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Alex J.
Alex J., Solicitor
Category: Law
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Experience:  Solicitors 2 years plus PQE
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Company Law question - I am an IT Contractor, Myself and my

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Company Law question - I am an IT Contractor, Myself and my ex-girlfriend own a company 50/50, she is director and controls the business accounts, I am company secretary. The company started trading last September and for a while both our earnings went into it, mine c. £8000 per month, hers about £1100. We both drew salaries and then dividends based on the 50/50 share split. We split up at the end of March and we verbally agreed (with some emails possibly mentioning it) in outline that we would continue the arrangement but with myself getting more dividend and some kind of share balancing to happen (preferential non-voting shares being the mechanism). However nothing formal has been done. The company is solvent with money in the accounts to cover tax liabilities and a surplus. There are two further invoices to be paid and the overall surplus I have calculated will be around £6000. She accepts that the remaining surplus derives from my earnings. We are considering our options for what to do next and I want to wind the company down (but not through Members Voluntary Liquidation). However I perceive that most of the surplus should be paid out to me as it was my contract earnings, she currently wants £2000 which was agreed last week (I was to take over the company) but that agreement has since been rescinded as she changed her mind. I would like her to accept around 10% of the surplus. I believe I could be made company director and wondered whether this could help protect my interests without resorting to any major legal action as the amount involved does not justify it. So far she has been trustworthy regarding the money in the business but if I do not accede to her demands for a final payment she may take funds that I don't want her to (after all she controls the accounts and can pay herself a salary if she wanted to but hasn't yet). What can I do?
I am actually needing as much money as I am in significant financial distress at the moment (although her predicament is quite bad too though that predates our relationship).
Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you. What is the exact figure she is asking for to resign as a director and transfer her shares to you? Do you have any paper work that dictates how you are paid? Kind regards AJ
Customer: replied 1 year ago.
We have no paperwork in terms of agreements or contracts, although I imagine she'll generate dividend vouchers and there are payslips from the payroll system she is running. She's asking for £2000.
Customer: replied 1 year ago.
Oh btw I no longer want the shares transferred - happy to transfer them to her and she can wind the company down quite easily or do whatever she wants with it
Hi, Thank you. ***** would note here is if you took control of the company, became a director and was responsible for winding it down the time and cost of this would be far more than £2000 (especially if you calculate this as earnings lost from not being able to work). Are you essentially saying you just want her to write you a cheque for £5,400 and then you walk away? Kind regards AJ
Customer: replied 1 year ago.
I didn't think winding down would be that onerous, get the accounts drawn up, settle the tax, close the bank accounts, notify HMRC and then apply for the company to be struck off. That's correct, she makes a final payment and that's it.
Hi, Thank you. If the company does not have any creditors (and all bills paid) and it stops trading for a period of three months, you can just eventually dissolve and not worry about the winding up process. Have you tried negotiating with her? Would she accept say £1000 as a middle ground? If this goes to a dispute it will cost much time and money than £2k, so it is in her interest to reach an amicable split. Presumably once she has declared your final dividend - you are happy to have no further involvement in the company?
Customer: replied 1 year ago.
Yes that's correct but she's digging her heels in at £2000, will be negotiating more next week though she keeps delaying. What could I stop her from doing at this point and what can i do if i became director short of any full legal action/process?
Hi, Thank you. The company is effectively deadlock so she cannot approve a dividend with out you. Do you know where the company bankers and are you a signatory on the banking mandate? If you were a director you could temporarily freeze the bank account to stop any funds being moved until the dispute was resolved.
Customer: replied 1 year ago.
I know the banking details but am not a signatory on the banking mandate, as a director would i be able to freeze the account?
Hi, Thank you. Yes you could freeze the account as a director. Contact the bank and say the account is in dispute and no withdrawls are to be made without your consent. Kind regards AJ
Customer: replied 1 year ago.
Ok thanks, I'll consider that path should we fail to reach an acceptable solution amicably.
Hi, Thank you can I assist you any further? Kind regards AJ
Customer: replied 1 year ago.
Under the circumstances could she insist on the final dividend being split 50/50 and would I have no choice?
Hi, Thank you. In theory yes she could as those are distributable funds and you have equal shares. What she cannot do is declare and pay the dividend without your consent. The only way to vary the split would be to go to court and use the emails detailing your earlier agreement to show you actually had a partnership and the limited company was a partnership asset, you would ask the court to dissolve the company and distribute the assets on your previously agreed basis. I am happy to assist you further but would be most grateful if you would rate my answer in the mean time. Kind regards AJ
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