Non director as shareholder?

[jessikart]

I'm currently a director and company secretary of a limited company that I stopped working for in February because of ill health. There are 111 issued shares belonging to the company, of which I hold 50, my brother (the other company director) holds 50 and my parents (who have nothing to do with the company, other than being shareholders) jointly hold 11. The shares are worth absolutely nothing and I have no expectation of ever seeing any dividend from them, as the business is mired in debt (including to our parents). All the shares do is give me some say in any major decisions (such as a sale, which is currently a possibility).

After I 'officially' left the company as an employee, I was still working (unpaid) off and on for them for another three months, helping train up my replacement etc, but since then I've had nothing to do with the day to day running of the business, nor do I want to have anything to do with it. About a month ago my brother contacted me and said that the bank had reminded him that it would be a good idea to reflect the changes that had taken place, and for me to officially resign as a director etc. This is fine.

My brother then went on to say that as I'm no longer 'taking a risk' with the company, 75% of my shares should transfer to him and his partner, as they're keeping the business going (for which they both receive a comfortable salary, a home, all bills paid). He put in some of his own money in February when cashflow was quite tight, but the issue of shares wasn't raised with me at the time. I've left it for a few weeks, but emailed him last night to say 'yes to resigning as director, leave the shares for the moment'. He emailed back 'What do you mean by 'for the moment'? and I fairly bluntly said that I don't want to give up my shares, and see no need to do so.

There's a whole host of family issues here which I won't go into for now, but does anyone have any advice on if my brother and/or the bank can put any legal pressure on me to surrender any/all of my shares?

No they cannot force you to surrender your shares. They are your property. They most definitely do have a value as they mean you own a share of this business. Which is obviously worth something as there has been talk of selling it. If it is sold you are entitled to a percentage of the sale proceeds depending on what percentage of the total isued share capital you own.

I suspect your brother wants to bully you into giving up this valuable asset for nothing as he plans to sell the business and wants to keep all the sale proceeds for himself. Tell him where to get off.

Company Secretary is an important office under company Law. If I were you I would not resign as Company Secretary.

DancingHippo you are spot on. There's talk of a sale at a price which would cover all debts, and leave shareholders with a small amount - I know my brother wouldn't agree to that (although my parents & I would)... if he had my shares he could refuse that offer, to the disadvantage of my parents.

Lucinda - what are the disadvantages of me resigning as Company Secretary? I really don't want to be involved in the company any more, and don't want to have any legal obligations/liabilities towards it, now that I'm no longer actively involved. I'm more than satisfied that the company's accountants etc are good - to whom should the company secretary role pass?

small companies no longer need a company secretary sonce the most recent changes to th ecompanies act so you can resign wihtout apointing another one. Of course practically someone neds to do all the company secretarial work (Companies House submissions etc) but I suspect the accountants are paid to do that.

A company secretary is an "officer" of the company and has some legal obligations though not as many as a director but if you are not involved in the business I would certainly resign.

I own shares in BT - they don't expect me to provide any value to their business!

You do not have to give up the shares.

You should resign as company secretary though as there are signifcant responsibilities with that. The office of Director though is something you should retain to ensure you have sight of all documents at this critical juncture.

If your brother put money in as a 'director loan' it should be reflected in the accounts. If it was put in as shares then it should have been recorded as new shares. This was not the case so he only has rights to withdraw the money he loaned. Ideally, the loan shoud be documented and the auditors will want to see that.

The Company Secretary role doesn't need to pass to anyone!
"Since 6 April 2008, private limited companies have not been obliged to appoint a company secretary unless the company's articles contain a reference to the company having a secretary." link

Don't be bullied into handing over the shares, unless your brother wants to adequately compensate you for the goodwill that you helped create.

Thank you all very much for confirming what I'd hoped! It seemed obvious to me that anyone could be a shareholder in a company without actually doing anything for the company, but I really wanted to be sure of this before things become too embroiled

WestMids, I'll have to check the articles, but I'm fairly sure they're quite standard. I've emailed the company accountant just to check it, but I can't see there would be a problem...
BeenBeta, I don't know the details, but I'm sure it would have gone in as a directors loan, based on conversations I've had with my parents since then, and emails that I've been copied into.

Many companiesarticlaes need at least 75% to approve the sale of the business rather than a simple majority so you may find he can block a sale anyway.

Yes that is true and I was going to add to jessikart that you need to check the Articles of Association to see if there is any restriction on voting rights, minimum number of votes and prcentage of votes to carry a resolution etc.

The critical threshold is important.

I am not sure how big the company is but it is very common for family owned businesses like this to find themselves in conflict that is difficult to resolve because of family ties. You say 'there are a whole host of family issues' and this sounds like a classic case.

If it is any help you may want to draft in an independent firm accounting firm like BDO who have a specialist Family Business division who are experts at resolving this type of issue.

It sounds to me like there is a surplus in the business after all debts are paid and it may be that your brother can just carry on with the business but under a new guise after this one is properly shut down and the surplus distributed. You may even be able to find a buyer for the business.

It sounds to me like your brother is also taking a lot of resources from the business and trating it as if he is teh sole owner. It may be more profitable if he were to employ someone to run it, buy his own home and you both act as Directors taking dividends. You have a number of economic interests here that need protecting and you and your parents need to make sure that happens - not just effectively hand the whole thing to him without priper compensation.

In extremis, he should buy you out on an independent valuation or on an earn out basis over a number of years.