 30% and always will unless you buy him out.
Alex Watts : 4. You would need to amend the annual return at Companies House
Alex Watts : 5. Yes you can. You just close it and that's it. If there are no personal guarantees you just walk away
Alex Watts : 6. Yes you can
Alex Watts : The issue here is that he does not have a director or shareholder sgreement. This really means you can do what you want.
Alex Watts : So if you want to remove him as director you can. Until you buy him out he will always remain a shareholder
Alex Watts : Can I clarify anything for you about this today please?
JACUSTOMER-o25537c1- :

Thank you. Does this mean I can just close the company? I am worried that he will sue me for the monies paid and cause damage to my name as he has an extensive network

JACUSTOMER-o25537c1- :

also can I just bring his shares down to 18% without authority. Can I do this today?

Alex Watts : Yes you can close the company if that what the shareholders decide at the meeting
Alex Watts : If the agreement was he would buy 30% for the sum agreed and he did not, you can resice pro rata
JACUSTOMER-o25537c1- :

so I have to hold a meeting? I know he will not agree to this

JACUSTOMER-o25537c1- :

can you explain 'you can resice pro rata" in laymen terms?

JACUSTOMER-o25537c1- :

So if I remove him as a director and bring his shareholding down to 18.6% then he is in effect a silent investor

Alex Watts : Sorry reduce pro rata
Alex Watts : Yes you can remove him as a director and reduce shareholding
Alex Watts : Can I clarify anything for you about this today please?
JACUSTOMER-o25537c1- :

If I were to close the company and if he sues for the monies advanced to date, does he sue me in personal capacity or the business? i.e. there will be a potential judgment against the business

Alex Watts : Depends who he gave it to. If it was the company then he would sue that. If it was you personally then it would be you
JACUSTOMER-o25537c1- :

so if he paid to the company, does that mean he can not sue me in my personal capacity

Alex Watts : Correct
JACUSTOMER-o25537c1- :

If a judgement is obtained against the company then, and the company owns no assets, the judgement would not be enforceable, right?

Alex Watts : Correct.
Alex Watts : And it would not be binding on you.
Alex Watts : can I clairfy anything else for youa.
Alex Watts : you?
JACUSTOMER-o25537c1- :

my suspicions are that he will go on a spree and cause major repetitional damage to my name (which is ultimately my brand). To put my mind at ease is there a way I can prevent this?

JACUSTOMER-o25537c1- :

*reputational

Alex Watts : sadly not unless you get an injunction which can be very expensive
Alex Watts : That is a High Court matter
JACUSTOMER-o25537c1- :

Do I have to hold an agm to vote to remove him as a director and change his shareholding? or can I just action this myself immediately?

Alex Watts : Yes AGM or EGM
Alex Watts : he must be invited
JACUSTOMER-o25537c1- :

So he can oppose this?

Alex Watts : Of course.
JACUSTOMER-o25537c1- :

what is the notice period which i need to give him notice of for the meeting to take place? What is an EGM?

JACUSTOMER-o25537c1- :

So although I have 70% I still can not just remove him?

JACUSTOMER-o25537c1- :

even though he has breached our agreement?

Alex Watts : 14 days for an AGM. Emergency General meeting.
Alex Watts : No you can just remove him because you failed to get a shareholder or directors agreement written up giving you that power
JACUSTOMER-o25537c1- :

I can just remove him?

JACUSTOMER-o25537c1- :

Do I still then need to hold a EGM? or can I bypass this?

Alex Watts : You must have the EGM.
Alex Watts : you can't bypass it
JACUSTOMER-o25537c1- :

By I can override his vote because I am majority shareholder?

JACUSTOMER-o25537c1- :

but

Alex Watts : Yea
Alex Watts : yes
JACUSTOMER-o25537c1- :

ok

JACUSTOMER-o25537c1- :

ok so my options are to either closet company and risk my name being damaged or hold and EGM and override his vote and adjust his shareholding and position with Companies House?

JACUSTOMER-o25537c1- :

*close

Alex Watts : yes
JACUSTOMER-o25537c1- :

ok

JACUSTOMER-o25537c1- :

Do I not need his signature from him to present to companies house to close the company?

JACUSTOMER-o25537c1- :

If I close the company does this mean I liquidise and will then not be able to be a director of another company? This will also affect his capacity too?

Alex Watts : no
Alex Watts : Yes you can close the company.
Alex Watts : it won't effect you opening another one.
JACUSTOMER-o25537c1- :

How do I just close it?

Alex Watts : you apply to companies house and fill out a form
JACUSTOMER-o25537c1- :

the form I looked at stated I needed his signature

Alex Watts : no, it needs one director
JACUSTOMER-o25537c1- :

ok

JACUSTOMER-o25537c1- :

thank you for all your help. Now I need to make the decision which way I go

JACUSTOMER-o25537c1- :

I can open another company and start trading and taking orders straight away? Can he not sue me for this action?

JACUSTOMER-o25537c1- :

Is this fraud?

Alex Watts : yes you can open a new company.
Alex Watts : i can't tell you what to do, this is a matter for you.
JACUSTOMER-o25537c1- :

but I mean legally If I started taking orders straight away into the new company and closed the current company can he not then take legal action?

JACUSTOMER-o25537c1- :

considering everything so far has been with the current company including shoe samples?

Alex Watts : Indeed. I can only give you options
JACUSTOMER-o25537c1- :

ok I understand

JACUSTOMER-o25537c1- :

I think that has answered everything

JACUSTOMER-o25537c1- :

So ultimately I can action whatever I like as long as I communicate this to him?

JACUSTOMER-o25537c1- :

If I follow the correct legal steps

Alex Watts : that is right.
JACUSTOMER-o25537c1- :

ok

Alex Watts : Can I clarify anything else for you?
JACUSTOMER-o25537c1- :

I think that's everything

JACUSTOMER-o25537c1- :

Thank you for your help

JACUSTOMER-o25537c1- :

Have a lovely evening

Alex Watts : Great, if I could ask you to rate my answer before you go today, the button should be at the bottom
Alex Watts : if you need further help,please click reply
Ash, Solicitor
Category: Law
Satisfied Customers: 10916
Experience: Solicitor with 5+ years experience
Ash and 2 other Law Specialists are ready to help you
Expert:  Alex J. replied 2 years ago.
1. S.168 of The Companies Act 2006 requires special notice for a shareholder meeting that purports to remove a director - See. S.312 of the Companies Act 2006 - this requires 28 days notice - otherwise you risk the resolution being invalid.2. You cannot just close a company - if the company has creditors you may have to put it into liquidation. The effect of this would be wide reaching - for example permission would be required to re open a company and trade it with the same or similar name.

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