Leaving a business as a partner advice

mcgargles

Hi All - I'm hoping you can help and I hope I have posted this in the right thread.

This may seem like a very naive question so bear with me

I joined a business with a friend 6 years ago as a Junior partner (I was quite young at the time and as mentioned above quite naive . We agreed a starting % share in the company and I have been working each year with an increase in % share in the business. I'm now close to owning 25% of the business.

My role has always been new business development and operations. I haven't put any money in to the company and have no financial commitment but I have helped grow the company turnover by about 450% over the last few years and we now have a considerable team behind us.

Things in the business are strained and I have been looking to leave for about 2 years now. The time is getting close (I’m mentally drained!) but I'm not sure what the best approach is as:

1. I never signed a Shareholder agreement - stupid I know
2. I haven't put any money in to the business - only my time and effort
3. We have agreed nothing but we're both pretty honest people and run the business as such

So I wonder would anyone here have advice on any of the following things:

1. If I leave at the end of the year, how would you recommend securing some payment in return for my shares?

2. For a small limited company is there any guarantee of payment for these shares? How do you value these shares?

3. If there are legal risks here, how would I best to go about securing my investment without completely screwing the business. Should I seek advice from a lawyer?

I want to setup my own business in an unrelated field and really could do with a leg-up which some payment from the business would go a long way to help.

Hope someone can help! A lot of questions for a bank holiday I know

antoinolachtnai

Firstly, have you any paperwork at all about your shareholding? The shares are actually listed on the register, right?

Valuing your shares is one thing, but what free cash flow does the company have to buy your shares back? That is the real issue to get your money out without completely screwing the company as you put it.

I would try to work it out with your partner first . If things are not clear, I would talk to an accountant first. The lawyer comes into it more when you come to signing off all the details of how you are going to settle this.

It comes down to the company or your partner paying you some sort of lump sum now, and then paying you the rest over a few years.

pedroeibar1

Six years of your life have gone into this. Time and effort IS money, despite what you say. What cash you might get out of it will impinge on the next six years. From what you have written I infer a degree of naivety that is not helpful to your position. You need to talk to a lawyer, not some random advisors here.

pedronomix

What is your current relationship with the other single, I presume, majority shareholder? This is key to how best to proceed.

Is your shareholding registered with the CRO or do you have any other documentation outlining your entitlement to the shares?

In the abscence of a shareholders agreement, there is little you can do to compel the other to buy you out.

The value of a minority shareholding in a private limited company is essentially what the other shareholder is prepared to pay for it. It has no open market demand and thus value. You do have some limited rights as a minority shareholder and this has a nuisance value that may be possible to leverage to get rid of you/pay you off, assuming there are funds available to pay you.

Be aware that your leaving may very well undermine the prospects for the business and thus it's value.

Try putting yourself in the other guys shoes and work out what you would find reasonable if the roles were reversed.

Taking legal advice is essential, just do not walk yourself into any legal action ahead of exhausting all negotiated settlement options.

mcgargles

Thanks for the feedback and suggestions here. I'll come back on a couple of them which may help in understanding where best to go next.

The relationship between us is good and I suspect they don't really know how I feel about this. I'd be happy to have this conversation with them but their background is very business driven and often they leave me baffled when we discuss anything to do with legalities.

Naivety is right - I'm very much concentrated on the product/service we produce and sell - i'm not at all savvy on this side of it. I know this is a weakness but i'm also aware of where my strengths are. To me detriment though I have nothing on paper about shareholder agreement - with the CRO or other.

I guess the advice i'm looking for is this:

1. Is it better to talk to the partner now and establish where I am and what I want to do
2. Is it better to first talk to lawyer (or accountant) and have what I need to get out of the agreement ready?

I don't want to take an approach that harms my interests first and also one that doesn't affect the business in the long run either.

pedroeibar1

Before you say anything to anyone it is best to have your facts straight and to know your rights (and responsibilities). Check old emails/any records you have for any mention of the share options/shareholding/shareholders agreement. Print them and forward emails to a non-work email address. Then go see a solicitor with what you have got to ascertain where you stand. Then have the discussion with your colleagues taking the legal advice into account.

Writing “I don't want to take an approach that ……. affect the business in the long run” is not a view you should have if you want to exit. You must look after yourself first, and you admit you are up against people who are more skilled on legalities than you.

You also need to consider that the approach might fail, and not only would you be then stuck in an unhappy position, you might find yourself being excluded from meetings and eased out. As the other Pedro has said, avoid any legal action (on what you have said so far I cannot see any successful grounds for one) and I'd guess that your solicitor will tell you this. If the other shareholders are genuine/nice guys and agree that there was a tacit agreement you need to work out a solution/exit based on goodwill rather than legalities.

mcgargles

Thanks Pedro - some solid advice. Appreciate it.