Major judgement error -what are DH's options?

[99luftballoon]

Hi. DH has recently started a business with a friend. It is a limited company and they each have 50% share and are both directors.

DH gave up work when the business started up, as the business advertises the fact it can offer services 24/7. Business Partner (BP) is still working full time Monday - Friday 9-5pm. He stated he has handed his notice on but I am starting to wonder if he even has. So basically DH is left working 7 days a week. On his days off on weekends, BP always comes up with excuses why he cannot work in our business - weddings, days out with the family and working overtime.

We do not have a legal partnership agreement although we have an informal one. (DH knows it is not legal, BP does not know this) The agreement states that each partner has to contribute their time and effort to the business equally and must spend a reasonable amount of time working for the business.

It is a complete disaster and DH is paying for his mistake of trusting his instincts and his other friends, who rave about BP. DH is starting to think about buying him out, but he is on to a good thing and I don't think he will not leave willingly. The company owes us about £4500 in money lent to it when we set it up (BP is owed £3000). The business is not making any money at the moment. DH cannot wind the company and restart as there are licenses tied to the business that would need to be applied for and paid for again.

I don't see any way out of it. We would get legal advice but cannot afford it at the moment. DH is starting to become so resentful that he is doing everything, and my stress levels are through the roof. The business will eventually take off in a big way, and I resent BP getting half the money if he does not pull his socks up. I know he can change and start to pull his weight but the longer this goes on, the less hopeful I am.

I would really appreciate any help on this matter.

What makes you think that the informal agreement is not legal? An agreement doesn't have to be drawn up by a lawyer to be binding on the parties.

I was looking into it on the internet and it stated that DIY agreements did not hold much water :(

The company must have articles of association. These will reflect the agreement between the parties. On any matter on which they are silent there are standard statutory provisions that will probably apply (unless they have been expressly excluded). The articles are available to download for a small fee from the companies house website if you don't have a copy of them. It sounds like your DH also has a shareholders agreement. I don't see why it would not be enforceable, it presumably evidences the intentions of the parties.

You may be able to get some advice on this either from CAB or from one of your local law school's pro bono projects. Students on such projects are properly supervised by qualified solicitors so it's a good way to get advice on something like this. That's assuming you don't get full advice on this thread. It's not my area of expertise, otherwise I'd try to help more.

Well it's possible that it's not legally binding, but if you both signed up to it, that would be very persuasive in a court and it would probably be held to be binding.

First step is to talk to the BP about all this. Set down clearly in writing what each person is expected to do. Review things in a month. If no improvement, write a letter stating what is expected and by when, otherwise the relationship will be terminated.

I cannot emphasise enough the importance of a proper shareholders agreement - its not a partnership because you have a limited company. It shouldn't cost a fortune. Makes things much easier if this sort of thing happens.

However, in the short term, you need to assume that the existing agreement is binding. Point this out to BP with examples of how he is not measuring up. I can't see any reason why it wouldn't be legally binding if both shareholders have signed it.

There are implied terms of a partnership. Look at the Partnership Act 1890.

He'd be an absolute fool to try and sort this one out without getting some proper legal advice from a specialist.

I nearly said that Collaborate - but if you read the first para of the OP again, it's a limited company.

If they have an agreement that has been signed by both, that is legally enforceable. If no signed agreement, but there are agreed terms - perhaps documented in email correspondence? - then those can be relied upon as the terms governing their relationship. If it was all agreed orally it's much more difficult but you can still have an oral contract (though much more difficult to evidence its terms).

Sorry about that - I focused on the reference to there being no legal partnership agreement.

If he's put no money in to the businessw he could just walk away from it, although I'd reiterate that to pay for an hour or twos advice now will save major headaches in the future.

Personally I would sign my half over to BP, cut my losses & start over by myself.