Employment/ company equity dispute - please help

[CircetheWitch]

I'd really appreciate any insight or advice here. DH currently down with Covid and finding it difficult to manage this issue. I sense time might be of the essence.

DH and business partner run a small consultancy business. The consultancy helps start up companies grow. They often take shares in a business at very early stages . At the tail end of 2019, one of their clients took major VC funding which was great. DH and partner own 2000 shares in this startup business - all good, legally cemented and documented at companies house.

In the autumn startup business took more investors on. Startup company then told DH's company they wouldn't be required any longer from the beginning of this year - again all above board.

Problem is, they are now saying they only want DH's company to have 1000 shares - half their original stake. They are offering (or threatening, might be a better way of putting it) to buy back 1000 shares at the original price DH's company bought them for at 1p a share - ie DH and partner get £1000. The share price current value would amount to £52,000!!!!

Legally - we are aware they can't force DH's company to sell their shares. At 2nd of December Companies House still lists DH's company as owning 2000 shares. However, we've noticed they've since filed a resolution in early January - no doubt pertaining to this dispute.

They are becoming aggressive, and have big money behind them. Very much an attitude of 'we will do what we like, legality aside, and if you don't like it - sue us'. DH's company do not have the money for a battle. They got some free advice from a lawyer who simply said things could get very messy/expensive and if they want to avoid that, maybe they should just 'give in', despite the fact the company are acting illegally.

Can anyone offer advice in this horrible situation?

Just to be clear - DH's company's original intention was just to leave their shareholding alone in the hope that it eventually pays off in a few years' time.

But the clients' attitude is now 'you keep half your shares and we buy back half your shares at their original price, and you can take us to court if you want a fight.''

If you give in what's to stop them doing the same with the remaining half.

I would get as much as you can in writing and possibly make a counter offer for them to buy all the shares. Then you never have to deal with them again.

They might be willing to pay if they get all the shares back.

MadeforThis - thank you.

I don't think DH's company would be happy to sell back all the shares now because the whole point of the original equity is that it was to stay there until the company is sold - which would hopefully offer a significant return.

That's a good point about cementing the remaining half - though one would think having the full amount of shares registered at CH was as rock solid as it could be, and they are still trying to screw him. Any other thoughts?

What will they do if he refuses?

They got some free advice from a lawyer who simply said things could get very messy/expensive and if they want to avoid that, maybe they should just 'give in', despite the fact the company are acting illegally
So not as straight forward as you've put it. Not sure what advice can be provided here that would be more valuable than the above.

Does the VC company begin with J?

@BIWI - I think they can just go ahead and file a resolution that states the 'new' share allocation? Not legal but that's the point - DH's company would have to take legal action to stop them or sue them once done.

@dontdisturbmenow - it's straightforward in that the company are acting illegally, but not straightforward for a tiny company of two to enter into a legal dispute with a company that has multi-million investment behind them.

This is becoming extremely stressful as DH's partner is very jumpy about getting into a fight with 'the big guys' and wants to give in. DH horrified by what company are trying to pull, but ultimately wants to respect business partner's wishes and won't get into a legal fight 'alone'. I'm angry because potentially this could be a significant amount of money to our family that we stand to lose. I feel like I can't just let this go 'for an easy life' when it could be the difference between our DC being able to put a deposit down on a flat, say.

@Hoppinggreen - no. But the lawyer said that VCs - particularly those in the tech sector - often have form for extremely bullish behaviour when it comes to shareholders.

How do you know what the shares are worth? This suggests the company is listed.

@rottengreentomatoes - I think it's possible to get a valuation based on the level of investment into a company? i.e. shares in a company that have taken millions of pounds worth of investment (as this one now has), would be valued at considerably more than a start-up that has taken none?

That said, what DH is quoting per share seems very specific which is confusing.

Obtaining a Fair Market Value for a company ( to report to shareholders etc) is quite a complex and lengthy piece of work. Like any commodity these shares are only worth what any one person is willing to pay for them. I don’t doubt your story as a million years ago I worked for a start up and took a small shareholding at a heavily discounted price ; three years later the relationship broke down and I left and I had a huge battle to get value for my shares . But at that stage there was a buy out on the cards so there was a price to work around.
As a shareholder were your DH and his partner not informed of the shareholder resolution?

@rottengreentomatoes - thanks. Interesting to hear about your experience.

My understanding is that DH and his partner were informed but only in terms of 'we want to buy back half your original shares at the original price we sold them to you, and if you don't like it you can sue us.'

Companies House state the full amount of shares for DH's company one month ago, but they have since filed a resolution. I cannot view it at this point (it is being processed), but I bet everything on them trying to push this through.