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Removing a director

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  • 15-08-2016 10:05am
    #1
    zig
    Registered Users Posts: 1,206 ✭✭✭


    Hi Im looking for some advice,

    So 4 of us set up a company nearly 3 years ago. In our naivity we never made formal agreements except what was required through a solicitor (in terms of being a limited company). It was agreed to be 25% each.

    The comprises of

    - Myself and a colleague who basically run the company and get paid. Really its our "baby".

    - A third guy who invested half the money to help buy computers etc and who has contributed to the company over the years in helping get sales. He also gets a % of our wage based on the work done etc.

    - A fourth guy who also invested half the money but contributes nothing and takes no wage.

    This money has now been paid back.

    The issus is the 4th guy. From day 1 he did nothing. We have never really had a problem with this because he isnt taking a wage. Its worth noting we never really took a wage either for about a year and half.

    The 4th guy has had absolutely zero interest from day 1 and I guess that was a fine set up for everyone because we're not earning enough to talk about profit share. I'd say we met him 3 or 4 times since the company was set up and that was only by coincidence as he was in the area (this is just to give you a perspective of how little involved he is)

    The issue is we have new ideas and we may end up making more money (or not we dont know). These ideas arent related to the initial company set up.

    He has asked for a fairly large sum of money to be bought out. We have absolutely no interest in paying this, we cant even afford it anyway. Plus on a personal level myself and my colleague barely know the guy. So we this as us having to pay what feels like a stranger a big chunk of money so we can carry on with our own creative ideas.

    My question is, is there anything stopping us from winding up that company and setting up another one with just the three of us? Or even setting up another company just for new ideas etc and keeping the current one.

    We're not really in a rush with this as the reality is that at the moment whether he's in the company or not its not affecting us. However it is affecting the planning of ideas.

    While I acknowledge that if someone invests and owns 25% of the company then theyre perfectly entitled to ask for something but in a real sense we invested far far more than 2 or 3 grand by not taking wages for such a long period of time.


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Comments

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    #2
    Bandara
    Registered Users Posts: 3,282 ✭✭✭Bandara


    I'm not versed in the legalities of closing and then reopening.

    But if you can't go that route you can dilute him via another more blunt tactic

    the three of you all vote to inject more cash into the business, say 20k for example, your silent person now has to do the same. I'm imagining he won't be happy with doing so, so you then present him with two options, either inject the cash, or his shareholding will be reduced proportionally.

    So even though its not ideal, you can get his shareholding % down significantly


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    #3
    Water John
    Registered Users Posts: 21,461 ✭✭✭✭Water John


    The director Loans and the shareholdings are separate.
    Because he has over 20% you cannot force him out.
    Live with it.

    If there is are new, separate ideas, a second separate business needs to be set up. It cannot impinge on the activities of the first co.

    Your always minding that he is not leant on as a minority shareholder.

    Opinions, not advice.


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    #4
    duploelabs
    Registered Users Posts: 11,396 ✭✭✭✭duploelabs


    Watch 'the social media', that's one way of stiffing someone you're in partnership when it comes to shares in the company


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    #5
    gargargar
    Registered Users Posts: 249 ✭✭gargargar


    You can setup a new company with the three of you, however you will not be able to just appropriate the assets of the existing company. If the existing company is a services based one it might be easier to just wind up. Let the existing director know your plans. Tell him that if he can find a buyer then great, if not the assets will be sold off. You would need to take advice on approaching existing customers.


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    #6
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    If he puts a value on his 25% of X, then ask him to buy the remaining shareholders out at the same share valuation, he is not obliged to do so but it does put the issue in play properly. It is unclear that he is a director, if he his, your memo and articles will set out the rules for his removal but you are stuck with him as a shareholder. A proper shareholders agreement would have covered this current situation, but too late for that now!
    You are probably best to set up a new separate company for the new activity that does not "swing out of" the revenues or assets of the old one, as this would be an oppression of his shareholding value.


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    #7
    Pro Hoc Vice
    Closed Accounts Posts: 6,087 ✭✭✭Pro Hoc Vice


    zig wrote: »
    Hi Im looking for some advice,

    So 4 of us set up a company nearly 3 years ago. In our naivity we never made formal agreements except what was required through a solicitor (in terms of being a limited company). It was agreed to be 25% each.

    The comprises of

    - Myself and a colleague who basically run the company and get paid. Really its our "baby".

    - A third guy who invested half the money to help buy computers etc and who has contributed to the company over the years in helping get sales. He also gets a % of our wage based on the work done etc.

    - A fourth guy who also invested half the money but contributes nothing and takes no wage.

    This money has now been paid back.

    The issus is the 4th guy. From day 1 he did nothing. We have never really had a problem with this because he isnt taking a wage. Its worth noting we never really took a wage either for about a year and half.

    The 4th guy has had absolutely zero interest from day 1 and I guess that was a fine set up for everyone because we're not earning enough to talk about profit share. I'd say we met him 3 or 4 times since the company was set up and that was only by coincidence as he was in the area (this is just to give you a perspective of how little involved he is)

    The issue is we have new ideas and we may end up making more money (or not we dont know). These ideas arent related to the initial company set up.

    He has asked for a fairly large sum of money to be bought out. We have absolutely no interest in paying this, we cant even afford it anyway. Plus on a personal level myself and my colleague barely know the guy. So we this as us having to pay what feels like a stranger a big chunk of money so we can carry on with our own creative ideas.

    My question is, is there anything stopping us from winding up that company and setting up another one with just the three of us? Or even setting up another company just for new ideas etc and keeping the current one.

    We're not really in a rush with this as the reality is that at the moment whether he's in the company or not its not affecting us. However it is affecting the planning of ideas.

    While I acknowledge that if someone invests and owns 25% of the company then theyre perfectly entitled to ask for something but in a real sense we invested far far more than 2 or 3 grand by not taking wages for such a long period of time.

    So I a nutshell a guy you hardly know invested half the money to get 25% of the company, now ye want to shaft him. Expect legal proceedings.


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    #8
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    Just strikes me now, how did he get his money back? . Was the stake money a loan or an investment for shares? Loan repayment or share re-purchase? Have the shares actually been issued to him and was there consideration?


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    #9
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    Pro Hoc Vice wrote: »
    So I a nutshell a guy you hardly know invested half the money to get 25% of the company, now ye want to shaft him. Expect legal proceedings.

    Why? Wanting to get rid of him is not legally actionable!!


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    #10
    Pro Hoc Vice
    Closed Accounts Posts: 6,087 ✭✭✭Pro Hoc Vice


    mrawkward wrote: »
    Why? Wanting to get rid of him is not legally actionable!!

    Did you read the OP a guy invested half the money and was to get 25% of the shares. Now the OP wants to set up a new company and exclude the guy. The OP has a duty to the shareholders and to the company.


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    #11
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    The guy may have invested (presently unclear!) in one company. That does give him any rights in any new one!


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    #12
    Water John
    Registered Users Posts: 21,461 ✭✭✭✭Water John


    If he has been notified regularly of ordinary Board meetings and hasn't given a satisfactory reason for not attending, he can be removed as a Director.
    His shareholding however cannot be reduced or diluted.
    One could issue extra shares and each has the option of buying them, then he may opt not to invest and thus dilute his shareholding.

    If you are looking also at a completely different income stream not connected to the original business, a new co between the three for that business is OK.

    One must always guard against the oppression of a minority interest.


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    #13
    Pro Hoc Vice
    Closed Accounts Posts: 6,087 ✭✭✭Pro Hoc Vice


    mrawkward wrote: »
    The guy may have invested (presently unclear!) in one company. That does give him any rights in any new one!

    What the OP said,

    "A fourth guy who also invested half the money but contributes nothing and takes no wage."

    And "in terms of being a limited company). It was agreed to be 25% each."

    "My question is, is there anything stopping us from winding up that company and setting up another one with just the three of us? Or even setting up another company just for new ideas etc and keeping the current one."

    The issue I have is the winding up of the company.


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    #14
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    Pro Hoc Vice wrote: »
    What the OP said,

    "A fourth guy who also invested half the money but contributes nothing and takes no wage."

    And "in terms of being a limited company). It was agreed to be 25% each."

    "My question is, is there anything stopping us from winding up that company and setting up another one with just the three of us? Or even setting up another company just for new ideas etc and keeping the current one."

    The issue I have is the winding up of the company.


    Read it all! including the line "This money has now been paid back."


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    #15
    Pro Hoc Vice
    Closed Accounts Posts: 6,087 ✭✭✭Pro Hoc Vice


    mrawkward wrote: »
    Read it all! including the line "This money has now been paid back."

    Yes but he still owns 25% of the company. If he did not there would be no problem. The OP also said they did not enter into a shareholders agreement.


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    #16
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    Pro Hoc Vice wrote: »
    Yes but he still owns 25% of the company. If he did not there would be no problem. The OP also said they did not enter into a shareholders agreement.

    So? Your point is unclear. The majority of the shareholders can decide to wind up a company for any reason they choose. Are you actually familiar with The Companies Act 2014 and it's antecedents or just offering your opinions?


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    #17
    Water John
    Registered Users Posts: 21,461 ✭✭✭✭Water John


    But they cannot wind up the company to start another one that includes the same business as the first one. It would have to be a very separate area otherwise it would simply have been wound up to suppress the interest of that sleeping shareholder.


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    #18
    Bandana boy
    Registered Users Posts: 4,330 ✭✭✭Bandana boy


    mrawkward wrote: »
    So? Your point is unclear. The majority of the shareholders can decide to wind up a company for any reason they choose. Are you actually familiar with The Companies Act 2014 and it's antecedents or just offering your opinions?

    Yes but the assets would still have a value , be that a customer list , brand name , premises , website etc

    If you want to start a fresh and still use these he is entitled to compensation and name his price to buy him out , which he appears to have done. Or for the company to be put on the market to see if a buyer can be found.


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    #19
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    If the shareholders decide to wind it up and there is a residue after all costs are met for a winding up carried out with proper probity, the 4th guy would be entitled to 25% of that sum, provided he had proper legal title to the shareholding. Given the company is stated to be unprofitable by the OP, it wont be much if anything at all. Obtaining best value for the assets is the responsibility of whoever takes on the winding up. We have no information as to the value of these assets or goodwill. If there is no shareholders agreement in place there is unlikely to be any restrictive covenants in place on trade/information etc.


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    #20
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    Water John wrote: »
    But they cannot wind up the company to start another one that includes the same business as the first one. It would have to be a very separate area otherwise it would simply have been wound up to suppress the interest of that sleeping shareholder.

    Far from clear and most likely incorrect after a winding up, unless you have other information.


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    #21
    Pro Hoc Vice
    Closed Accounts Posts: 6,087 ✭✭✭Pro Hoc Vice


    mrawkward wrote: »
    If the shareholders decide to wind it up and there is a residue after all costs are met for a winding up carried out with proper probity, the 4th guy would be entitled to 25% of that sum, provided he had proper legal title to the shareholding. Given the company is stated to be unprofitable by the OP, it wont be much if anything at all. Obtaining best value for the assets is the responsibility of whoever takes on the winding up. We have no information as to the value of these assets or goodwill. If there is no shareholders agreement in place there is unlikely to be any restrictive covenants in place on trade/information etc.

    I must have missed where the OP said the business was unprofitable, can you point out where he said that.


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    #22
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    "because we're not earning enough to talk about profit share". In this scenario, I would wager the shareholders working in the business draw what is available for their salaries not what they would like or see as their market value.


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    #23
    Pro Hoc Vice
    Closed Accounts Posts: 6,087 ✭✭✭Pro Hoc Vice


    mrawkward wrote: »
    "because we're not earning enough to talk about profit share"

    That's does not say the company is not profitable. In fact it shows the business is not losing money. The duty of the directors is to make sure the company does not make a loss.


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    #24
    twowheelsonly
    Registered Users Posts: 2,269 ✭✭✭twowheelsonly


    Pro Hoc Vice wrote: »
    So I a nutshell a guy you hardly know invested half the money to get 25% of the company, now ye want to shaft him. Expect legal proceedings.

    This is it exactly.

    Without this guys initial investment you'd now have zero company and zero wage. Legally you can probably do all of the things mentioned earlier but morally you're acting the maggot. The fact that he has nothing to do with running the company is completely irrelevant. He's an investor that got you on your feet and as such has as much a vested interest in the company as you have.

    Potentially in the future you may grow the company even more and his involvement is still irrelevant. Potentially also, you may in the future be looking to expand even further and be looking for investment to do so. Picture the scenario when the next potential investor looks into your company history and makes inquiries and discovers that you shafted the initial investor. Never say never, things like this can and do happen.

    Suck it up and continue as you are. You've now got a lot more than you had 3 years ago and a lot more than if had never invested in you.


    Pro Hoc Vice wrote: »
    I must have missed where the OP said the business was unprofitable, can you point out where he said that.
    mrawkward wrote: »
    "because we're not earning enough to talk about profit share"

    "Not earning enough to talk about profit share" doe not necessarily mean the business is unprofitable. The fact that two people are earning a wage within 3 years of a start-up is decent enough in itself (dependent on the type of business obviously)


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    #25
    Hollister11
    Closed Accounts Posts: 5,482 ✭✭✭Hollister11


    duploelabs wrote: »
    Watch 'the social media', that's one way of stiffing someone you're in partnership when it comes to shares in the company

    The Social Network is the name of the film you are referring to.


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    #26
    Pro Hoc Vice
    Closed Accounts Posts: 6,087 ✭✭✭Pro Hoc Vice


    Hollister11 wrote: »
    The Social Network is the name of the film you are referring to.

    Yup and if I'm not wrong the Winklevoss settled for $65 million.


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    #27
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    Pro Hoc Vice wrote: »
    The duty of the directors is to make sure the company does not make a loss.


    Hogwash. no such legal duty obtains. see http://www.irishstatutebook.ie/eli/2014/act/38/enacted/en/print


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    #28
    Pro Hoc Vice
    Closed Accounts Posts: 6,087 ✭✭✭Pro Hoc Vice


    mrawkward wrote: »
    Hogwash. no such legal duty obtains. see http://www.irishstatutebook.ie/eli/2014/act/38/enacted/en/print

    I should have been more clear there is among other duties a duty not to trade while insolvent. are you going to say I'm wrong in that statement.


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    #29
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    Extraordinary commentary on this here. A guy invested in or loaned money to a startup. He did not acquire a life interest in the efforts of the other shareholders in any other business. It is a complex area but by taking the proper steps can be resolved without too much difficulty. The "moral" argument is out of the payground, this is business not croquet.


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    #30
    mrawkward
    Registered Users Posts: 498 ✭✭mrawkward


    Pro Hoc Vice wrote: »
    I should have been more clear there is among other duties a duty not to trade while insolvent. are you going to say I'm wrong in that statement.

    Can only comment on what you write, which was hogwash as stated.


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    #31
    Pro Hoc Vice
    Closed Accounts Posts: 6,087 ✭✭✭Pro Hoc Vice


    mrawkward wrote: »
    Extraordinary commentary on this here. A guy invested in or loaned money to a startup. He did not acquire a life interest in the efforts of the other shareholders in any other business. It is a complex area but by taking the proper steps can be resolved without too much difficulty. The "moral" argument is out of the payground, this is business not croquet.

    No one said it can not be resolved but the OP would be advised to tread carefully. Look how much it cost Facebook yes tiny money but still $65 million. Best to do it right than face litigation.


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