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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3493
Experience:  Solicitors 2 years plus PQE
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I am the MD of a business that I own with my brother. I have

Customer Question

I am the MD of a business that I own with my brother. I have been in the position for 5 years with a shareholding of 30% my brother owns 70%. He has not worked in the business for over 12 years. After a few very successful years he wants to come back into the business and run it. Can I block this?
Submitted: 1 year ago.
Category: Law
Expert:  Alex J. replied 1 year ago.
Hi,
Thank you for your question and welcome.
My name is ***** ***** I will assist you.
I am afraid he can do this - you only need a 51% majority of the voting share capital to appoint yourself as a director or remove a director. See S.168 of the Companies Act 2006 - a director is entitled to be involved in the management of the company.
As 30% shareholder you have a blocking stake - meaning you can prevent most of the major company items that might prejudice you for example dilution of share capital or liquidation of the business.
If he insists on his appointment you will have to involve him the management of the company.
In theory he could remove you - therefore I would recommend accommodating him with a view agreeing a shareholders agreement at some point in the future in order to give you a contractual right to remain as a director.
Do you take a salary and pay PAYE?
Kind regards
AJ
Customer: replied 1 year ago.

AJ,

Thanks for this. I do not take a salary anymore and am paid via a quarterly dividend

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
If you are not an employee you wont have an employment claim if he forces you to leave.
I think you need to keep him onside and at least involve him in the meetings until he will agree to sign a shareholders agreement consolidating your position.
Would you like to discuss anything else?
Kind regards
AJ
Customer: replied 1 year ago.

I was an employee until two years ago. when I changed to dividend. I do take a minimum salary for tax reasons. So I guess I am technically employed. Would that be right?

Paul

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
Potentially - yes if you take a salary and have employment rights then if your brother sacked you, you would potentially have an employment claim against the company.
Add this to the fact that you hold a blocking stake in the company, means really your brother will eventually realise he will have to accommodate you and listen your advice and suggestions
Kind regards
AJ
Customer: replied 1 year ago.
One last question. Can I block him making dividend payments to himself as he wishes as we have A & B shares.
Thanks for this advice.
Paul
Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
You can block him from having different classes of share with different rights to dividends (i.e A and B Shares) because to have different classes of share means you will need to amend the articles of association and the share classes.
What you cannot do is block dividends as a shareholder - dividends require the directors to a) recommend them and b) shareholders then need to pass an ordinary resolution to pay them (51%). Therefore while you both have the same classes of share - he would not be able to declare a dividend to himself and not to you.
kind regards
AJ
Expert:  Alex J. replied 1 year ago.
Hi,
Can I assist any further with this?
In the mean time any feedback is gratefully received.
Thank you
Kind regards
AJ
Customer: replied 1 year ago.

Sorry Alex,

I did reply to your last email but looking at the thread it does not look like it got to you. I was away for the weekend so only picking up emails now. Alex we have already changed the articles and have A & B shares in place. This is how I am paid for my employment. Does he still have the option to pay himself when he wants to without my approval?

Paul

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
Do the A and B shares have different rights to dividends? Do you have A shares and he has B Shares?
In theory a company can only make a dividend payment if recommended by the directors first - the shareholders then have to approve the dividend payment by ordinary resolution.
If the A and B shares have the same rights to dividend distribution he would find it very difficult just to give himself a dividend because that would potentially be an unfair prejudice on you as a minority shareholder under S.994 of the Companies Act 2006.
I am happy to carry on discussing this but I would be most grateful for any feedback in the mean time.
Kind regards
AJ
Alex J., Solicitor
Category: Law
Satisfied Customers: 3493
Experience: Solicitors 2 years plus PQE
Alex J. and 2 other Law Specialists are ready to help you
Customer: replied 1 year ago.

Alex,

This has been very helpful. The shares do not have the same rights to dividend. The reason we created A & B shares was for me to be paid quarterly as a dividend instead of taking a salary. He now want to join the business and take a significant salary as a dividend. The challenge I have is that the business will not be able to support this additional expense and he is placing a massive burden on the company. All very complicated I appreciate.

Paul

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
Does he have the A shares and you the B Shares or is that case the you both have A Shares and you have a B Share as well?
If the company does not have the money to pay the dividend all that will happen is the directors will become personally liable for the company debts for authorising the dividend payment, if the company went insolvent. Have you explained this to him as a concept?
Kind regards
AJ
Customer: replied 1 year ago.

Alex. He has A only and I have B only. I have explained the financial concerns. This is why I am asking if he can authorise his own dividend and block payments to me.

Thanks

Paul

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
To authorise dividend payments on his own he would have to remove you as a director - if he forced you to authorise the payments you could have a claim for unfair prejudice under S.994 of the Companies Act.
If he removed you and continued to pay dividends that the company cannot afford - then you would have further evidence for a claim under S.994 of the Companies Act.
Is there any chance he would buy you out?
Kind regards
AJ
Customer: replied 1 year ago.

That news is comforting. Thank you for this. I believe you have given me the advise I need. Thanks

Paul

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
Please do not hesitate to contact me if I can assist any further.
Kind regards
AJ

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