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Senior Partner
Senior Partner, Solicitor
Category: Law
Satisfied Customers: 13329
Experience:  Solicitor with more than 30 years experience
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I need to get rid of a shareholder in a business but she wants

Customer Question

I need to get rid of a shareholder in a business but she wants money plus the following: [(Revenue of the Company for the accounting period ended 31 December 2011 / annualised revenue of the Company per its accounts to the point of sale/disposal of its business) x the total consideration payable by the third party acquirer] x 33%.
Can I sell my share to my husband as a third party to avoid this demand, thereby paying her a nominal sum.
Submitted: 4 years ago.
Category: Law
Expert:  Senior Partner replied 4 years ago.
Can you explain a little more. Are you selling to someone? what proportion of the shares do you own and what proportion does she own? What price are you selling at? I do not follow the formula you are quoting - is the revenue for 2011 greater of lesser than the the annualised revenue? an why would you use that particular formula? Are the retained profits being distributed or passed on to a buyer?

Is there a shareholders agreement?
Customer: replied 4 years ago.

We both own a company. There is no shareholders agreement. The shareholder that wants out but has said that she will leave if I give her £20k now and also basically 33% of any profit I make on sale (the formula is irrelevant and profits are being calculated on good years). The demands are unreasonable as the business is struggling and a payment of £20k for her share was very generous. I am thinking of signing her demands, handing her £20k and then selling the business to my husband for a pound so all she will get is 33p. Is this possible?

Expert:  Senior Partner replied 4 years ago.
IF you are both shareholders and there is no shareholders agreement then there is no obligation on either of you to buy the other out at any price. If she is a minority shareholder then the value of her shares can be discounted to reflect that.

Whether you buy her out at all really depends upon whether you have control and whether you can get rid of her as an employee without buying her out and just run the business.

I cannot recommend the idea you suggest to sell a nominal value to your husband. He is not a third party on normal interpretation of the words and you could end up being sued for fraud or have your (ex) shareholder bring a court petition on the grounds that you are deliberately running the company in a way that is prejudicial to her as a shareholder.

If the company is not doing well why not agree that the company will buy her shares back but only pay our of profits - that way you get certainty but if there is no profit it will not cost you.