Business Partner

Caroline_a · 11 June 2012 at 3:54PM

A friend of mine (A) set up a limited company last year with a friend (B). It didn't work out, and friend A had invested a considerable amount of money into the business. They ceased trading at Christmas, but B had set up the company and was responsible for all the accounts, and despite being asked many times has not provided A with any sets of accounts.

6 months on, B is refusing to acknowledge any communication from A, letters, emails, texts, even refusing to answer the door when A has gone round! The company is still 'live' on Companies House, and has now missed the filing date, so a fine is due, despite the multiple reminders from A to B!

What are my friend's options now? She feels aggrieved as she has lost most of her savings, so there is that aspect, but also does not want this head-in-the-sand attitude to end up with her owing even more! Is there any way that any of her money can be recouped (it was set up as a loan to the company), and can she now put the burden of blame for any outstanding monies on B?

Wywth · 11 June 2012 at 4:59PM

Caroline_a wrote: »

A friend of mine (A) set up a limited company last year with a friend (B). It didn't work out, and friend A had invested a considerable amount of money into the business. They ceased trading at Christmas, but B had set up the company and was responsible for all the accounts, and despite being asked many times has not provided A with any sets of accounts.

6 months on, B is refusing to acknowledge any communication from A, letters, emails, texts, even refusing to answer the door when A has gone round! The company is still 'live' on Companies House, and has now missed the filing date, so a fine is due, despite the multiple reminders from A to B!

What are my friend's options now? She feels aggrieved as she has lost most of her savings, so there is that aspect, but also does not want this head-in-the-sand attitude to end up with her owing even more! Is there any way that any of her money can be recouped (it was set up as a loan to the company), and can she now put the burden of blame for any outstanding monies on B?

When you say A & B both set up the company what were their actual positions, because later you suggest it was only B that set the company up and was fully responsible for complying with the formalities of running the company.

Were they both shareholders? If so what was the shareholding status? 50/50 or some other split?
Were they both directors? If so, was one appointed the managing director? If not, who was ultimately in charge?

You say the company was set up last year? If so, and assuming the accounting period had not been shortened (why would it have been) then no accounts are yet due to be filed at companies house.

Accounts are not needed to make an annual return, which would have been due on the annual anniversary of the day the company was established. If your friend was a director (or even secretary) of the company, he could have made the annual return. Yes failure to make the annual return may incur a fine. Details of this would have been sent to the director(s) of the company by Companies House.
"Failing to file the annual return on time, or not at all, could result in prosecution. If you are convicted you could end up with a criminal record and a fine of up to £5,000. You may be disqualified from acting as a director."

You say the company ceased trading last Christmas.
What's happening now? If the company is no longer needed, application could be made to strike it off the register. That would probably best all round.
It may be that Companies House will start the strike off procedure anyway if there is no attempt to file the annual return.

How did your friend lose most of her savings? What happened to all that money?
Bottom line though is that if there are is no money (or other value) left, and the company ceased trading as the business was a flop, then she has probably lost her money.

If she is a recognised creditor of the business, and the business is would up, then she would be entitled to her money back pro rata to what is left ... but she shouldn't expect much.

As a limited company, there can be no claim on the employees or shareholders of such a limited company for further funds except the nominal value of the shraes held whether paid for or not. (and assuming there were no personal guarantees given or illegal actions by the directors that they may be held personally liable for)

Caroline_a · 11 June 2012 at 9:19PM

Wywth wrote: »

When you say A & B both set up the company what were their actual positions, because later you suggest it was only B that set the company up and was fully responsible for complying with the formalities of running the company.

Were they both shareholders? If so what was the shareholding status? 50/50 or some other split? 50/50 and both were directors. B was Finance director and A Operations Director
Were they both directors? If so, was one appointed the managing director? If not, who was ultimately in charge?

You say the company was set up last year? If so, and assuming the accounting period had not been shortened (why would it have been) then no accounts are yet due to be filed at companies house.

Accounts are not needed to make an annual return, which would have been due on the annual anniversary of the day the company was established. If your friend was a director (or even secretary) of the company, he could have made the annual return. Yes failure to make the annual return may incur a fine. Details of this would have been sent to the director(s) of the company by Companies House.
"Failing to file the annual return on time, or not at all, could result in prosecution. If you are convicted you could end up with a criminal record and a fine of up to £5,000. You may be disqualified from acting as a director." The company was set up by B who has all accounts details and correspondence. A has tried since Xmas to get details, only to be met by this wall of silence!!

You say the company ceased trading last Christmas.
What's happening now? If the company is no longer needed, application could be made to strike it off the register. That would probably best all round.
It may be that Companies House will start the strike off procedure anyway if there is no attempt to file the annual return.

How did your friend lose most of her savings? What happened to all that money? Again, without the account she only has B's word at the time on what it was spent on.
Bottom line though is that if there are is no money (or other value) left, and the company ceased trading as the business was a flop, then she has probably lost her money.

If she is a recognised creditor of the business, and the business is would up, then she would be entitled to her money back pro rata to what is left ... but she shouldn't expect much.

As a limited company, there can be no claim on the employees or shareholders of such a limited company for further funds except the nominal value of the shraes held whether paid for or not. (and assuming there were no personal guarantees given or illegal actions by the directors that they may be held personally liable for )

B always maintained that if it all went wrong she would repay 'her half', and it was initially set out as a loan to the company

Wywth · 12 June 2012 at 12:03PM

As A is a director of the company, she is jointly and severally liable for returning the annual return of the company. As I said, "Failing to file the annual return on time, or not at all, could result in prosecution. If you are convicted you could end up with a criminal record and a fine of up to £5,000. You may be disqualified from acting as a director."

As I also said, an annual return is not the same as accounts. Unless there was an agreement to bring forward the annual accounting date, then submission of the annual accounts would not yet be due. As a shareholder, A would be entitled to the official company accounts when these are prepared and approved. However, as A is also a director she is personally responsible for ensuring the annual accounts are prepared, approved and submitted. I suggest that if she cannot get any help from B in this regard she should start getting on with it herself. An accountant may be able to help her.

The difficulty with a 50/50 shareholding is that a stalemate situation can arise when there is a failure to agree, and hence why this is often advised against. As a non-majority shareholder, there is little A can do to force a decision that B does not wish to comply with. However, if B simply is walking away (i.e. disinterested in the company any more), then perhaps A can take matters into hand by acting as Chair in a general meeting called. A should refer to the M&A of the company as to whether or not this could be possible.

Does A have a personal guarantee from B with regards to the loan? Otherwise the loan is with the limited company which is an entirely separate legal entity. It could be argued that as the company is still in existence, no refund of any loan is due at present.

If A does believe that the money is now due to be returned, then legal action may be required. This should be against the limited company (unless personal guarantees were obtained). A judge will then decide.

Caroline_a · 12 June 2012 at 1:59PM

Thanks for your answer. I spoke to my friend and she has no idea how she can go about anything accounts-related as her partner has all documents, invoices, receipts, etc, as this was how they split the running of the business.

Can the business be dissolved via Companies House without the other partner's signature? Or could my friend resign as a director? it seems crazy that she could end up owing money due to the total lack of response from the other person! (by the way there is a trail of letters/texts/communication that can be traced to show that there has been no response)

Business Partner

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free