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Vincent2013, JustAnswer Expert
Category: Law
Satisfied Customers: 213
Experience:  Qualified solicitor and barrister (non-practising) with 7+ years experience
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I a 50% shareholder in a business, the other director has

Customer Question

I' a 50% shareholder in a business, the other director has the other 50%. It's a classic situation where I'm 25 years younger and he's not pulling his weight. He won't sell.....has money already.....just likes to recieve his dividend.
I basically want out and we only have two staff that would come with me.
I can't get access to the Articles of Association.....but I'm 99% sure they are standard.
Can I resign my directorship and move on? I'm not bothered about the shares....the business will fold without me and the two staff being there.
Submitted: 4 years ago.
Category: Law
Expert:  Vincent2013 replied 4 years ago.

Hi, thanks very much for your question. My name's XXXXX XXXXX I'm going to assist you with it.


The first thing you need to do is to check the provisions of any shareholders agreement or service contract to see if you have (in your capacity as a director / shareholder) any obligations NOT to compete with the business. These are somethimes referred to as "restrictive covenants" and are fairly common.


As well as being common, they are also commonly unenforceable! This is because they must NOT go beyond what the company is legitimately entitled to protect itself against balanced against the need for an individual to move on, earn his livelihood and (in doing so) use the skills he previously deployed for the former company.


In the absence of any restrictive covenants, the next matter to consider are the fiduciary duties that you owe to the company as a director. In a recent case in 2012, the Court of Appeal discussed the fiduciary duties of employees and directors. In essence, a director has (amongst many other duties) a duty of "loyalty" to the company to which he is appointed. Despite this, he is entitled to take the decision to set up a competing business and discuss this with family and friends, without needing to advise the company of this. The problem arises if he starts making preparatory steps. He must resign once he has irrevocably decided to engage in a competing business and taken preparatory steps to do so. This means poaching customers and members of the workforce whilst still a director would be a breach of the director's statutory duty and could, conceivably, result in a claim being made by the company for damages.


In your situation (as you quite rightly point out) you will need to resign. The key is to ensure that, in the absence of any specific contractual restrictive covenant, you are very careful with regard to how you take matters forward in respect of employing any former colleagues.


Can I clarify anything for you? I should also point out, that I would be very happy to assist you in getting hold of the articles, which can be done online (if that's useful).

Expert:  Vincent2013 replied 4 years ago.

Hi Andre. I hope my answer yesterday was helpful. If so, I would be very grateful if you could take a quick moment to rate it. Otherwise, do let me know if I can clarify anything for you.


Best wishes,