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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 have question regarding Business and company law our companys

Customer Question

I have question regarding Business and company law our companys Articles of Association was drafted in February 1973. At this time the business was owned equally between by two brothers. Both were joint directors and shareholders. One brother left the company several years ago. I joined in 1975 as sales and marketing director and later as chairman. I own 50% of the shares along with my other brother.
Our Articles state that the business will be run by the directors not the shareholders. At a recent board meeting this was upheld by the directors, myself, my brother, and his two sons. I voted against this as my name is ***** ***** the articles and we did not own any property at this time the Articles were written." My brother insists that I must eccept our accountants share valuation.
I wish to retire as I am now 68, my brother is two years younger and has declared he will work until he is 75 and gift his shares to his sons.
At the time the Articles were written the company did not own any property. We have for several years owned our own premises on a sizeable plot.
Four years ago I suggested to the board that we should move from our current site as it was no longer fit for purpose and we should realise its potential for development- this was rejected.
I have been the driving force in developing the business but since my nephews have become directors the sales have dropped by £1 million pa and likely to be around £1,250,000 by our year end. I have bought to my brothers attention several times that the lack of meetings and a marketing plan the business has regressing and becoming a life style business.
I noted that the decline in sales has also affected my share valuation.
Our Articles also state that shares will need to offered to the members a fair price valued by our accountants. My response to this is that they are not valuers and the and I beleve the share value offered to me is low. My brother did mention to me that if I don't eccept the accounts valuation then " you should seek a buyer for your shares" I did enquirer about this oppertunity and had some encouraging response from would be buyers. Where the offer would exclude our assets and property. He has since rejected this and the board has past a vote to retain all assets and carry on with the business. My brother also operates his and his partners business from our premises so he has a vested interest to retain the site.
I now feel that I am marginalised and have a minority voice.
My name has never appeared in any Articles and my brother insists that the updated 1985 and 2006 Articles are not relevant.
I need to know if I can make a legal challenge to our 1973 Articles of Association.
I have no issues with the company continuing to trade after I retire. But I do wish to achieve the real value of my shares.
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 yo. I am a company law expert. Do you still own 50% of the shares? Can you post a copy of the articles into this link? Kind regards AJ
Customer: replied 1 year ago.
Yes I still own 50% of the company shares.
Can I mail the articles to you
Expert:  Alex J. replied 1 year ago.
Hi, Can you send them by email to***@******.*** - FAO Alex J?
Customer: replied 1 year ago.
I will try scan them or take a photo of them
They are at home so this will not happen until tomorrow.
Thanks
Expert:  Alex J. replied 1 year ago.
Hi, Thank you. No problem. In the mean time - can you confirm whether you have a shareholders agreement? Are the articles based on Table A Companies Act 1949? I look forward to hearing from you.
Customer: replied 1 year ago.
Hi Alex, I will check this out, but I have had been offered a shareholders agreement. I joined the company initially as a director then a shareholder. When my brother left the company his shares were equally divided so the remaining 2 both had 50%.
But Ni Shareholders agreement after my brother left.
Regards,
Martin
Expert:  Alex J. replied 1 year ago.
Hi,
Thank you very much.
I look forward to hearing from you.
Kind regards
AJ
Expert:  Alex J. replied 1 year ago.
Thank you.
I have received the articles.
I will review them and respond to you over the weekend.
Kind regards
AJ
Customer: replied 1 year ago.
Hi Alex,

You indicated that you will respond over the week end.

I am still waiting for a response.

Kind Regards
Martin

Customer: replied 1 year ago.
I am still waiting for Alex J reply which he
Said will be last week end?
Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
My apologies this question disappeared from my work list.
I have reviewed the articles and prepared a response - I will post it first thing tomorrow morning when I am back at my home computer.
Kind regards
AJ
Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
I have reviewed the articles of association.
The one point that strikes me about this issue is that your brother is the only person that can buy your shares because of the pre emption rights contained in the articles of association. Is that how you understand the situation? If you reject the valuation put on your shares then the company is effectively deadlocked in which case your only option would be to apply to court to have an order made that you are in partnership with your brother and the partnership should be broken up.
Can you tell me why you believe the accountant's valuation is flawed? It says that you must obtain a fair value certified by the accountants - to me that means you must obtain a valuation from a proper valuer and then once you have agreed on it the company accountant certifies it - this does not read to me that the accountant must carry out the valuation.
I look forward to hearing from you.
Kind regards
AJ
Customer: replied 1 year ago.
Hello Alex,
The property is now being revalued as a going concern so this may have a better return for me. I will have to see what the is, but want I was seeking is to know what the site would be worth if it was redeveloped for residential use.
My main question remains unaswered.
1 the articles do not include my name.
2 in 1973 the company had little assets and did not own property.
3 in1973 both brothers were equal share holder and directors, so therefore had equal voting rights.
4 the company now has 4 directors including my brother and I who are also also equal shareholders. The other 2 are his 2 sons. The problem that I now have is that the sons are voting on aspects that are Shareholders leaving me as a minority at board meetings. This recently happened when a motion was passed not sell the business, or develop the site or seek rental income from the premises which we own.
5 on the 1973 article there was only 2 directors now there are 4 this compromises my asset value. So are the two directors who are not shareholders allowed to vote on any issue that effect the shareholders interests. This is key to me as I am now marginalised and cannot protect my best interests.
6 I have never received any update with my name on the Articles of Association and Thus do not have a shareholders agreement - are the original 1973 Articles still valid in the original format as this what my brother is insisting on and with all the changes I don't feel this fair.
If you could get back to with these question it will help me to have a meaningful discussion with my brother.
Kind regards, Martin
Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
To answer your questions in turn:
1. The fact that the articles do not contain your name does not matter. When you own shares you accept the company as it is constituted that means you are still bound by the provisions of its articles. If this includes pre empion rights you are bound by them;
2.If the articles are out of date then all you can do is update them but this requires a special resolution;
3. You are an equal shareholder - do your shares have different voting rights to the other shareholder?
4. Do the articles contain any provisions regarding who can be a director?
5. If you cannot reach a conclusion with your brother then you may have a claim under S.994 of the Companies Act - protection against unfair prejudice - if you proceed with such an application which is a last resort, the court can order many things for example you receive fair value for your shares;
6. The Articles are not a shareholders agreement - but you are bound by the them as you own shares in the company which they constitute- the names you have shown me are the subscribers that subscribe for shares on formation - these will always change over time especially if shares are sold.
Is your brother actually prepared to negotiate? Because your best cause of action is to just agree a price if you want to sell, reconstituting the company would be a waste of your time as it still requires his agreement. You need to explain to him that you still own 50% of the company and he should give you fair value otherwise all him and his sons are doing is trading the company going forward for 50% of your benefit.
Kind regards
AJ
I
Customer: replied 1 year ago.
Thank you Alex the only thing that I am not clear about is item 3.
There is no provision as far as I know. But does appear a bit odd that a directors can vote against the interest of a shareholder is there anything I can do to protect myself against this?
Kind regards,
Msrtin
Expert:  Alex J. replied 1 year ago.
Hi, Thank you. Have the directors normally made decisions on the business management? Directors are agents of the company and should only act within their powers as defined in the company constitution (articles of association). In theory if the directors are fundamentally changing the course of the business they would need the power to do so in the articles, without it they would need shareholder approval. If they do not obtain shareholder approval they are potentially acting in breach of their obligations and this could give rise to a derivative claim against them under S.260 of the Companies Act. Again like the unfair prejudice claim this is a last resort - you should focus agreeing a sell out with the other shareholder as reconstituting the company may cause a deadlock. Did you approve the appointment of your two nephews?
Customer: replied 1 year ago.
Hi Alex,
Thank you for your prompt reply.
There is a lot of legal jargon in the articles that I sent you.
You may be able to answer this after going through them.
From the time I became a Shareholder/ director, the directors have made all the decisions without recourse to the shareholders. The only time we veered from this is when we negocited the shares from my brother who left the business- there again the shareholders were the directors.
Yes , I did approve my nephews becoming directors- It just seems a little odd that they can vote against my interests.
I will wait to see what the valuation is and consider my position after negotiating with my brother.
My fear is at some point they will realise the value of the site and sell it for development..
Do you consider it reasonable and enforable if I got my brother to agree that I would get a 50% cut in any property sale / company sale in the future?
This would be after taking into account that any settlement that I may have received?
At the last board the directors carried a motion the the property would not be sold, or a property company set up, or rental income would not be sought.
If in your opinion this idea is feasible it would make me a little easier negocating with my brother knowing that I would not be financially disenfranchised.
I look forward to hear from you.
Kind regards,
Martin
Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
Do you believe your nephews are working to deliberately prejudice you?
If they sell the site for development and you are still a shareholder - presumably the company will then declare a dividend of which you will gain half of the profit anyway?
You have to consider directors and shareholders are completely different "hats" so to speak. Wearing your "hat" as a shareholder you consider your own interests, wearing your "hat" as a director you consider the interests of the company as a whole. Are your nephews acting as directors acting in the best interests of the company?
Kind regards
AJ

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