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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3497
Experience:  Solicitors 2 years plus PQE
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Me and my husband are shareholders in a company and are also

Customer Question

Hi, me and my husband are shareholders in a company and are also executive directors employed as site manager and head office support. We want to resign from our day to day employed roles and thought we could remain as directors on the board. Our fellow directors are pushing for a resignation letter and saying we have no remit or responsibility as directors and therefore must remain as shareholders only. We are concerned that we are exposed to risk and may be responsible for how they run the business without actually having any say in it. I don't wish to give them a resignation letter without first finding out what I should be clear about in it. Many thanks.
Submitted: 2 months ago.
Category: Law
Expert:  Alex J. replied 2 months ago.

Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you. Employment and directorship can be independent of each. You can resign as an employee and not give up your right to remain as a statutory director. What percentage of the shares do you own?

Customer: replied 2 months ago.
Hi Alex, we own 15% each. We don't want to be involved in every detail, just to protect our investment. For example, if they want to acquire another site and we don't want to, or if the business requires a cash call, can they go ahead anyway and if we don't reinvest/sign for financing how will this affect our shareholding? Likewise if they want to dispose of a site can they do this without our agreement? These decisions have previously been made jointly around the table. We also need to know what risks we will be exposed to if we are only shareholders. Can our dividends be at risk? Our chairman is pushing us for resignation letters and I don't want to put anything in writing that commits or exposes us. Many thanks for getting back to us so quickly Alex, I look forward to hearing from you again. Julie
Expert:  Alex J. replied 2 months ago.

Hi Thank you. Who owns the other 70% of the company? Kind regards AJ

Customer: replied 2 months ago.
3 other directors each own 20%. One of these is an area manager, another is responsible for the financial aspects - both of these would spend a day or so a week on phone calls, site visits etc. The other is responsible for the marketing but has not spent a significant amount of time on it - just a project effectively that was initiated to smarten up the website and that's about it. The final 10% is a shareholder who doesn't have any responsibility or attend board meetings.
Expert:  Alex J. replied 2 months ago.

Thank you. Being a director is not essentially as long as you have some transparency in the management and finances of the company. The problem you have is it only takes an ordinary resolution to remove someone as a director - I would therefore consider other Avenues to retain control. For example do you have a shareholders agreement?

Customer: replied 2 months ago.
We do but it deals with what would happen if we sold our shares or died but doesn't cover anything relating to if we no longer continue in our 'day jobs'. Same with our Memorandum / Articles of Association.
Expert:  Alex J. replied 2 months ago.

Hi. Thank you. You could amend the articles to ensure you have full transparency of the accounts and a right to attend the board meetings. The problem is make this change requires you to be on good terms with the other shareholders. Are they currently aware that they could vote you out of the board with an ordinary resolution?

Customer: replied 2 months ago.
Sorry it's taken a while for me to get back to you Alex. We have had many discussions about the best course of action and concluded that we either choose to trust them to get on with things and consider all our interests (obviously they want to make money too) or we decide to sell our shares and be done. Our decision ultimately is whether to accept the risk or not. I think it was important for us to make sure there were no hidden risks. We are being pressured for resignation letters which is fair enough but I just want to confirm that we are not setting ourselves up if we put in writing we are resigning as directors; I would like to just confirm we are resigning from our operational roles but they may come back and ask me to confirm we're resigning our directorships as well - as this was never our intention in the first place but is a knock on effect I would prefer not to. Am I under any obligation to put in writing that we resign as directors? Many thanks.
Expert:  Alex J. replied 2 months ago.

Hi, Thank you, You are under no obligation to resign from your statutory directorship (a director appointed in accordance with the Companies Act 2006). Personally I would not want to be a minority shareholder in any company without a shareholders, that said you and your husband combined have a blocking stake 30% - so you can stop your shares being diluted etc. What is the benefit of keeping the shares? Are you expecting the company to make large future profits?

Customer: replied 2 months ago.
It is possible that there could be some substantial profits in the future. Our original investment some 8 years ago and subsequent smaller investments has come back to us so anything we make now or dividends we receive will be on top of having our money back (although we still have personal guarantees against a business loan until September 2017 but this in place for the last two years with no hitches). It may be an option that the directors may wish to acquire new sites (which would require further funding/investment, or they may wish to sell and this is our biggest concern. We were under the impression that if they needed further investment and we didn't wish to comply, this would automatically dilute our shares. Is this not the case then?
Expert:  Alex J. replied 2 months ago.

Hi, Thank you. Unless they have an authorised issued share capital, they cannot issue more shares without offering them to you first, pre emption rights - if you did not want to invest more then in that circumstance they could dilute you. In order to issue more shares they would have to have a reason, they could not do it just to prejudice you. Have you thought about selling as an earnout? So you agree a larger price for your shares and say if they company hits certain profit targets you get further payments? I would insist on being release from the bank guarantees if you are no longer going to be directors.

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