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LondonlawyerJ, Advocate
Category: Law
Satisfied Customers: 818
Experience:  Solicitor with over 15 years experience.
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Started business five years ago, three people. One person loaned

Customer Question

Started business five years ago, three people. One person loaned £12,000 to company and wanted 51% of shares until such time as loan was repaid and then shares were to be reallocated. Money repaid within a year but shares never reallocated as this person decided not to do this. We are now selling business. Does this person get 51% of proceeds even though she rescinded on original agreement.
Submitted: 3 years ago.
Category: Law
Expert:  LondonlawyerJ replied 3 years ago.

LondonlawyerJ :

Hello, I am a solicitor with over 15 years experience. I will try to to help you with this. Can you just give me some idea of the time scale please, when was the company formed, when was he loan made and when was the loan repaid? Was the loan agreement in writing? Why weren't the shares re-allocated when the loan was cleared? Is the lender seeking 51% of the sale proceeds?

JACUSTOMER-759mi3vk- : Sept 2009 Company was formed and loan made at that time. There was no loan agreement and this was repaid in installments over approx 1 year to 18 months. Lender who is one of three director, myself being a Director as well decided she was going to keep the 51% even though it was minuted at the time of our setting up that shares would be reallocated. We haven't discussed the proceeds allocation as yet but need to be aware if I have a right to a third of proceeds and whether I can refuse to sell my share holding. She has said previously when shares were discussed she had been advised to hold on to the 51%.
LondonlawyerJ :

Ok thankyou for that. I will be busy for much of this morning but will answer you later today.

JACUSTOMER-759mi3vk- : Thank you. Will be out most of day so will check later
LondonlawyerJ :

I take it that there is no written agreement for all this. It doesn't sound as if you took issue with this - 3 or so years ago- when she announced her intention to not give up her 51% of shares. and move to33% each. If it is clearly minuted that she was to give up her majority share when the money was repaid then there will be evidence that she is in breach of contract. You could take action to force her to give up the excess shares or to re-imburse you for the excess she will get as a 51% shareholder on sale. However, she would very likely argue that by not doing anything you had accepted that she should keep her shares, or that this was evidence of a further agreement between you that she could keep a 51% share holding. It is hard to asses who would prevail in a dispute of this nature but as things stand at present she will be entitled to a graeter share of sale proceeds than she should be. How much money is at stake here?

JACUSTOMER-759mi3vk- : We did have a discussion at the time which was when she said she wouldn't give them up. She knows ours feelings about this and did say last year that if we sold money would be shared three ways. From conversation she has had recently think this might not be the case. Really want to know where I stand in this and whether if business sold I can refuse to sign over my shares thereby keeping an interest in the business which would I assume in the price being lowered. Business is being sold for £170,00
LondonlawyerJ :

I would think that in a situation like this (where there is an oral contract and apparent breach and a fairly complex history of representations etc) and there is £170,000 involved you and the other person who may be about to be disadvantaged by the lender should seek advice from a solicitor in the orthodox face to face way. I think the amount of help which can usefully be given through this forum has already happened. You have a potential difficulty here and you need a solicitor advising you in more detail than is possible here.