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Buachaill, Barrister
Category: Law
Satisfied Customers: 10945
Experience:  Barrister 17 years experience
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We are looking expert advice in Company Law. Our

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We are looking for some expert advice in Company Law.
Our company was set up by Myself and a fellow director 2 years ago with no agreements in place, but it was always understood that we would have to remain working for our company in order for it to prosper, there was no place for a client shareholder. This year that director resigned on the understanding that he could remove himself from all company liability (guarantors on bank loans, trade accounts and leases) and sign the shares back over to me after this was completed. It turned out that I was pretty naive and now find myself with all of the liability and 55% of the shares as he has stated that he is now keeping the 45%. On top of that I loaned our company £30k from another of my companies, which has not been paid back.
He has since resigned (24th Feb 2016), would it be possible to let me know what options I have? I have thought of the following:
Issue additional shares to dilute his current position
Am I able to do this given he owned 45%?
I would be grateful for your help on the matter
1. I regret to say that you cannot issue more shares in a limited company unless you have enough shares for a special resolution, namely 75% of the issued share capital. However, be aware that this is the issued share capital. Normally, when a company is formed, there will be more shares issued than the 100 shares generally divided among the directors and shareholders. So you should check what other shares are actually in issue when determining whether you meet this threshold. As your company formation agent or solicitor and they will know.
2. However, if you aren't able to issue yourself with more shares, then you should consider whether the 45% shareholding can be bought off your former co-director and shareholder. Normally, this is the best resolution to the situation. Your co-director obviously does not believe his shares are worthless and so, he is seeking some recompense for giving up his shares. Should you wind up in court in a case such as this, a buy out price would be suggested by the court and the shares valued. Similarly, if you seek to dilute out another shareholder by issuing more shares, there are grounds for them taking an action to prevent this and to instead have you buy them out under the Section 997 Companies Act unfair prejudice section. So, the bot***** *****ne is that if this situation was to end up in court, you would be forced to buy out your former co-director at a fair price, whether you liked it or not. So, for that reason, you would be better approach the issue with a commercial mind from the outset, rather than seeking to dilute out your fellow shareholder for which you might incur the wrath of the court, for doing so.
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Customer: replied 1 year ago.
Hi,Yes I've tried to make an offer to purchase the shares but he is being unreasonable and over valuing their worth. We are not running a multi million pound company where shareholders can sit back and reap the reward, I now have to work extremely hard in order to make the business work.We did agree verbally to purchase 21 shares from him and the money has actually gone into his bank account and will show as "Shares" on his bank statement, but he now refuses to sign the documents. We were friends which is why i trusted him to do the right thing. Can you advise legally where i would stand on this?Kind regardsPaul
4. My first thought is that you should agree an independent valuer who will value the shares for the purposes of a buyout agreement. In that way you will prevent him changing his mind about the valuation and the valuation for negotiations is then set. Secondly, you do have sufficient acts of part performance in so far as the aborted share transfer is concerned. Exchanging the money and valuing the shares are sufficient. However, a court will be loathe to commit someone to an agreement they haven't signed. So legal proceedings could be tortuous here. Instead, I would recommend the appointment of an outside mediator who can get both sides to the table and work a solution through, which then can be immediately signed before any issue of "seller's remorse" sets in.
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