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small business share - creditor question
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James_Green_1982
Posts: 219 Forumite
Hello,
Not sure if this is the right forum.
I have a general question about how vulnerable a small business is from the creditors to one of its shareholders.
For example, if I opened a small business (eg take-away food) with a friend* - if the shares were owned 50/50 and my friend was sued personally (for a different matter - ie NOT the business getting sued), then presumably his 50% would be vulnerable to the creditor?
So what would that mean for me? Would I now half own the business with the creditor? Would I now have to give the creditor 50% of the dividends or profits? What if both me and my friend were directors of the company? Would the creditor now automatically become a director?
Sorry, i know these questions may seem very basic. I've worked in the public sector as an employee since leaving school - so my business knowledge regarding this kind of thing is minimal.
Grateful for any advice and where to find out more?
*I used the term 'friend' because I believe using the word 'partner' could cause confusion - as this is a limited company scenario I am talking about - not a 'partnership'.
Thanks.
Not sure if this is the right forum.
I have a general question about how vulnerable a small business is from the creditors to one of its shareholders.
For example, if I opened a small business (eg take-away food) with a friend* - if the shares were owned 50/50 and my friend was sued personally (for a different matter - ie NOT the business getting sued), then presumably his 50% would be vulnerable to the creditor?
So what would that mean for me? Would I now half own the business with the creditor? Would I now have to give the creditor 50% of the dividends or profits? What if both me and my friend were directors of the company? Would the creditor now automatically become a director?
Sorry, i know these questions may seem very basic. I've worked in the public sector as an employee since leaving school - so my business knowledge regarding this kind of thing is minimal.
Grateful for any advice and where to find out more?
*I used the term 'friend' because I believe using the word 'partner' could cause confusion - as this is a limited company scenario I am talking about - not a 'partnership'.
Thanks.
0
Comments
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Nobody 'automatically' becomes a director of a company. As you should already know if you are running a Limited company, directors have to be appointed. There is an administrative process.
If your partner is declared insolvent then there is the possibility that his shares in the company may be considered an asset and that they will be of interest to his creditors. The reality is, if it is a small business and relies heavily on you and your partner in order to be viable, it is unlikely that any interest will be shown in realising any theoretical 'value' that his shares have.0 -
Nobody 'automatically' becomes a director of a company. As you should already know if you are running a Limited company, directors have to be appointed. There is an administrative process.
If your partner is declared insolvent then there is the possibility that his shares in the company may be considered an asset and that they will be of interest to his creditors. The reality is, if it is a small business and relies heavily on you and your partner in order to be viable, it is unlikely that any interest will be shown in realising any theoretical 'value' that his shares have.
Thanks for your reply.
I've always been employed in the public sector. I've never run or been employed by a business, so unfortunately my knowledge is zero.
If I owned 51% of the shares and my 'friend' owned 49% of the shares, would that make any difference to a creditor taking over my friend's shares? (compared to 50/50).
Would the creditor need to take over 50% (or 51%) of the shares to be able to appoint themselves (or anyone else as a director)?
If a creditor was looking at a debtor who had £30k worth of Tesco shares and also £30k of shares in a small business - would the creditor value the Tesco shares as more ''valuable''? (ie due to the fact they are easier to take over and sell?)
Do shares in a small business afford some kind of protection from a creditor - being that they are worth less to a creditor than they are to the debtor?
Thanks again for any advice.
Like I said - I'm completely ignorant regarding this.0 -
Shares in a small private company can not be bought and sold like those of a listed (plc) company like Tesco. Often the articles (constitution/rules) of a small private company prohibit the transfer of shares without the agreement of the directors.
If a creditor was able to “acquire” your friends shares they could not appoint themselves a director without your agreement. A 50:50 shareholding would be [a voting] stalemate. Likewise they would not be able to sack you as a director.
In reality this would only become an issue in bankruptcy when the Official Receiver (OR) would become owner of the shares by operation of law (but not a director). The OR would not however have any different or additional rights to those of the original owner, so they could not sell them to a third party without your agreement or appoint themselves or sack you as a director.
Shareholders have no automatic rights to receive dividends, if the directors do not decide to pay dividends the shareholders can not demand one. Neither are they entitled to a share of profits, the matter is entirely a choice for the directors.
The only rights shareholders (usually) have is to hire and fire directors and to receive a share of any distributions when the directors decide to pay a dividend or the company is wound up.
When the Official Receive acquires shares in a bankruptcy they will try and sell them, listed (Tesco) ones will be sold on the stock market but private ones will be difficult to shift. The OR may ask the other shareholders to buy them, but the price will be restricted to whatever the other shareholders are prepared to pay. They are under no obligation to purchase.BBC WatchDog “if you are struggling with an unfair parking charge do get in touch”
Please then tell us here that you have done so.0 -
Shares in a small private company can not be bought and sold like those of a listed (plc) company like Tesco. Often the articles (constitution/rules) of a small private company prohibit the transfer of shares without the agreement of the directors.
If a creditor was able to “acquire” your friends shares they could not appoint themselves a director without your agreement. A 50:50 shareholding would be [a voting] stalemate. Likewise they would not be able to sack you as a director.
In reality this would only become an issue in bankruptcy when the Official Receiver (OR) would become owner of the shares by operation of law (but not a director). The OR would not however have any different or additional rights to those of the original owner, so they could not sell them to a third party without your agreement or appoint themselves or sack you as a director.
Shareholders have no automatic rights to receive dividends, if the directors do not decide to pay dividends the shareholders can not demand one. Neither are they entitled to a share of profits, the matter is entirely a choice for the directors.
The only rights shareholders (usually) have is to hire and fire directors and to receive a share of any distributions when the directors decide to pay a dividend or the company is wound up.
When the Official Receive acquires shares in a bankruptcy they will try and sell them, listed (Tesco) ones will be sold on the stock market but private ones will be difficult to shift. The OR may ask the other shareholders to buy them, but the price will be restricted to whatever the other shareholders are prepared to pay. They are under no obligation to purchase.
Thank you.
That's very interesting and helpful.
From what you say, it sounds as if shares in a small business could be considered a fairly 'safe' asset (in terms of protection from potential creditors) - because it sounds as if the OR wouldn't be that keen to take them on?
In reality, if the OR takes the minority shareholding from the debtor and the other shareholders don't wish to buy the shares from the OR - what happens? Does the OR just hold the shares indefinitely?0 -
James_Green_1982 wrote: »In reality, if the OR takes the minority shareholding from the debtor and the other shareholders don't wish to buy the shares from the OR - what happens? Does the OR just hold the shares indefinitely?
In theory yes, in practice they won'e want to. I've seen them accept £1 for them.BBC WatchDog “if you are struggling with an unfair parking charge do get in touch”
Please email your PCN story to watchdog@bbc.co.uk they want to hear about it.Please then tell us here that you have done so.0 -
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James_Green_1982 wrote: »Who would the OR sell the shares to?
Is there a specific market place for these kind of shares?
What if a friend or relative of the debtor wanted to buy the shares from the OR?
No market place; shares in a "private" limited company as opposed to a "public limited company" (plc) can not be bought and sold without the agreement of the directors.
The OR would first ask the other shareholders to buy them or to find someone else agreeable to the director, that other person could indeed be a friend or relative of the debtor.BBC WatchDog “if you are struggling with an unfair parking charge do get in touch”
Please email your PCN story to watchdog@bbc.co.uk they want to hear about it.Please then tell us here that you have done so.0
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