How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Alex J. Your Own Question
Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3840
Experience:  Solicitors 2 years plus PQE
Type Your Law Question Here...
Alex J. is online now

I have a 5% shareholding in an IFA practice where I have recently

This answer was rated:

I have a 5% shareholding in an IFA practice where I have recently resigned from my post as a paraplanner. There are 2 directors for the Company. The MD of the accountancy group which owns 51% of the shares is one Director and the other director heads up the IFA practice and has the remaining 44% of the shares.
I was allocated the shares because I helped to set up the business 3 years ago.
Three weeks ago the company was valued at £320,000 for the purposes of an adviser buying in. She has since left the company for the same reason I have ...the unreasonable behaviour of the director who owns 44% and who heads up the business.
The controlling Director has now refused to allow me payment of the end of year dividend I was expecting and he has made an offer of £5,000 to buy out my share of the business. He says that because I am leaving the business effectively has to start again. However, the valuation of £320,000 was based on the level of funds the business has under management and this has not changed. The company has a new administrator staring on Monday with my replacement joining at the start of next month. They are actively recruiting to replace the adviser who has recently left. I therefore feel that the valuation of my shares is unrealistic.
We do not have any shareholder agreement in place and the accountancy firm which the 51% shareholder director runs is the accountant for our IFA business. The management accounts to March 2016 showed a net profit but the director has said that he can add back expenses in the year end accounts that the accountancy practice has covered to wipe out any profit.
Could you please advise me on my rights. Can I be forced to sell at their price? If I hold the shares how will my rights to dividends or future sale of the business be affected.
The 51% shareholding is in ordinary shares, the other director has ordinary A shares and the other director has ordinary B shares. We all have full voting rights.
Thanks in advance
Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you. I am a company law expert. Do you all have the same classes of share in terms of rights to dividend distribution rights?
Customer: replied 1 year ago.
I have never seen anything around rights to dividends documented. I have checked on companies house for any articles which may have been logged and the only ones are from around 2009 when the 51% shareholder set up a company on his own as the sole director and shareholder. The other director was appointed in 2013 when we set up in our current form and the company's name was changed. During the 3 years we have traded I have always received a 10% dividend rather than a 5% dividend at the discretion of the two directors and for the past 2 years I have been paid a set amount each month based on a combination of salary and dividends
Hi, Thank you. Firstly assuming that all shares have equal rights to dividends then they cannot declare a dividend for their shares and not one for you. They would have to pay dividends on all shares if the dividend was declared. Secondly they cannot force you to sell your shares (assuming they have no right to redeem them under the articles)- you would need to sign a form CON40G stock transfer form to approve this. Ultimately you are a minority shareholder in a limited company - I am afraid your position is precarious and they could easily just issue more shares (and suspend your pre emption rights) and dilute you down by passing an special resolution. Your only real protection would then be a protection against unfair prejudice under S.994-996 of the Companies Act 2006 - this is a time consuming application - a result of it though could be a court order requiring your shares to be purchased at a fair price. What price would you accept for your shares? £16k? Will the other director negotiate at all? Kind regards AJ
Customer: replied 1 year ago.
I would be prepared to negotiate and I would probably accept around £12k to make a clean break but I wanted to know were I stood before I go back to him on his offer. Is there any way that I can check the rights to dividends? If he refuses to negotiate would the unfair prejudice route be fairly straightforward (even if time consuming) or is this likely to involve high costs for legal expenses?
Hi, Thank you. Yes you can check what rights are attached to each share by going to companies house and looking at the last "Statement of Capital". That will tell you what rights to dividends, capital, voting and redemption are. The application for unfair prejudice should be a very last resort I would only consider this if all else fails and he starts diluting your shares or prejudicing you by declaring dividends and not paying them. Kind regards AJ
Customer: replied 1 year ago.
I have checked on companies house and there is no statement of capital. Is there anything else I can do?
Hi, Thank you. Check the articles of association and also the incorporation form IN01 - those will also contain the rights. Kind regards AJ
Customer: replied 1 year ago.
Will I need to ask the Director for these? My understanding is that the company was originally set up as Sedulo London Ltd on 14 April 2009 with only one shareholder and director but this was a dormant company which was later used when Sedulo Wealth Management was being set up. Companies house only has the original articles from 2009 and I cannot see any IN01. Will I need to ask for these from the director? What happens if they were not revised when the new shares were issued?
Hi, Thank you. I have checked on Companies House and the A and B shares seem to have all the same rights - for future reference IN01 is the Incorporation form. I am happy to assist further but would be most grateful if you rate my answer in the mean time? Kind regards AJ
Customer: replied 1 year ago.
So can I be confident in asserting my rights to a dividend if the other shareholders have one|. I can't see anything on companies house about the rights attached to each one (but probably don't know where I am looking!)Happy to rate you but want to be sure about the advice I have received on this first....makes a huge difference to the rating!If I am entitled to a dividend would they have to allocate at the same rate for B shares as A shares or can they just allocate a nominal dividend to B shares with a higher dividend for A shares?
Hi, Thank you. Yes you can be confident of being paid the dividend, bare in mind it has to be declared by the directors and then approved by ordinary resolution first. Yes it appears from the information I have shares A and B have the same rights to dividend distributions. Kind regards AJ
Customer: replied 1 year ago.
How does the declaration and ordinary resolution work? I the past I have just been told 'we've agreed a dividend and you will be getting £XXXX'. Should there be some documentation of dividends paid out. I am concerned that the accountancy firm will be able to 'bury' the dividends they take so I cannot check even by requesting a copy of the accounts.
Hi, The dividend is normally recommend by the directors. The directors will then call a shareholders meeting or circulate a written resolution proposing approval of the dividend. If the resolution is passed by more than 50% of the voting share capital it will be a dividend that can be paid. Details should be on the company books. Kind regards AJ
Customer: replied 1 year ago.
Haha! We don't have that kind of company but thank you for your time today. I do feel in a stronger position to challenge them and to negotiate now! Will this conversation be available to view for the foreseeable future if I set up an account as I can't seem able to print it!
Hi, Thank you. Yes it should remain open for a few days. Without proper resolutions the dividends are not valid, you could be forced to repay them if the company went insolvent. Is it possible the payments were in lieu of a salary? if so that makes it easier to claim.
Alex J. and 2 other Law Specialists are ready to help you
Customer: replied 1 year ago.
Past amounts received have been noted in the accounts as dividends so I presume the relevant resolutions must have been made for the records.I do get a regular monthly dividend in lieu of salary as the company wanted to do this for tax planning.
Customer: replied 1 year ago.
What do you mean by saying it will be easier to claim if dividends are in lieu of salary?
Customer: replied 1 year ago.
Please can you remove the reference to the company immediately as I hadn't realised that would be viewable to all. Thank you
Thank you. I will mark this as personal data. What I mean is if the company was not actually declaring dividends and was paying you a monthly sum, it might be easier to claim this was a salary or commission or consultancy payment - that way at least you have something you can sue for if needs be. You cannot sue for a dividend if no dividend is declared. Kind regards AJ