Leaving a 50/50 Limited Company with PG’s

Melzs94

Looking for a bit of advice on walking away from a business with 50% share set up as a limited company. (No shareholding agreement - silly I know) 

The company itself makes less profit than I could obtain in a traditional job elsewhere and I invested nothing into it starting off, so walking away empty handed would not make me worse off however I am concerned about a couple of PG’s signed, one for a small loan and one on a retail lease. 

The company would continue to operate with the other shareholder running the business, so long as all goes smoothly would the payments on the loan and lease continue as normal and I would hear nothing about it unless the company failed to make payments? 

sliphi

Melzs94 said:

Looking for a bit of advice on walking away from a business with 50% share set up as a limited company. (No shareholding agreement - silly I know) 

The company itself makes less profit than I could obtain in a traditional job elsewhere and I invested nothing into it starting off, so walking away empty handed would not make me worse off however I am concerned about a couple of PG’s signed, one for a small loan and one on a retail lease. 

The company would continue to operate with the other shareholder running the business, so long as all goes smoothly would the payments on the loan and lease continue as normal and I would hear nothing about it unless the company failed to make payments? 

The personal guarantee will only be called upon if the company fails to repay the loan or pay the lease obligations in acordance with the respective contracts entered into.

oldbikebloke

please confirm: are you an actual shareholder in the company?

"no shareholder agreement" is a meaningless statement if there are shares in your name since you own (part of) the company and your entitlement to a share of the profits depends on what the class of the share is and therefore what rights to a dividend apply to that class.
 
to "walk" away" from the company, if you are a shareholder, means you need to dispose of your shares. The shares have an intrinsic value, although valuing such small companies can be difficult as there is no ready market in such shares, so their price is down to who can buy them. It appears you do not have a controlling interest (>50%) so the remaining shareholder can't stop the sale. The value of the shares therefore comes to to a) does the other shareholder want them himself or b) can you find someone willing to buy them from you for a 50% interest in a business you yourself are walking away from because it does not make enough money. That is a job for the company accountant to value, they may only be worth nominal amount, or they may be worth more.
As you would be disposing of the shares, you will need to consider your personal tax position in respect of any CGT liability.

A personal guarantee is ... personal. It is not linked to whether you have any ongoing interest in the company. As previous poster says, it remains a risk you are exposed to until such time as whatever you guaranteed ends. Looks like you need to negotiate with the body who you are exposed to, and get them to rescind your guarantee. Almost by definition, that will be an uphill struggle since they want security from someone for a debt owed by a company that can fold and run away from its debts 

Melzs94

oldbikebloke said:

please confirm: are you an actual shareholder in the company?

"no shareholder agreement" is a meaningless statement if there are shares in your name since you own (part of) the company and your entitlement to a share of the profits depends on what the class of the share is and therefore what rights to a dividend apply to that class.
 
to "walk" away" from the company, if you are a shareholder, means you need to dispose of your shares. The shares have an intrinsic value, although valuing such small companies can be difficult as there is no ready market in such shares, so their price is down to who can buy them. It appears you do not have a controlling interest (>50%) so the remaining shareholder can't stop the sale. The value of the shares therefore comes to to a) does the other shareholder want them himself or b) can you find someone willing to buy them from you for a 50% interest in a business you yourself are walking away from because it does not make enough money. That is a job for the company accountant to value, they may only be worth nominal amount, or they may be worth more.
As you would be disposing of the shares, you will need to consider your personal tax position in respect of any CGT liability.

A personal guarantee is ... personal. It is not linked to whether you have any ongoing interest in the company. As previous poster says, it remains a risk you are exposed to until such time as whatever you guaranteed ends. Looks like you need to negotiate with the body who you are exposed to, and get them to rescind your guarantee. Almost by definition, that will be an uphill struggle since they want security from someone for a debt owed by a company that can fold and run away from its debts 

Hi, 

Thanks for your help. I have 50/100 Class A Shares. As for selling them on, I’m sure there is little to no value at all and would be happy to resign as Director and have my business partner take total control of the company. Is that a possible approach? To forfeit the shares?

I agree trying to get my name removed from a PG would definitely be an uphill as struggle as it is not in the lenders interests to do so, I just wanted to clear up that the company and remaining Director will be the first port of call for the lenders. 

J_B

Melzs94 said:

Thanks for your help. I have 50/100 Class A Shares. As for selling them on, I’m sure there is little to no value at all and would be happy to resign as Director and have my business partner take total control of the company. Is that a possible approach? To forfeit the shares?

Would it be prudent to sell them to the partner for a nominal fee?

sliphi

Melzs94 said:

oldbikebloke said:

please confirm: are you an actual shareholder in the company?

"no shareholder agreement" is a meaningless statement if there are shares in your name since you own (part of) the company and your entitlement to a share of the profits depends on what the class of the share is and therefore what rights to a dividend apply to that class.
 
to "walk" away" from the company, if you are a shareholder, means you need to dispose of your shares. The shares have an intrinsic value, although valuing such small companies can be difficult as there is no ready market in such shares, so their price is down to who can buy them. It appears you do not have a controlling interest (>50%) so the remaining shareholder can't stop the sale. The value of the shares therefore comes to to a) does the other shareholder want them himself or b) can you find someone willing to buy them from you for a 50% interest in a business you yourself are walking away from because it does not make enough money. That is a job for the company accountant to value, they may only be worth nominal amount, or they may be worth more.
As you would be disposing of the shares, you will need to consider your personal tax position in respect of any CGT liability.

A personal guarantee is ... personal. It is not linked to whether you have any ongoing interest in the company. As previous poster says, it remains a risk you are exposed to until such time as whatever you guaranteed ends. Looks like you need to negotiate with the body who you are exposed to, and get them to rescind your guarantee. Almost by definition, that will be an uphill struggle since they want security from someone for a debt owed by a company that can fold and run away from its debts 

Hi, 

Thanks for your help. I have 50/100 Class A Shares. As for selling them on, I’m sure there is little to no value at all and would be happy to resign as Director and have my business partner take total control of the company. Is that a possible approach? To forfeit the shares?

I agree trying to get my name removed from a PG would definitely be an uphill as struggle as it is not in the lenders interests to do so, I just wanted to clear up that the company and remaining Director will be the first port of call for the lenders. 

I would urge you to seek professional help before doing anything rash. You don't seem to fully understand what you have got yourself into here.

I have previously informed you about the Personal Guarantees you have entered into, and I do sense you now are beginning to understand where you currently stand in that regard.

But in business, everything is negotiable, and I fear you are on the brink of giving away what you have to negotiate with. i.e. the shareholding.

You indicate you believe the shares are not worth anything.

Well let's start at the beginning. Have you paid for the shares yet? i.e. are they fully paid up shares?
You see when you subscribed to the legal agreement of a limited company, it was on the understanding that if the worst happens, the maximum liability (excluding any PGs you subsequently entered into) you were exposed to was the nominal value of those shares. So if the worst happens, the creditors can call on you to that value, so if you've not yet paid, you may still have to.

That is one reason you cannot forfeit the shares.

Now you also indicate the company is making a profit, albeit not as much as you would like. In those circumstances you would be entitled to half of those profits if they are ever distributed (paid out). Presumably you expect the company to continue to make a profit, even if you are no longer actively involved yourself, so you would still be entitled to half the profits distributed.
That itself would give some value to the shares, assuming the assumption the company will still make a profit is true.
Also the lease may be valued at something, and the loan you acted as a PG for was presumably used to invest in something (stock, machinery ?) which itself should mean you as current half owner should be entitled to, not just the burdon of the loan itself.

If you don't want to be involved in the company, you can resign as a director (if that is what you currently are) but not as a shareholder (owner).

The easist way out completely is to sell the shares to someone else at a price to be agreed, which may be above, below or at the nominal value stated on the share certificate.
If the shares are noy fully paid up, and they really have little or no current value, then no one will buy them as they effectively would have a negative value. i.e. whover is holding the non-paid up shares if/when the company goes bust may find themselves liable to at least the nominal value of those shares.

In some circumstances it can be arranged for the company to effectively buy back the shares, but that will is complicated (in simple terms, you will often see it stated that a company is not permitted to mbuyt back shares) and you will need more expert advice, probably costing more than what the end result would be worth in your case.

So start with the other shareholder. In fact some company rules say shares must first be offered to existing shareholders, so another good reason to do so.

If you want nothing else to do with the company, and stop supporting it, it would probably in the interests of the other shareholder to agree to take your shares, thereby becoming the sole shrareholder and able to take 100% advantage of any profits made.


It may also be possible for that person to take on the PG you have agreed. I suspect not directly, as the exiting creditors would not want to give up the option of pursuing you if necessary, but perhaps the olther shareholder have give a PG in favour of you if your PG is ever called upon? Again expert advice is needed about this. 

If that proves not a way forward, then you can just sit back and let the other director and shareholder run the company. Or you can be awkward and block the other doing almost anything other than keeping the status quo as you hold half of the shares, so no one can make a decision unless you agree to it (or at least do not disagree with it)

Whilst you would be entitled to 50% of any profits distributed, it is entirely up to you whether or not you take them.

Or you may be able to sell the shares to someone else, but you need to understand if and how that may be possible according to the company rules, also depending if anyone else would be prepared to take them (your current attitude towards the company may make it difficult to convince anyone else to accept them), and remember you cannot advertise them for sale to the general public.

I started this post suggesting you take professional advice, but if you cannot come to any agreement with the other shareholder, perhaps you should both take professional advice, as a non-active and possibly hostile shareholder sounds like eventual curtains for the company anyway.
It may, therefore, possibly be better to close the current company down now in a structured way and allow the other shareholder to start up again with a wholly owned company if that is what the other shareholder wants to do.

This is not meant by any means to be a fully exhaustive list of options, but rather as just a few starting thoughts for you to consider how best to move forward.