Moral question for you in relation to small business

BonandDom

Bit of background info for you:-

DH and a work colleague set up thier own limited company a couple of years ago, business was doing a brisk trade and despite the recession everything was going well.

This was despite the fact the work colleague (now joint director) seemed to take a fair amount of time off due to sickness. About three months ago he needed a minor op and took about 3 months off in total - although he did occassionally speak to customers over the phone.

This time off has now dramatically affected the company, so much so that unless the bank give us the requested overdraft there will not be enough money in the bank for the salaries in december. I am in the meantime applying for jobs left right and centre but not having a lot of luck.

Again this morning he has cancelled his attendance at an important meeting because he is not well.

Now I have a feeling that the bank may ask for some security against our house (other director rents his home).


So my question is :-

Would you in the same situation agree to this - I have said that either way the house is on the line, because if we don't get paid we can't afford the mortgage, DH on the other hand is suggesting closing the company down and cutting loose as he is fed up (and understandably so) of doing the majority of the work for the same pay as the other director

hippyadam

Doesn't really sound like a moral decision, its more a question of survival.

Frankly i'd walk & take the client base with me... If your going to risk your house you may as well risk it for 100% of the potential return as 50%....

paulwf

The best option might be to try and buy out the other half of the company. At current valuation it doesn't sound like it will be worth much which will be an advantage for you.

Another option may be to move towards both directors getting a majority of their earnings by wages rather than dividend. It isn't as tax efficient but if the other director is off for 3 months move him to SSP which should save the company a lot of money.

What has the other director suggested to do about the problem? Is he just happy to draw a dividend whilst doing nothing?

BonandDom

paulwf wrote: »

The best option might be to try and buy out the other half of the company. At current valuation it doesn't sound like it will be worth much which will be an advantage for you.

Another option may be to move towards both directors getting a majority of their earnings by wages rather than dividend. It isn't as tax efficient but if the other director is off for 3 months move him to SSP which should save the company a lot of money.

What has the other director suggested to do about the problem? Is he just happy to draw a dividend whilst doing nothing?

Unfortunately we just don't have the money to buy him out at present.

I never thought of the wages/dividends thing - will speak to Accountant today as they do our wages.

Basically he has said/done nothing, although when he did return to work he did work hard - albeit for just about a month before he is on the sick again.

stephenni1971

Unfortunately we just don't have the money to buy him out at present.

Buy what exactly - if you cant pay the wages then you are hardly going to pay him for the privilege of putting you out of business.

Dont offer the house EVER.

Rolo_Tomasi

Do you have a directors/shareholders agreement?

I'm assuming that there were only 2 directors and the shareholding is 50/50. If this is the case then you cannot just close down the business, not pay the other director or basically do anything without a majority decision taken at a EGM. If you have an agreement then you need to refer to this about the action that can legally be taken. If not then you need to consult a solicitor before you take any illegal action no matter how unfair the situation seems.

paulwf

BonandDom wrote: »

Unfortunately we just don't have the money to buy him out at present.

But as it stands if you decide not to put your house up as security the company will go bankrupt and be worthless. As it is the company has debts...does it have any notable assets?

To you the company might be worth something as you can make all the decisions on your own and not be carrying any dead weight. It may be hard for the other partner to accept that the business has little value but if you can press the issue that if he doesn't sell he will may well end up bankrupt (depends on liability of course) might he sell it for a small amount?

property.advert

Dump him by the cheapest means possible unless he wants to stand some cash in lieu of his time off.

As far as I can see, the company is worthless.