To stick to terms of agreement with friends

i am not 100% sure she has to BUY YOU OUT. you can stay as a shareholder and just receive 20% when she sells.

she can't take away your shares or dilute them easily (though she'd need only 80% agreement of a share class to alter share rights or issue new ones so she may be able to do that).

claiming unfair treatment of shareholders is costly though

https://en.wikipedia.org/wiki/Unfair_prejudice_in_United_Kingdom_company_law

You obviously don't have to accept a lower settlement.

I think this kind of issue can look very clear cut when you aren't experienced in understanding shares, investment and cap tables. But you didn't take the huge risk you're implying, as you would have been able to claim back most of your money via SEIS if the business had folded.

My guess is that your friend hadn't had proper business advice about the impact of so many shares being owned by an individual not associated with the business, and I wonder if she now feels she was taken advantage of? Of course, you may not have understood this either.

Ultimately, she needs her own business advice. She can take further investment and dilute your shares. Reaching a compromise is generally better for both parties.

Are you an executive or non-executive director @Bungybungy ?

CFs should always receive their solicitor's letters at 6.30pm on a Friday😉

I suspect that she’s found a buyer for the company and wants 100% of the sale value as in her eyes she’s done 100% of the work to achieve it.

In your place I would request the total value of your shares in the first instance but be prepared to accept whatever interest you would have received had you had that money on deposit just to be rid of her. She’s probably in a position to compromise whatever value has been achieved to date and to leave you with sweet f a. She sounds that ruthless and deluded

I agree that @hangingonfordearlife1 has given good advice.

And also she was smart enough to set it up innher gavour so she must have understood the terms (which are pretty fair! Tbh)

Dont get dragged in to any chat / mudslinging.

Presumably you currently are receiving 20% of profits? If not its even more laughable she wants to just "pay you back" your investment

She has to buy you out at 20 percent of current value of the business. That's all there is to it.

I work in investments, seed capital for new businesses is a killer, she could have flogged herself for years and never got going. I’d issue the request for buyout per the contract via solicitor and possibly see a pr person about preparing a statement for social media. Something along the lines of:
Some years ago I invested in a friends business, she didn’t have other ready sources of capital and needed some to start a business, any founders know searching for seed capital is hard graft and she didn’t have to go the rounds of vc firms because of me. Like most providers of seed capital we drew up a contract. It is to my great shock and disappointment that I find that despite the clear nature of the investment and contract that she regards the money as a gift not an investment and plans to return only what I put in. My lawyers will be handling the buyout process so it is legal and fair. I have learnt a great lesson about money and friends.

You own 20% of the business so she needs to pay you 20% of what the business is worth.

Id stick to this as doesn’t sound like you will remain friends anyway.

I assume you are legally a shareholder - listed on the annual return/co memo on start up?

And seperately you have a shareholder agreement about buy outs

under Co Act provisions, on minoriry shareholders, you can enforce a sale if the relationship has broken down (but thats costly).

however, she can - pay out any cash in the business as her salary (unless you can soemhow restrict that) and start up a new company. as all the goodwill in the company is really HER i assume? I asusme no automatic dividend rights for you all?

So its a tricky situation. Legally you have powers but she can make the company worthless by withdrawing her work from it.

She sounds vile! Definitely don't let her walk all over you. Make her buy you out what you are owed.

Your not being unreasonable, she probably wouldn't be where she is now with out your initial help , you did it all the correct way getting a legal agreement, she's the one being snide here not you. Reminds me of why I don't lend money to friends, all over you one minute then dont hear off then when it comes to pay back on the day we agreed, then I have then embarrassment of chasing them... Not the same but it reminds me of that. X

You should take advice on whether her threats amount to blackmail. On your facts it sounds like there is a chance they would. Get your solicitor to write a letter telling her to stop. Much better than letting her post something and pursuing for defamation after the event.

That aside I agree with most of the rest of what's been said.

Also, surely she can’t declare the business itself bankrupt? If she declares herself bankrupt, it’s her assets at risk - she can’t do this to seize the OP’s 20%.

Op does the company accounts so I'm not sure how the ex-friend would manage this

Is she vindictive enough to declare herself bankrupt/cease trading (and open a new business under another name instead) just to spite you?

I’m no lawyer but she could use the fact that you used your company’s lawyer to draft the contract as a way out? Or perhaps she’ll be told that the onus was on her to seek her own independent legal advice.

Either way, do NOT back down. She’s a cow and no longer a friend.

This is excellent advice

Investing in a business is about taking a risk: you may lose the lot or come up roses. You're entitled to your share if the profits as well as your initial stake.

If she's distancing herself then let her go. But take everything that you're entitled to. She certainly would if the shoe was on the other foot.

If she’s saying she didn’t understand the contract then she’s not much of a business woman, never sign something you don’t understand!

She’s had the money and taken the risk and it’s paid off and the price of that is that you own 20% of her company, I’m assuming there’s a reason she didn’t take the risk with a bank loan 🤔

Sounds like the friendship is long gone. There is no moral take on this at all except that she morally and legally needs to honour the agreement. She may well kick off, and at that point if it starts damaging your reputation I would suggest looking at a libel (or slander if spoken) case.

to prevent this from happening is there anything in you contract about that? Can that be negotiated as part of your sale?

if she does anything screenshot, take notes, keep emails as potential evidence and if she has threatened it may be worth instructing your solicitors to write to her to say that you will pursue a claim if she defames you.

Make a counter offer to find a way to resolve the matter. Sounds like you have experience in these issues so you'll know how to respond. In regards to outing your business, ignore but bear in mind threats like this. Don't pander to her. Only you know how you run your business and I'm sure there's no genuine issue she's talking about, probably clutching at straws. Don't engage in conversations she can later then use about this topic. In the event she does make inappropriate comments you can counter with the relevant response depending on whsts been said.

But the deal was OP had 20% of the business for her investment which was necessary for the business to take off. If 20% is 50 times her original investment that is what F needs to pay her if she wants to buy her out

She asked F how much she thought the business was worth now but F said that wasn’t important but it’s the principle that matters more.

Wot a tit 😂

One of my previous roles involved valuing companies for M&A transactions. Applying a multiple to profit is a sound method and I was going to warn against manipulation of EBIT/EBITDA but it sounds like that won't be a problem if you have visibility of the accounting side.

Ethically you shouldn't feel bad. You provided the capital and took the risk. Private equity firms would be far tougher (I've seen some very unhappy management teams when drag along provisions are enforced by the financial investor and the whole company is sold).

OP

if she'd LOST money, she'd be calling it an investment.

Now she's MADE money, she's treating it as a loan.

Fuck that.