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Removing a director
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Pro Hoc Vice wrote: »Yup and if I'm not wrong the Winklevoss settled for $65 million.
It wasn't the Winklevoss' I was referring to. More the issuing of shares to dilute an existing partner's share of the company. And yes, sorry, Social Network!0 -
Can only comment on what you write, which was hogwash as stated.
You really need to take a chill pill, this is a forum where people give advice if you have a problem with that then go play with yourself. For some reason only know to yourself you seem to be taking this personally seriously ease up on the insults.0 -
duploelabs wrote: »It wasn't the Winklevoss' I was referring to. More the issuing of shares to dilute an existing partner's share of the company. And yes, sorry, Social Network!
Yes many companies do a share issue to dilute a share holding that can be a legitimate process but it could also lead to litigation. There is also a risk that the other shareholder has and will invest the required money.0 -
I am serial investor in startups both new and second stage, so do have some clue on the topic. There have been posts on this very thread that are wrong, misguided or just uniformed opinions. The OP is looking for advice and some guidance which I have tried to offer but based only on the information provided. I have also requested more on specific areas. Getting all antsy when presented with facts adds nothing to any discussion.0
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It may come down whether you intend to continue trading in the same business after the wind-up. If you are you may want to take some advice.
In relation to new products/services (sounds like a tech offering) then you should be clear to set a new company up for these. You would still want to have some clear division between the new and old or the existing shareholder could make a claim that the IP (if a tech company) belonged to original company e.g. in the case where it could be proved it was build on original companies time.0 -
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I am serial investor in startups both new and second stage, so do have some clue on the topic. There have been posts on this very thread that are wrong, misguided or just uniformed opinions. The OP is looking for advice and some guidance which I have tried to offer but based only on the information provided. I have also requested more on specific areas. Getting all antsy when presented with facts adds nothing to any discussion.
The only antsy person is you, I simply said to the OP that one of his proposals could lead to litigation. What facts, you made a claim that the company was unprofitable when what the OP had said was they had decided not to give a dividend, as a serial investor like you must be well aware many profitable companies do not give a dividend.
I agre the OP is looking for advice which I why I warned him at least one of his proposals could lead to litigation.0 -
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.I am serial investor in startups both new and second stage, so do have some clue on the topic. There have been posts on this very thread that are wrong, misguided or just uniformed opinions. The OP is looking for advice and some guidance which I have tried to offer but based only on the information provided. I have also requested more on specific areas. Getting all antsy when presented with facts adds nothing to any discussion.
Likewise, and have been involved in a few businesses.
Would you be happy if you were the 4th party in this arrangement ?
The idea of investing in a business is not to be charitable (though it may be in some cases) nor to 'get your money back'. It's a gamble but now that this business has started to have a little success they want to cut 'you' out of the equation. If they did cut you out then I'm sure you'd be telling anyone you knew about it and to avoid these guys. If their business had failed within 6 months who would have taken the hit ? It didn't so now they have no interest in that initial investor.
That's where morals come into it and the lack of same comes back to bite you in the ass !!0 -
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.
I think this is the nub of the issue - there is a difference between investing and providing a loan.
If the OP wanted a loan initially, he should have set up a loan agreement (with appropriate interest) with this guy or else gone to a bank. Instead he set himself up as a share holder, meaning that the guy owns a share in the profits (or losses).
Unfortunately, the OP has no automatic rights to oust a shareholder just because they are perceived to have recouped their initial investment.0 -
twowheelsonly wrote: »Likewise, and have been involved in a few businesses.
Would you be happy if you were the 4th party in this arrangement ?
The idea of investing in a business is not to be charitable (though it may be in some cases) nor to 'get your money back'. It's a gamble but now that this business has started to have a little success they want to cut 'you' out of the equation. If they did cut you out then I'm sure you'd be telling anyone you knew about it and to avoid these guys. If their business had failed within 6 months who would have taken the hit ? It didn't so now they have no interest in that initial investor.
That's where morals come into it and the lack of same comes back to bite you in the ass !!
I mind my investments, the guys hardly know guy 4. They offer to buy him out, he puts a mad number on his price, he also has had his stake back apparently. He puts money in with no shareholder agreement if it was actually an investment for shares, which is still unclear. If the lads walk, the shares/company are toast is my guess.0 -
I mind my investments, the guys hardly know guy 4. They offer to buy him out, he puts a mad number on his price, he also has had his stake back apparently. He puts money in with no shareholder agreement if it was actually an investment for shares, which is still unclear. If the lads walk, the shares/company are toast is my guess.
Which could cause an issue under section 212 of the 2014 Act.0 -
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Guys
There is no need to bring down the tone of the thread by slagging each other off. So can we just cool it and agree to differ.
I note the the OP has not commented so far on the thread.
But my reading of the situation is simple enough. The guy has 25% of the share capital of a private limited company. He does not have control. Therefore his shareholding is worth next to nothing other then nuisance value at best. That is the key.
You sit him down, amicably, and tell them how it is. They can ask for crazy money and get absolutely nothing, or they can be reasonable and get something reasonable in return. You gave us a loan when we needed money and we are grateful for that. But we have repaid you that money (presumably with interest) and you have been properly rewarded.
With the skill set that the company needs now to move it forward we think the best thing to do is for us to move on without you.
If they then do not see sense then unfortunately you just vote him off the board with your 75% of the shares and then they are irrelevant. If you make us do that you will get nothing for your 25%.
It should be quite easily resolved with a bit of tact and a dose of reality.Morals do not enter into it.
Best of luck with it.
dbran0 -
Guys
There is no need to bring down the tone of the thread by slagging each other off. So can we just cool it and agree to differ.
I note the the OP has not commented so far on the thread.
But my reading of the situation is simple enough. The guy has 25% of the share capital of a private limited company. He does not have control. Therefore his shareholding is worth next to nothing other then nuisance value at best. That is the key.
You sit him down, amicably, and tell them how it is. They can ask for crazy money and get absolutely nothing, or they can be reasonable and get something reasonable in return. You gave us a loan when we needed money and we are grateful for that. But we have repaid you that money (presumably with interest) and you have been properly rewarded.
With the skill set that the company needs now to move it forward we think the best thing to do is for us to move on without you.
If they then do not see sense then unfortunately you just vote him off the board with your 75% of the shares and then they are irrelevant. If you make us do that you will get nothing for your 25%.
It should be quite easily resolved with a bit of tact and a dose of reality.Morals do not enter into it.
Best of luck with it.
dbran
So what do they do if he says I don't want to sell, thank you i will sit on my 25% shareholding and wait, or even better he sells his 25% to another person. Also the company must be very aware of section 212 which now allows the oppressed minority share holder to sue for damages.
The old section 205
http://www.pearse-trust.ie/blog/bid/101205/Legal-Remedies-For-Oppressed-Shareholders-An-Overview-Of-Section-205
The new section 212
http://www.pearse-trust.ie/blog/increased-minority-shareholders-protection-and-compensation
http://www.irishstatutebook.ie/eli/2014/act/38/section/212/enacted/en/html0 -
Hi
They say good luck to you sir.
You have 25% of the shares. Most decisions are made at the AGM of the company by simple majority. Thats the law. No court in the land is going to change that fact. We call an EGM of the shareholders giving the relevant extended notice of 28 days. The agenda of the EGM is the removal of you as a director. 75% vote in favour of the resolution and it is carried and you are gone.
Now they will be able to block some certain things such as change of name, voluntary winding up etc so he does have some nuisence value going forward which is why we really want to buy you out.
But at the end of the day we dont have to do anything and you will be effectively sidelined.
Who in their right mind would BUY 25% of the shares in a private limited company??? Firstly, you cannot simply go to another person and sell the shares to them. It is down to the company itself to register any transfer of shares and they may indeed decide to not register it. That is the difference between a PLC and a private company. Secondly you have no entitlement to dividends, no entitlement to become a director. So I cant see that happening in reality. No sane person is going to give money for a non controlling interest in a private company.
You are correct in that they will need to be mindful of oppression of the minority issue. However where is the oppression? Has their shareholding value been diluted or damaged by the actions of the majority. I dont think so. And even if they are successful, the courts will not ever change the fact that it is majority rule. They will rule that the minority should be bought out or compensated at a reasonable price which is after all what they want to happen in the first place.
So the guys with the 75% really have the upper hand in reality but they still need to negotiate to get a reasonable settlement or it could go on for years like this.
Dbran0 -
I mind my investments, the guys hardly know guy 4. They offer to buy him out, he puts a mad number on his price, he also has had his stake back apparently. He puts money in with no shareholder agreement if it was actually an investment for shares, which is still unclear. If the lads walk, the shares/company are toast is my guess.
That's the nub of the problem. They went into this with seemingly no or a very loose agreement. It sounds like it's their first time going into something like this and they didn't tie up the loose ends from the off.
Why has he put a 'mad' number on his price though ? It's quite possible that this company, that he helped with a start-up, is doing quite well and has plenty of scope for further improvement. We don't know that. Given his position, from what little information we have, I'd be doing the same. He's quite possibly willing to accept less or is open to further negotiation. No point in him going in low - again depending on the nature of the business and how successful it's perceived to be. Like it or not, this fella has helped them to where they are today and deserved to be recompensed as was probably his understanding first day.
IMO their accountant is the fella that should be dealing with this. Bottom line though is would I invest in them were they to come looking in the future ? Given what we know the answer would have to be no. SMEs' usually need a lot of goodwill to survive and they wouldn't inspire confidence in me.0 -
Hi
They say good luck to you sir.
You have 25% of the shares. Most decisions are made at the AGM of the company by simple majority. Thats the law. No court in the land is going to change that fact. We call an EGM of the shareholders giving the relevant extended notice of 28 days. The agenda of the EGM is the removal of you as a director. 75% vote in favour of the resolution and it is carried and you are gone.
Now they will be able to block some certain things such as change of name, voluntary winding up etc so he does have some nuisence value going forward which is why we really want to buy you out.
But at the end of the day we dont have to do anything and you will be effectively sidelined.
Who in their right mind would BUY 25% of the shares in a private limited company??? Firstly, you cannot simply go to another person and sell the shares to them. It is down to the company itself to register any transfer of shares and they may indeed decide to not register it. That is the difference between a PLC and a private company. Secondly you have no entitlement to dividends, no entitlement to become a director. So I cant see that happening in reality. No sane person is going to give money for this.
You are correct in that they will need to be mindful of oppression of the minority issue. However where is the oppression? Has their shareholding value been diluted or damaged by the actions of the majority. I dont think so. And even if they are successful, the courts will not ever change the fact that it is majority rule. They will rule that the minority should be bought out or compensated at a reasonable price which is after all what they want to happen in the first place.
So the guys with the 75% really have the upper hand in reality but they still need to negotiate to get a reasonable settlement or it could go on for years like this.
Dbran
As set out above but to make it really clear,
) Any member of a company who complains that the affairs of the company are being conducted or that the powers of the directors of the company are being exercised—
(a) in a manner oppressive to him or her or any of the members (including himself or herself), or
Then what can a court do,
(3) The orders which a court may so make include an order—
(a) directing or prohibiting any act or cancelling or varying any transaction; (b) for regulating the conduct of the company's affairs in future;
(c) for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital; and
(d) for the payment of compensation.
So a minority share holder can not be oppressed by the majority and that has been the law for years. My reading of the OP is that number 4 is only a shareholder and even if he was a director, removing him from that role is fine, but to do anything that oppresses him will not be allowed by the court so any reduction in his shareholding, or forced sale or the change of the Articles or Memos to reduce his shareholding can be stopped by the court.
I am basing the above answer on the idea from the OP to close down the cpmpany and start up another one. Of course there is noting stopping the OP setting up new company to do the new business, but of course will have to be careful of any overlap.0 -
I generally only invest in second or third time arounders! They are much more business savvy and dont think that getting venture capitalists to invest is them "made". These VCs own them and they become the same as employees in many cases. I like scenarios where a few bright young people with experience want to get something up and running, not the next FB or Google but a nice business that someone bigger will want to own. The might do this a few times until they have a nice wedge of their own to back their own ideas. Generally I would never invest is any non-tech sup as they rarely get sold for decent money but rather serve to give an income to the promotors.0
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An AGM is not the place to remove a Director. Absolutely not.
This is done at an ordinary meeting of the Directors, instructing the Co Sec to file a B10 to that effect.
At 25% he can block the sale of the company.
A third party to mediate may be a way forward.
This as said above was a high risk loan to a start up. He got his money back. OP seems to consider that his reward. Eaten bread is soon forgotten.
The diff to the 3 is owning 25% rather than 33%.
I can tell you from experience. The 2 things you get at the start are, a good sol and a good acc.0 -
dbran actually posted EGM not AGM!
I got the impression that the 3 other shareholders were interested in buying him out on the basis of a fair valuation of his shareholding in the business but he was seeking a looney price level. I can see him ending up with nothing unless he starts to play smart.
There are other directions this could take, like the two director/shareholders resign their roles as Directors and possibly as employees for instance. They could start up a new company to exploit the new product and stay on as employees of the original company etc etc.0 -
From hard-earned experience (of being a co-founder, not an investor), I strongly urge anyone in this situation to do everything in their power to resolve this amicably through frank but friendly negotiation. Going down the hostile route will take up far too much time, energy and money - the only winners will be solicitors.0
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No it is an EGM. And you have to give the director extended notice that this is going to be moved. Simply filing a B10 at a meeting of the directors would be an invalid way to remove the director and proper procedures need to be followed.
They may be able to block a "potential" sale, but again why would they if the alternative is to get nothing. Clearly leaving the final negotiation until such an event was to happen would not be a great move.
I am assuming that we are dealing with a rational business person who is open to negotiation.
dbranWater John wrote: »An AGM is not the place to remove a Director. Absolutely not.
This is done at an ordinary meeting of the Directors, instructing the Co Sec to file a B10 to that effect.
At 25% he can block the sale of the company.
A third party to mediate may be a way forward.
This as said above was a high risk loan to a start up. He got his money back. OP seems to consider that his reward. Eaten bread is soon forgotten.
The diff to the 3 is owning 25% rather than 33%.
I can tell you from experience. The 2 things you get at the start are, a good sol and a good acc.0 -
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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?
Thanks for all the advice folks. I read through but Im going to read it again now as there were alot of good comments in there.
Sorry I hadnt replied till now!
Just to answer the above, the truth is we were very very loose in our approach to this. They approached us as we were the people with the skills. We assumed it was going to be a kind of 4 man job where we all inputted our share of work.
But myself and my colleague who run it ended up running the entire thing from every angle, with the third guy contributing more than enough to earn loyalty by putting in effort and time and creating opportunities and representing us at times.
To answer the questions above. This is where our naivety came into it as we we ended up going along with their relaxed approach. I can only honestly tell you I dont really know if it was technically a loan or an investment for shares. What it is however is a company of whom he owns 25% of the shares as was laid out when we set up the company initially. And when we had the money in the bank we transferred it all back. Basically it was verbally agreed that this will be money just "to get it started". I know some of you are probably baffled at the casualness of it all.
Hes also a director.
You're right too, we are non profitable. We break even, pay wages and keep any money building for future wages.On the positive side we have no debt, alot of skills and are now seeing the room for potential and other ideas.
Perhaps the best suggestion for us to do is (as I think you mentioned) ask him to do an evaluation as to where he got his figure from.
Regarding the shafting comment. When it comes to this stuff, we put personal relationships and genuine loyalty over anything. Probably not good for business but the truth is I would rather do the right thing generally speaking than shaft anyone, legally or not. In this case I can am very assured this is not "shafting".
The only reason we are relaxed about this now is because it is not costing us anything at all. He never cared about the company, never showed up for meetings, made zero contributions In fact I am genuinely convinced that at one point about a year ago he forgot he even owned some of it when he asked me something like "How are you getting with your business these days?", I was baffled!
Im guessing by the replies that if we are to set up another business we should tread carefully anyway in terms of using office/office equipment etc.
I do think the best solution will be to simply ask him nicely why hes doing this and would he reconsider based on the fact that we dont have a profit and also that he done absolutely nothing.0 -
Great reply, honest and open. You are being realistic and honourable in intent. Your situation is far from untypical but it can be solved....hard way or easy way. If he is a decent guy it should be doable the easy way.0
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Thanks, this is good advice.Guys
There is no need to bring down the tone of the thread by slagging each other off. So can we just cool it and agree to differ.
I note the the OP has not commented so far on the thread.
But my reading of the situation is simple enough. The guy has 25% of the share capital of a private limited company. He does not have control. Therefore his shareholding is worth next to nothing other then nuisance value at best. That is the key.
You sit him down, amicably, and tell them how it is. They can ask for crazy money and get absolutely nothing, or they can be reasonable and get something reasonable in return. You gave us a loan when we needed money and we are grateful for that. But we have repaid you that money (presumably with interest) and you have been properly rewarded.
With the skill set that the company needs now to move it forward we think the best thing to do is for us to move on without you.
If they then do not see sense then unfortunately you just vote him off the board with your 75% of the shares and then they are irrelevant. If you make us do that you will get nothing for your 25%.
It should be quite easily resolved with a bit of tact and a dose of reality.Morals do not enter into it.
Best of luck with it.
dbran0 -
http://www.irishtimes.com/business/financial-services/producers-deny-they-diverted-film-funds-1.2692438
This thread reminded me of this case. Seems to be about what happens if a shareholder alleges his co-shareholders are continuing the business in another company0 -
http://www.irishtimes.com/business/financial-services/producers-deny-they-diverted-film-funds-1.2692438
This thread reminded me of this case. Seems to be about what happens if a shareholder alleges his co-shareholders are continuing the business in another company
Not even remotely similar circumstances! The lack of similarity is quite striking.0 -
The OP's approach is sensible up to a point. The issue i would have is his relaxed attitude. If he (I am assuming OP is a he, I may be wrong) thinks the business isn't going to grow or become more successful or require more investment of money or sweat, then it is fine. If he expects growth or investment, then the shareholders need to sort this out.
I would not undervalue this other party's contribution in putting up the cash initially. He did this without a loan agreement or a shareholders agreement and he was clearly the lender of last resort. He deserves credit for this. This is enough to merit his shareholding and a healthy return.
I think it is a good idea to resolve this issue before you all invest more time and sweat into the company. The problems only really become acute when the company becomes profitable. Everybody is always happy and friendly when there is no profitability. As things stand this party is entitled to 25 percent of the success of the company. If you want this to change, you should sort it out.
If the company needs fresh capital (which could include capital in the form of 'sweat equity') then it is only fair that new shares be issued to the people bringing the capital. You should do this (and this other party should agree to it) because it is the fair thing to do, and because it is essential for the company to survive.
I would not set up a new company as proposed if it is to take advantage of the goodwill of the original company. If there is a dispute, you will deepen the dispute. If the new company is more successful than the old company, you will open yourself up to a claim of oppression. That would be a big problem for you.
Ultimately, if you are completely at loggerheads with your shareholders, and cannot agree on a valuation to buy them out or for them to buy you out, the ultimate resolution is to liquidate the company and sell the assets (including the customer list, the goodwill and any other non-tangible assets). This is not a great thing to do, and any other resolution is better, but it can be done without disrupting the company's operations.
If you want to have this many shareholders, you honestly need to 'up your game' in terms of the formalities of running the company. If you have one or two shareholders, then this stuff isn't too important, but when you are four, then it becomes important, especially when one of the shareholders role is purely financial (like this other party).0 -
I can't argue with any of the above, the approach was ridiculous really. Way too relaxed, verbal agreements etc. We all just went with the flow.
We are going to have a discussion soon anyway. I also did some calculations and based on the work we did for free in the first year and partially the second vs what we paid ourselves, myself and my colleague are "owed" or "invested" €20K each in value of our time. This was also verbally agreed.
That figure comes from what the agreed wage would be vs what we actually earned.
I know it doesnt mean much legally but it might be something that may help change his mind when we point that out to him.
Or perhaps we could come up with a deal of sorts where he gets that money when we start getting that money paid back or something.0 -
It is important to take some account of the past, but I would suggest you try to focus on the future in your discussions. Maybe your little company needs more investment? Maybe he could provide some of it? If he wants to leave, see how you can buy him out, maybe over a long period of time. Or maybe you could have an 'option' to buy him out at a point in the future at a valuation that is fixed today, or at a certain multiple of the profit which is fixed today. This would at least give you (if not him) certainty. You can see it as a positive that he sees value in what you have all created together, it is just a question of how to deal with that.0
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antoin, you make excellent points and good advice. I think the OP and other shareholders should invest in having an outside mediator that would help them look at all options and have discussions that realise a positive outcome for all.
An old head or semi retired ex CEO or some such.0 -
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yawn
Mod Edit: Banned for a week, if you are that bored just dont post thanks.0
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