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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3694
Experience:  Solicitors 2 years plus PQE
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I have a limited company with 2 directors (myself being one

Resolved Question:

I have a limited company with 2 directors (myself being one of them). My business partner has a personal credit card in his name that we have used for business expenses for the last 3 years with the company paying the monthly bill.
I have just found out my partner had been using this card for his own personal spending (he has been responsible for our accounts). Is what he has done illegal? We are both equal shareholders with no shareholders agreement in place. Do his actions constitute theft and would this give me grounds to dismiss him from the company?
Submitted: 2 years ago.
Category: Law
Expert:  Alex J. replied 2 years ago.
Hi,
Thank you for your question and welcome.
My name is ***** ***** I will assist you. I am a company law expert.
Does the company pay the whole bill monthly? How many of his expenses has the company - can you work this out?
Kind regards
AJ
Customer: replied 2 years ago.
Hi, yes the company pays the whole bill. I recently requested a printed copy of all statements and while going through them there is a few thousand pounds spent personally by him over the last 3 years which are nothing to do with the company. Expenditure on the card has been put down as equal dividens drawn. He had never mentioned he has used it personally
Expert:  Alex J. replied 2 years ago.
Hi
Thank you.
I have just received this I am typing a response now and will post it in the morning.
Kind regards
AJ
Customer: replied 2 years ago.
I received your message last night but not your response this morning? If you have already posted it could you please re post. Thank you
Expert:  Alex J. replied 2 years ago.
Hi
Thank you.
I am just finalising it now.
Kind regards
AJ
Expert:  Alex J. replied 2 years ago.
Hi,
Thank you.
There are various issues here so I will answer each question in turn:
1. Can you use the fact that he has been taking money from the company for personal gain as reason to remove him from the company?
The answer to this is simply no. You are 50/50 shareholders with no shareholders agreement, without trust and agreement the company is deadlocked. You need to either:
(i) Buy one another out;
(ii) Dissolve the company;
(iii) Obtain a court order to have the company dissolved if he refuses to agree to a buyout or dissolution;
(iv) Reach truce but in order to do this I would strongly recommend you sign a shareholders agreement going forward.
2. What offence has he committed;
- At worst this is fraud - you could go and report him to the police and they may investigate the matter, but that won't help you get the money back and the company will still be deadlocked;
- S.172 -S.177 of the Companies Act 2006 details directors duties to a company - he is potentially in breach of not acting in the best interests of the company, not acting with independent judgment, taking benefit without disclosing it and at worst theft.
- As a worst case scenario you could bring a derivative claim against him under S.260 of the Companies Act 2006 for breach of director duties and seek to have him repay to the company all the money he has taken.
- This is an expensive approach and if you wanted it to work, it is dependent on him agreeing to continue working with you or leaving the company.
What I suggest as a practical approach:
(i) have an off the record conversation see if you can still work together and have him repay;
(ii) If you just cannot work together anymore, you will need to either buy him out or dissolve the company and start again on your own. If he won't agree to repay the company, you can go to court and obtain a court order ordering a distribution of the assets with his share being reduced by the amount he has taken.
I look forward to hearing from you.
Kind regards
AJ
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