Business Closing - Understanding your rights

sirius60

Hi I've got a friend who is a minority shareholder in a business where there are three shareholders one of them holding a majority of the shares. The majority shareholder wants to close it down as she is moving to Sri Lanka. The majority shareholder doesn't want to sell the business as a going concern because the company ownes buildings and she wants to sell the building seperately, something to do with having to pay less tax on money recived if the business has been closed.

My friend is really concerned as she is a widow and the money from the business is important to maintaining her current lifestyle. As well as the loss of regular income she is also concerned about any liabilities the company may attract between it closing and the buildings selling. These are troubled times and she is worried that the buildings could stand empty for a long time and be draining whatever money is left in the company accounts.

The accountant who is advising the company is also the personal accountant of the majority shareholder and so she is concerned about whether the accountant is giving advice that is beneficial to all three shareholders or just the majority shareholder.

Any advice anyone can offer would be much appreciated

COOLTRIKERCHICK

If i was in your friends position, i would be straight to the solicitors who is a specialist in business matters etc and getting proper advice..

unless, if the business is losing money, surely the majority shareholder can not just shut the business..... but maybe they can, and this is why it is VERY important that legal advice is taken.... in the long run it might be worth every penny....

good luck,

sirius60

Thanks for that CoolTrickerChick - I think you are probably right! But money is certainly an issue for my friend so one of the reasons for posting was to find out what kind of legal advice she should be looking for and who from. What she doesn't want to do is spend a fortune trying to find the right legal advice before she even gets any

COOLTRIKERCHICK

was there a contract drawn up when she became a director? which outlined her rights regarding the assests etc.

as i say... She def needs to see a specialist solicitor, if the other director feels the same way, couldnt they split the cost? or if it was me...she could get the business to pay the solicitors costs.... well it is business related....lol...

paulwf

sirius60 wrote: »

Thanks for that CoolTrickerChick - I think you are probably right! But money is certainly an issue for my friend so one of the reasons for posting was to find out what kind of legal advice she should be looking for and who from. What she doesn't want to do is spend a fortune trying to find the right legal advice before she even gets any

The key is to find a commercial solicitor not your general family law solicitor. Chances are there aren't many suitable firms in the average town so this makes choosing easy. Ask other business owners, accountants and bank managers and you should soon get a feel for who to go to.

Any solicitor will have an initial chat with you and outline their fees, at £250 p/h it soon racks up though...probably a grand to get decent advice and two grand if you need them to take action for you. Put it through the business though if you can.

paddyrg

It would seem sensible that it would be a winding up cost of the business for the business to allow a certain amount of legal costs for each director.

Also though have a look at the memorandum and articles of association and shareholding annual return documents from companieshouse website (pay a few quid to get them). The M&A may say what happens on wind-up, or the different share classes may make reference to wind-up too.

sirius60

Thanks for that folks, I would agree I would want appropriate legal advice and I would want the company to pay for it too paddyrg I'll definately tell her to checkout companies house. Thank you for the help :T

patman99

If your friend is purely a shareholder, then she has no worries about any liabilities incurred between the company ceasing trading and the assets being sold.

She does however need to get hold of a copy of the M&A as outlined above. If she is a Director then as an officer of the company, she can request to see the relevant documents as held by the company solicitor or accountant (actually, she should have had a copy to read when she became a director/shareholder).

I can fully understand why the majority shareholder wants to close the business and sell the assets if they are moving abroad. It saves a lot of hassle in the future where tax liabilities are concerned. If it is a profitable business, then there is nothing stopping your friend and the other shareholder re-starting it again once the closure and sell-off is complete. After all, the (former) majority shareholder will not be able to have much say in the matter.

Just a thought, but is the business viable-enough to allow the two minority shareholders to take-out a loan in the company name to buy-out the majority shareholder?. This would seem to be a lot simpler and more cost-effective than doing all the closing-down and selling-up malarchy. Might even save her loads in taxes as well, esppeccialy as she is moving abroad and so would be depositing the money in a non-UK bank account.