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UKSolicitorJA, Solicitor
Category: Law
Satisfied Customers: 4312
Experience:  English solicitor with over 12 years experience
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Sir, I am the majority shareholder in an LLP: I

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Dear Madam/Sir,
I am the majority shareholder in an LLP: I own 57% of the business, and my business partner - 43%.
Initially in 2007 he invested 495,000. His partner at the time put 110,000. They created a limited company that owned the business and their shares were 50/50. Then they had financial problems, and my husband and I stepped in investing 270,000 for which we got 37% of the shares. With that their shares were reduced to 31,5% each. At the time we did not know the details of the initial investments. Our assumption was that they invested equally, hence 50/50.
Then they split up and we had to buy his partner out paying him 150,000 for 20% of the shares, which brought our shares to 57%. My business partner and I have become directors of a new entity with the shares of 43/57 as stated above.
Then this year my husband and I put 500,00 into the business to help it grow. That loan has to be paid monthly in certain instalments.
As a director of the old company and a director of the new company my partner has been drawing the salary of 3,333 a month. I have not been getting any salary. And in 8,5 years my business partner has not put a penny into the business.
Since the monthly payments for my husbands and my loan at the moment are too much for the business, we suggested to my business partner that we will exchange the loan for 23% of his shares. Or he can keep his 43% and become the silent partner getting his 43% in monetary value when we sell the business.
Our business is on the steep rise, and the chances that in 5 years time he will get a sizeable amount is very likely.
Unfortunately, he threw a tantrum and has become difficult. He does not want to accept any of the options. He just wants to keep his 43% and draw his salary, as he has been doing in all these years without any further investments on his part. He has been disruptive for the business in the past, and we are afraid and anticipate it can happen again on a major scale.
We think it is unfair on us (we have been carrying him for the last 5 years).
The question is:
What are my legal rights as the majority shareholder? We are seeking legal advice from our solicitor, but we would like to hear from you as well. We need to know where we stand.
Thank you very much for your time.
Did you enter into a Partnership Agreement with your Business Partner? If you did not, Regulation 7 of the LLP Regulations 2001 state as follows:
7. The mutual rights and duties of the members and the mutual rights and duties of the limited liability partnership and the members shall be determined, subject to the provisions of the general law and to the terms of any limited liability partnership agreement, by the following rules:
(1) All the members of a limited liability partnership are entitled to share equally in the capital and profits of the limited liability partnership.
(2) The limited liability partnership must indemnify each member in respect of payments made and personal liabilities incurred by him—
(a)in the ordinary and proper conduct of the business of the limited liability partnership; or
(b)in or about anything necessarily done for the preservation of the business or property of the limited liability partnership.
(3) Every member may take part in the management of the limited liability partnership.
(4) No member shall be entitled to remuneration for acting in the business or management of the limited liability partnership.
(5) No person may be introduced as a member or voluntarily assign an interest in a limited liability partnership without the consent of all existing members.
(6) Any difference arising as to ordinary matters connected with the business of the limited liability partnership may be decided by a majority of the members, but no change may be made in the nature of the business of the limited liability partnership without the consent of all the members.
(7) The books and records of the limited liability partnership are to be made available for inspection at the registered office of the limited liability partnership or at such other place as the members think fit and every member of the limited liability partnership may when he thinks fit have access to and inspect and copy any of them.
(8) Each member shall render true accounts and full information of all things affecting the limited liability partnership to any member or his legal representatives.
(9) If a member, without the consent of the limited liability partnership, carries on any business of the same nature as and competing with the limited liability partnership, he must account for and pay over to the limited liability partnership all profits made by him in that business.
(10) Every member must account to the limited liability partnership for any benefit derived by him without the consent of the limited liability partnership from any transaction concerning the limited liability partnership, or from any use by him of the property of the limited liability partnership, name or business connection.
Your right as a majority member is set out in sub regulation 6 above as far as ordinary matters concerning the business are concerned.
Regulation 8 also provides as follows
8. No majority of the members can expel any member unless a power to do so has been conferred by express agreement between the members.
So, if you do not have a Partnership Agreement, you cannot force your business partner out.
I assume that you and your partner are both designated members, see your incorporation certificate, in which event, you both have the right to act in matters such as appointment of auditors, signing accounts etc.
May I help further?
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Customer: replied 2 years ago.
I am not trying to force my partner out of business. I am asking what my rights are as the majority shareholder. Copying and pasting passages from corporate law are pointless for me.
Your rights are as set out in your Partnership Agreement. As a majority member, you call the shots if there is any difference in the operation of the business, that is about it. You do not have any greater rights as such over the minority member.
All the best