To not want parents to give away half of my business?

[Bubs101]

First-time poster here! So go easy on me.

I set up a small consultancy business about 10 years ago and am doing quite well for myself now, however it hasn't been easy. My parents gave me an initial sum of £10,000 to help set things up, however, this was on the condition that they own 50%, which at the time I agreed to, as they were my parents and kindly invested in the business and me. 10 years later their initial investment has been paid off and they have been regularly receiving dividends, so have done quite well of the initial £10,000.

However, as I'm in a good place financially I asked them about buying back the shares they have, gradually, so I can have full ownership of the business, this was initially agreed that I would be able to do this when they first invested as my parents "don't want anything from me". But now this is where it gets tricky as they have now refused saying they are going to gift my brother the shares instead! As he is expecting his first DC (I have none) I'm shell-shocked and livid. My brother and I have a very complex relationship and he was physically and verbally abusive to me before I moved out, though he faced no consequences as he was the golden child who could do no wrong! My parents are aware of how I feel about my brother and we are virtually NC, except Christmas where we are civil for the sake of the family.

I'm just really upset by this and was wondering if there was a way I could stop this from happening. I've worked so hard to get my business to where it is, my brother is working but has always expected handouts and is naturally smarter than me but very very lazy so he earns about a third of what I do. I just don't want him to reap the rewards of my blood sweat and tears especially after how awfully he has treated me. I've told my parents how I feel but they are having none of it and have told me that they own half the business and are entitled to do with it as they please. AIBU in wanting to seek out some legal advice regarding this, I just fear my doing so my parents will cast me out.

yes good for you op!

I've only seen one person on here mention the bigger picture. I.e. what does the OP stand to inherit on her parent's deaths? And would that be jeopardised if her relationship with her parents breaks down?

I.e. if her parents are worth a million, she'll stand to inherit half a million. Is it worth risking that?

Yes, heartless, but the rest of this thread is about cold reality rather than family love, loyalties, etc. I'm not saying the OP has to put up with being treated so badly, but she also has to weigh the risks of cutting of her nose to spite her face.

My suggestion would be to raise her "wage" to a proper market rate - the kind of wage she'd earn if she worked for another employer. Yes, there's a bit more NIC/tax to pay, but with recent tax changes, the differences aren't as big as they used to be. If paying a proper wage means there's no "profit" left in the company, then so be it. No need to pay more to the staff unless the OP wants to in order to reward and motivate them.

As for business valuation re sale/gift of shares or part of a shareholder dispute (if it gets that far), again, it's the proper open market wage of the OP that needs taking into account. When businesses are bought and sold, whatever low wage taken by the owners is substituted for a proper wage, so the business (i.e. the company) may be worthless anyway if it can't produce a profit once the owners are paid properly for their time/expertise.

Far better paying a little more to HMRC than 50% to the parents.

I.e. if her parents are worth a million, she'll stand to inherit half a million. Is it worth risking that?

That's not the bigger picture! The bigger picture is about respect, autonomy, authenticity, integrity...

It also assumes that the parents would leave her money anyway ...

OP - Great start - but still make sure you get those ducks in a row. See an accountant sooner rather than later.

Why can't they just give your bro 10k the same as they gave you. With you having given them 100k I'm sure they can afford that. Fairs fair you've both had 10k.

Dissolve the company. Just change the name very slightly. Or you can issue more shares which I think effectively devalues their shareholding but I’m not an expert on limited companies.

Please get proper legal advice. See a specialist solicitor and accountant. Then make a decision that protects you properly.

Happy to see that the OP is putting herself first, and getting something positive from a toxic situation.

No good deed goes unpunished when dealing with parents and their golden child.

@Bubs101, congratulations on establishing such a successful business! May I ask what line of business you're in? I've always loved the idea of going solo, and am looking for inspiration.

Good luck with the issues with your family. Sounds like you have a solution for now, but taking some legal advice to help you to understand your position fully won't hurt.

PLEASE GET LEGAL ADVICE.

You cannot just shut down the business and restart. You will be a director of the business. Directors of the business have to act in the best interests of ALL STAKEHOLDERS. This of course applies to any director i.e.your Dad, if he is a director. The share transfer process will be set out in your Articles of Association (which are probably these if you adopted model articles when you set up your company).

Also - there are potential tax liabilities for anyone selling - or buying/being gifted shares. Your parents and brother need to be aware of this. Make sure HMRC is informed too.

But the most important thing you can do is get legal advice. You need to make sure everything you do is absolutely bybthe book. You are getting a lot of well-intentioned but dangerous advice in some of the posts above that could be extremely harmful to you business.

Good luck.

and give myself and the staff a nice little bonus

Remember that a bonus can also come in the form of a pension contribution. If you and the staff each have a SIPP set up making an employer contribuition is as simple as filling in a short form and writing a cheque.

Also, the employees (but not yourself) could be given a tax-free redundancy payment, if work in this company dries up.

OP please go and see an accountant or a solicitor ASAP as otherwise you are just storing up problems for the future. Corporate law isn't my area but I do wonder if whether granting yourself a payrise and minimising dividends as a result would be seen as acting in the best interests of the shareholders. If not, you would be in breach of your director's duties. You don't want to get yourself into a worse position legally by doing something which a bunch of people on the internet have told you is morally the right thing to do.

Ask your accountant to wind up your company? He will sort out the paperwork and make sure that the new business start up is done as smoothly as possible. As your father owns 50%, it might be an idea to open your new company first and transfer the contracts (business and staff) over, leaving your current business as a shell, that way he would have no point objecting to the winding up as there would be nothing to gain by continuing.

As far as the potential disowning goes, I would be racing to do the disowning first! That is absolutely despicable behaviour from your parents.

A solicitor won't give you this advice as it's unethical but here's what I'd do.

Relent and say okay parents, I agree you can do what you want with your shares, but would you do me the minor concession of letting me own at least 60% of my own firm? I suspect they would be okay with this.

Then buy the 10% and simultaneously make an amendment to the company's articles that split the shares into A and B categories. Then in future only declare dividends to the A category that your shares are in. Brother can own 40% but not actually get a penny and will also be a minority shareholder so have no legal recourse.

Btw the problem with winding up and reopening is that any transferred assets are still 50% owned by the dad so he could sue for their value

Im a forensic accountant and dealing with these situations costs a lot in legal and accounting fees. Worse if you use little firms or those without proper experience you will get bad advice and it can all come back to bite you.

Your strategy to persuade your parents is a good one. Remind them that they wont be able to just give your brother the shares under the articles you should have first refusal. Also there could be tax implications for them / your brother.

Agree not to do anything sneaky but your priority is getting your parents off the shareholder list as cheaply as possible.

Do you have any cash in the business? Be wary that any cash not required in the running of the business is half your parents. Dont build up your cash reserves. Your bonus idea is a good one.

Be wary that you are going to end up paying them considerable sums to buy back half their shares. Legal advice about starting over or starting a services company certainly something to consider. Still an absolute minefield.

Very foolish to put them in as equity holders but pay them back in cash. You should have been buying them out or saving up to buy them out. Ah well damage done. Sounds like you have a handle on them with the threat of losing you.

This thread is a very sad reflection of the world we live in today - I made a comment upthread as I am the ex wife pretty much the parents in this thread. My xh did many of the suggestions that have been said here ie said the company was going into decline , stopped paying dividends, inflated his salary then took directors loan instead to the tune of £102k, even did what @TerryTummiTowels said which my legal team missed and ditched me when I kept going back to this as an indication of how it was all preplanned.

Had to switch from inflated salary and dividends because this could then be used for child maintenance calculations.

Also threatened if I did not sign a declaration to gift his no 2 5% shares he would wind up the company start again and I would get nothing. This I believe was the smokescreen about the different share class I got nothing anyway as it ended up!

ITS easy to say go NC - op can you deal with the emotional toll of this - I’m 53 just realising my own DF is not who I thought he was - he’s 80 - all changed when my Dm died 10 years ago and I realise my who,e life has pretty much been not what I thought it was. This takes some adjusting - doesnt help that my life seems to be echoing that of my Dd!

All the advice is “legal” and “accountable” - I have been through an emotional and financial hell as a result - still battling now - are you prepared to deal with any huge family fallout as a result - you don’t say how old your parents are - what if one of them died suddenly in the midst of all this - how do you think that would impact on you?

Don’t get me wrong your parents have behaved appallingly but no doubt they think they are right - just like my x - doesn’t get that his actions have caused Ds to feel suicidal - he has to prove me as the bad guy in All this. My own Ds has shown abusive behaviour towards myself and my Dd - my Dd has saiD I let it happen - that I didn’t stand up for her - believe me I tried my struggles are all documented on MN - but sometimes I did not have the energy to deal with it! DD is strong she will be fine mostly - maybe like you - Ds I’m not so sure - as I said suicidal discovered by school, drug issue and stealing issue - tried to get him to speak to CAMHS about 3 years ago but he refused - still carries this all inside him. MAybe this is your db?

parents are meant to keep families together - this is a family - but we are dysfunctional - taught from a bad model - I’ve had my own issues with my own db over the years - but I saw him at rock bottom - heard how he tried to commit suicide - nothing -absolutely nothing mattered at this point - except trying to bring him out of rock bottom - he’s getting there!

I can fully understand how your business matters to you what you have achieved but no one knows what is round the corner - the best comment on here is from @emzw12 - but I expect they all ready have !

Another post of mine I made the comment money is poison - and here it is again destroying what should be precious! I heard the other day about an ap that helps us be kind to people - what is wrong with us if we need a fucking ap to tell us to be kind - this should be instinctive - shows us how far we have come/ not come depending how you look at it.

MAYBE if weall did one act of kindness today it would have a ricochet effect. I’ve just had to confront my own DF and ask him why he’s not spoken to me since Xmas day - the answer too busy! I’m at my lowest right now and he knows this and he’s too busy - says it all really!

Good luck op I hope you come to a decision that you will find easy to live with no matter what

In order to try and keep all things calm can you suggest to your parents that you will gift your brother the 10k (like you had) in return for them handing over all the shares in your company back to you? They may see this as a nice gesture to your brother? Doesn’t matter if you don’t want it to be a nice gesture but just want your shares back!

One option is to persuade parents to give DB 10k but they know (think) the shares are worth more.

You need legal / accounting / tax advice and hopefully they can get you out of the mess.

But if you open a new business with a slightly different name leaving the old company dormant would that help?

Selling the assets from the old company to the new company for a second hand rate.

Letting the old company pay people of (reducing its assets) restarting them with new company without redundancy liabilities.

Award yourself a decent pay rise reducing the dividends paid out.

I've only seen one person on here mention the bigger picture. I.e. what does the OP stand to inherit on her parent's deaths? And would that be jeopardised if her relationship with her parents breaks down

Her parents could be only 20 years older than her.

Dp is in his 60s and has terminal cancer his mother is still alive and is probably going to out live him.

I would never look at how much an inheritance is going to be because anything might happen and your life would be wasted if you are just hanging around waiting for someone to die.

Suppose both parents live till 95 and go into a care home at 75. How much of the £1million would be left after 2x20 years in a care home.

If you are going to try to persuade them, I suggest you have your sol or accountant at the meeting with you, do it in a neutral and formal place like a rented conference room, and have someone recording the minutes, or even someone making a recording of the meeting (as at depositions in the legal world).

Separate completely the parent/child aspect of this from the business aspect, in other words.

Do not meet at your house or at theirs. Do not meet at a Starbucks or anywhere else casual.

What a dreadful situation for you OP. Agree with sentiments here but I would see a commercial lawyer first before incurring additional accountancy fees.

Greenberet, your example is nothing like the OP’s

OP’s parents made her take a loan from them and in exchange agreed she would pay back the loan on full and also they would own 50% of the business.

Her brother has been physically abusive to her and she is no contact with him. Her parents regularly financially support him.

OP has repaid the original loan and regularly pays out dividends to her parents.

They are now refusing to sell back her company shares to her, wanting to instead gift them to her brother.

Her parents and brother have never contributed towards the business in any way it’s all OP’s hard work.

This is nothing like your divorce. Which to be fair sounds horrendous. Nobody but OP put in any work for this business. The original loan has been repaid in full and parents have been making a tidy income from dividends off the op’s hardwork for however many years without contributing anything.

I would doubt there is significant inheritance to have if the DPs feel the need to take dividends from one sibling to pay to the other and then want to provide security for the favoured sibling by gifting their share in his DSis' business to him.

In any event the Op has already contributed over £100k to her future inheritance. If she doesn't sort out the current set up then it could be considerably more and as pp points out this could either end up going in care home fees or even IHT.

I wouldn't consider future inheritance either. Too many reasons, the parents could spend every penny, inheritance tax, may decide kids have enough leaving to the cat & dog home.

Basically Op needs to find a way of avoiding lining other people's pockets.
I'd think an new company has to be the answer one way or another. Parents / brother can keep their shares but if the business isn't doing the turnover..the shares won't be worth much.
Really sorry but my new business is renting office space from the old business....
Really sorry employee I'm going to have to make you redundant give you 4 weeks notice but you can start with business 2 in 4 weeks. Mmm

Might not be ethical buy plenty business have been set up on the back of other companies.