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Alex J.
Alex J., Solicitor
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A private family business is in chaos. One shareholder with

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A private family business is in chaos.
One shareholder with 52% shareholding has been entrusted to find a buyer for this £2m turnover construction contractor. Four other siblings hold 12% each. There are no shareholder agreements other than within an off the shelf set of Articles.
There was one offer of £1.1m excluding cash, which the major shareholder turned down without discussion. This was at a P/E ration of 5:1.
Less than one year later, he has declared that he is to resign as Managing Director, and wants to sell his shareholding back to the company for £1.25M, which just happens to equal several years of accumulated profit reserves in the holding account. It has become known that he has applied for the Entrepreneurs Tax Relief Scheme at 10%, which has been approved, provided the transaction is paid for in full from profits. He wants it all, even though these are unpaid dividends.
He has called a general meeting for the first time in years to pass a resolution supporting his buyback. After first refusing his proposition, three of the four other shareholders signed a waiver when he offered £250k as a dividend in compensation. once they signed their waivers, and the fourth shareholder did not, he withdrew the offer.
1. Does the shareholder denuding to sell their shares have a vote in the decision to accept the resolution to allow this to take place.
2. What is the majority that allows this to take place. ie. if three of the remaining 4 shareholders sign a waiver and vote in favour of the resolution can 75% carry the vote.
3. Prior to a general meeting and a vote, can a signed waiver be withdrawn.
4. Can the this be viewed as Unjust Enrichment by one major shareholder at the expense of other minor shareholders

Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you:

1. Unless stated otherwise in the articles the shareholder can vote on resolutions in which he has an interest;

2. A share buy back out of profits requires a special resolution which is a 75% majority;

3. the waiver is essentially a written resolution, if it is not passed then it will not be valid;

4. As this is being done by the majority shareholder it could be deemed unfair prejudice under s994 of the Companies Act 2006. However this is the majority shareholder, and unless you have a contractual right to dividends (under say a shareholders agreement) you cannot force him to declare a dividend.

What is being discussed at the next meeting?

Kind regards


Customer: replied 1 year ago.
There is only one item agenda, and that is to present and vote on the resolution. The shares have been offered for transfer to the other shareholders at the inflated price as a prelude to this meeting.What would happen if only one other shareholder supported the resolution, so %2 + 12% were in favour?
Customer: replied 1 year ago.
sorry 52% + 12%

Hi thank you. Would it be possible to give me the exact wording of the resolution with any personal information removed?

Customer: replied 1 year ago.
THIS AGREEMENT is dated 2016
(1) and
(A) The Seller is the registered holder of 52 ordinary shares of £1.00 each in the capital of the Company (each a Share and together the Shares).
(B) Pursuant to an ordinary resolution approved at a general meeting of the Company held on 2016, the Company’s shareholders have approved the final form of this agreement in accordance with section 694 of the Companies Act 2006.
(C) The Seller has agreed to sell and the Company has agreed to buy the Shares subject to the terms of this agreement.
(D) It is proposed that, once purchased by the Company, the Shares shall be cancelled.
1. Interpretation
1.1 The definitions and rules of interpretation in this clause and in the background section (above) shall apply in this agreement.
Encumbrance any interest or equity of any person (including any right to acquire, option or right of pre-emption) or any mortgage, charge, pledge, lien, assignment, hypothecation, security interest, title retention or any other security agreement or arrangement.
1.2 Clause headings shall not affect the interpretation of this agreement.
1.3 Unless the context otherwise requires, words in the singular shall include the plural and in the plural shall include the singular.
1.4 Unless the context otherwise requires, a reference to one gender shall include a reference to the other genders.
1.5 A person includes a natural person, corporate or unincorporated body (whether or not having separate legal personality) and that person’s personal representatives, successors, successors and permitted assigns.
1.6 A reference to a party shall include that party’s personal representatives and permitted assigns.
1.7 A reference to writing or written includes fax but not email (unless otherwise expressly provided in this agreement).
1.8 References to clauses are to the clauses of this agreement.
2. Sale and Purchase of Shares
2.1 The Seller agrees to sell, or procure the sale of the Shares free from all Encumbrances for a total consideration of £1,250,000 and the Company agrees to purchase them and to pay such consideration to the Seller.
2.2 The Seller warrants to the Company that on the date of this agreement and immediately prior to completion of the transfer taking place under clause 2.5 it is the sole legal and beneficial owner of the Shares and is entitled to transfer the legal and beneficial title to the Shares to the Company free from all Encumbrances, without the consent of any other person.
2.3 Each party warrants to the other on the date of this agreement and immediately prior to completion of the transfer taking place under clause 2.5 that it has the requisite power and authority to enter into and perform this agreement, and that the agreement constitutes valid, legal and binding obligations on that party in accordance with its terms.
2.4 Each party warrants to the other, on the date of this agreement and immediately prior to completion of the transfer taking place under clause 2.5, that the execution and delivery of this agreement and the documents referred to in it, and compliance with their respective terms shall not breach or constitute a default:
2.4.1 under its articles of association, or any other agreement or instrument to which it is a party or by which it is bound; or
2.4.2 any order, judgment, decree or other restriction applicable to it.
2.5 Subject to Shareholder Approval, completion of the sale and purchase of the Shares shall take place on execution of this agreement when the Seller shall deliver his share certificate or other evidence of title to the Shares to the Company and the Company shall satisfy its obligation to pay the consideration due in respect of the Shares by payment of the sum of £1,250,000 to the Seller by way of telegraphic transfer for same day value to the Seller’s account. The details of which are to be provided in writing by the Seller to the Company.
3. Further Assurance
The Seller shall (at the cost of the Company) promptly execute and deliver such documents, perform such acts and do such things as the Company may require from time to time for the purpose of giving full effect to this agreement.
4. Assignment
Neither party shall assign, transfer, mortgage, charge, declare a trust over, or deal in any other manner with any of its rights and obligations under this agreement.
5. Entire Agreement
This agreement constitutes the entire agreement between the parties and supersedes and extinguishes all previous discussions, correspondence, negotiations, drafts, agreements, promises, assurances, warranties, representations and understandings between them, whether written or oral, relating to its subject matter.
6. Costs and Stamp Duty
Each party shall pay its own costs in connection with the negotiation, preparation and execution of this agreement. All stamp duty (including fines, penalties and interest) that may be payable on or in connection with this agreement and any instrument exec

Thank you. I will review this tonight and revert to you in the morning. Kind regards AJ

Alex J. and other Law Specialists are ready to help you
Customer: replied 1 year ago.
The last communication I had from you was that you would review overnight and get back to me. That did not happen or I did not receive it.
Customer: replied 1 year ago.
Alex, I am happy to pay you and review your help but was waiting to hear from you following an overnight review of the documents I sent to you?Furthermore I have checked the invitation to the General Meeting, and the major shareholder, who as I said holds 52%, is trying to pass this major transaction off as a normal resolution, I assume because he alone can then vote to pay himself. This I assume would be a fraudulent misappropriation of company funds if he completed the transaction?
Rob Stewart

Hi, My apologies I had to go abroad for work. I will respond to you this morning.

Kind regards AJ

Hi, Thank you. The situation is more complex than the arrangement above described. If this is a buy back out of profits then this does require a special resolution and the transaction would have to be approved by the board as they would be advertising in the London Gazette. He quite simply cannot force this transaction through. Who controls the company bank account at the moment?

Customer: replied 1 year ago.
He is the only board member, and his wife company secretary. I have this morning asked for the GM he has called to be rescheduled as an EGM correctly requesting a special resolution and not an ordinary one. How can I forestall or prevent misappropriation of the funds in the meantime, or if my three sibling/shareholders ignore my advice and vote in favour.

Hi, Thank you. Who are the signatories of the bank account that holds the funds?

Customer: replied 1 year ago.
Him and his wife!

Thank you. If he is doing something illegal or without proper approval the only way to stop him is to go and get an injunction. If he has the support of your siblings would that take him to 75% majority?

Customer: replied 1 year ago.
With two of my siblings, plus his own 52% he has 76%. Three have signed waivers already without knowing how devious he has behaved and before I advised all of them this morning to the tactic contained within the GM agenda to treat the resolution as ordinary rather than special. He was clearly intending to dupe them all and pass the resolution himself regardless, as they are not business minded and wouldn't have seen the distinction until too late.Now aware of what he was trying to do by stealth may leave him with only one vote, and 64% (a doting sister who is financially independent).I had already decided that if they were daft enough to still support him, knowing what he was doing as they now do, I was going to drop the issue for their sakes and move on myself. I do not want to spend 5 years of my life in litigation for people who do not appreciate it, want it, or have the stomach for it.What happens if he insists that his advice is to proceed with an ordinary resolution, and he pays himself the entire £1.25m from the profit reserves the moment before he resigns as Managing Director? Is this misappropriation of funds by fraud?

Thank you. The waiver is not a resolution. Buying shares out of profit reserves requires a very specific form of resolution. Do your siblings not appreciate the nature of what they are agreeing to?

Customer: replied 1 year ago.
Gerry StewartAttachments16:47 (9 minutes ago)to me, stestew59, Catherine, AndrewAlex,
They do not! My major shareholder brother has responded below today. The comments regarding the special resolution in item 2 conflict with your advice and are confusing me?Robert,Please find in reply to your recent e mail.Firstly, can I correct that the General Meeting is Friday 16th September 2016 not Thursday.1. EGM is no longer used under the Companies Act 2006 and the legislation simply refers to as General meetings.
2. The requirement for a special resolution was repealed and from the 30th of April 2013 a share buyback only requires an ordinary resolution in order to be passed.
3. A dividend cannot be declared unless the Director has made a recommendation as to its amount. A Minority Shareholder cannot determine that. If you wish for a resolution to go to a general meeting, you will be required to request from the Director to hold a general meeting at which your resolution would then be tabled. Any general meeting will need full notice, 14 clear days. Until this time the agenda is for the only request formally tabled. This is within the company Articles.
4. You are within your rights to mention s994 and I can confirm we have already taken this into consideration hence for this reason all shareholders where offered the purchase of my shares.
5. The date of the meeting was set by the legal notice, it did not go unnoticed that it was our father’s birthday but was taken in account that Cathy was available and before Andrew went on holiday and cannot be changed. Please if you feel you can’t attend , you have the proxy vote at your means
6. The Meeting is on Friday 16th September 2016 at 3pm.
Customer: replied 1 year ago.
Alex,Am I correct that what is not mentioned here is that there are actually two proposals required?This first general meeting is to vote on an ordinary proposal to agree that the purchase can proceed.A second meeting will then need to be held and a special resolution voted upon to agree the means of funding the purchase from profit reserves. The share seller has no vote on this second proposal?Regards

Hi, Thank you. I have just received this. I am reviewing it now. Kind regards AJ

Hi, Thank you. I have just been doing some further research in to share buy backs. Does the company actually have the cash in the bank to make this purchase? Are you certain there is no capital contribution to the purchase of the shares? He is correct about the dividend point, which is it must be delcared by a director first before it can be approved by ordinary resolution. If the company does buy back the shares out of profit and therefore he is out of the company - is there any value left in the company ?Kind regards AJ

Customer: replied 1 year ago.
there is £1.25m in profit reserves.
Yes there is enough capital remaining to run the business (circa £400k in current account)
My questions specifically are, with the general meeting being this Friday1. I know the changes to the CA2006 now allows for a normal resolution NOT a special resolution to vote on whether the company should pass a vote allowing him to sell. Question - Is it correct that the share seller has no votes in this meeting?, and that of the 100 ordinary shares he will need a 50% majority of the remaining 48 votes to pass the resolution.2. Having accumulated enough profit reserves over the last 10 years, as the only director he has opted to set the value of his 52% shares to match the profit reserves in order to achieve 30% Entrepreneurial tax relief. Question - does this action to finance the purchase through these funds require a special resolution where 75% majority is needed? Is it correct also that the share seller again cannot use his votes so it becomes 75% of the 48 remaining votes.If I am correct in these assumptions it is possible I can convince my sibling shareholders to block either the normal or special resolution votes.
Customer: replied 1 year ago.
Thanks Alex, if you can enlighten me on these two issues I will review and transfer the remaining fee.
Rob Stewart