business relationship went sideways ltd co advice please

[233]

right bit of background,

set up a ltd co with a good friend of mine approx. 4 months ago, all was well up until last month and we had a disagreement about the amount of money he was taking out the business. result being a message from him stating hes not prepared to continue working in an environment where he feels belittled(I accused him of being shortsided for overpricing work) short term cash rather than builing relationships long term with clients. and removing more money than prudent from the co

he stated last week that he was planning on sitting on the back bench as a 50% shareholder and director. stating that he would source his work elsewhere and not take work away from the business. we called a meeting for tonight to discuss this either a resolution or buy out.

I was informed earlier this week that he has started working for one of our local competitors and this morning noticed I had been removed in all capacities from one of our facebook pages. I locked down all our other facebook pages removing his access as well as our own internal system which he has access too. bear in mind he has already stated he is no longer working for the company day to day and is now working for a rival company.

cue this evening our website going down and a message from him that he has taken the website down and wants £5000 to buy him out and will return our website once we "sort something out". we do a small but not insignificant bit of work which is gained from our website. I have spoken to our web developer (who happens to be the brother in law of my business partner) who does not want to get involved but still has not restored our website.

we have a number of issues,

firstly
we have a verbal agreement with a 3rd party to take a 20% stake of the business for £5000 the 3rd party works with us and has already made payments towards this figure totaling nearly £2000 and is owed a further £2000 by the company. business partner is refusing to honour this saying hes not paid in full so tough its not a valid agreement( verbal agreement between the 3 of us)

my business partner is refusing to answer questions relating to work he has supposed to have invoiced meaning we cannot get money that we are due I have asked for copies of invoices and been ignored.

we have a few liabilities 3 year lease on premises 24 month contract for phone and BB etc

all correspondence has been online and I have records (not that its worth anything I guess)


if theres anyone out there that can offer some sound advice or even can works in the legal profession and doesn't want an arm and a leg i'm all ears.

 

[Diagro]

Sue him...

 

[Destination]

Had you anything contractual signed between you both?

 

[HoneyBadger]

I think all you can do is sit down with him and get him to see reason. Ask him to take a pragmatic approach and if he truly wants out, so be it but he's going to have to help you help him, and explain it's not going to happen overnight.

 

[Goldy]

Is there much value in the business? Has it made any profit in the 4 months it started trading? I assume it has seeing as you're making withdrawals after only 4 months. What exactly was the 3rd business partner getting in return for the £2000 invested?
It sounds like a right mess! Difficult to see a way out of it that will keep the business in tact, let alone your friendship with the original business partner. Maybe time to walk away with whatever you can get your hands on and chalk it down to experience... one of several possible outcomes.

 

[Caged]

You need a solicitor

 

[Sankari]

we have a verbal agreement

Somebody better lube up, because they're about to get boned.

For your sake, I hope it's not you.

 

[233]

your right it is an absolute mess.

the 3rd business partner made a verbal agreement with us for a 20% stake in the business supposed to be a total investment of 5k and again a verbal agreement was made for this to be paid up on a weekly basis which it has been.

friendship is gone with him trying to stiff the third party. the business is still trading and has a decent turnover and a small profit left over every month. honestly don't know whether to take him up on the buyout and get out website back or tell him to ram it and walk or if theres another option

 

[Pudney]

Note: all my below comments are based on my role as an accountant. I'm not legally trained so you'd want to consider the legal implications (as well as on your business partner.

firstly
we have a verbal agreement with a 3rd party to take a 20% stake of the business for £5000 the 3rd party works with us and has already made payments towards this figure totaling nearly £2000 and is owed a further £2000 by the company. business partner is refusing to honour this saying hes not paid in full so tough its not a valid agreement( verbal agreement between the 3 of us)

Has the company created new shares for the third party to purchase? If so has the third party already started to purchase them? If so I don't think your business partner can do much to stop that, particularly if there is just a debt owing by the third party to the Ltd.

What do the Articles of Memorandum of the company say about creating a new director? Does it need both directors to agree or is one enough? If one is enough then create a new director (i.e. the third party) to give you power over the board (although you'd need to amend the Articles swiftly afterwards so the existing business partner can't create a new one himself). Check for "quorum" in the Articles, this is the minimum number of directors necessary to make a Board Meeting valid. This is quite an aggressive way of regaining control of the company.

my business partner is refusing to answer questions relating to work he has supposed to have invoiced meaning we cannot get money that we are due I have asked for copies of invoices and been ignored.

Can you go direct to the customers about work done? I assume you operate in a way that's clear that you're a Ltd co and not just two individuals working. I realise this may not come across well with your customers but it may be necessary. If needs be you can just say you need to sort out VAT invoices (or just the invoices if not VAT registered).

we have a few liabilities 3 year lease on premises 24 month contract for phone and BB etc

This won't change, they belong to the company not the individuals.

 

[Soundood]

my advice, dump it all now and sort it out later,

first thing in the morning go around all your clients/suppliers/business contacts and let them know you are going it alone, no nasty excuses.

asap, set up a new company at companies house

as the bank opens make the bank aware of a breakdown in communication between partners and to freeze accounts pending outcome.

open new business banking account, with new company name

by lunchtime have a web site in place, even a basic one, with a different trading name.

inform clients of the new website/numbers/services

assume he is doing this right now, or already has.

 

[Pudney]

my advice, dump it all now and sort it out later,

first thing in the morning go around all your clients/suppliers/business contacts and let them know you are going it alone, no nasty excuses.

asap, set up a new company at companies house

as the bank opens make the bank aware of a breakdown in communication between partners and to freeze accounts pending outcome.

open new business banking account, with new company name

by lunchtime have a web site in place, even a basic one, with a different trading name.

inform clients of the new website/numbers/services

assume he is doing this right now, or already has.

Or this and start a voluntary liquidation of the existing company.

 

[Dolly]

Small disclaimer: I'm a family lawyer not company lawyer - however lots of my clients run husband and wife businesses together where they are co-directors and shareholders.

I assume from what you say that you're both directors and shareholders (in equal shares). The reality is that from a legal perspective this is often quite difficult/complicated to resolve. If you want to save the trading name/customer contracts/credit facilities with suppliers then buy him out at what you consider a reasonable sum and move on. In negotiating this you can hopefully refer to breach of director duties etc. If it is easier for you to close business down then do so, start again on your own (or with someone else) and learn a lesson - agree at the outset what the drawings will be, how it will be structured, pricing and so on.

It is very difficult for you to get any sort of accurate advice on your situation without knowing the details. With that in mind, you probably need to go and take legal advice on your situation - much depends on your company governance documents and company law principles on duties of directors. It sounds as though you need to cut your losses with your business partner.

 

[booyaka]

set up a ltd co with a good friend of mine approx.

Can't offer any proper legal advise - however this is where you went wrong.

Business and Friends/family never usually work out for the best.

Good luck but as other say - get some proper legal advice with all the relevant paperwork you have but by the sounds of it you'll be better off dumping the lot and setting up yourself.

 

[wedrum]

Can't believe you needed 3 investors for such a little amount of money.
Never ever go into business with friends.

Some great info above from others going forward.

 

[233]

Can't believe you needed 3 investors for such a little amount of money.
Never ever go into business with friends.

Some great info above from others going forward.

wasn't about the money, more about supposedly securing the right person to come work with us and give them an incentive to come aboard.

tommorows going to be fun one that's for sure

 

[dowie]

You need a solicitor

this

and ideally keep your communications so there is an audit trail (like e-mail, text rather than phonecalls)- especially when you're asking him about invoices, him taking the website down... he can give you the evidence you need to take action against him in a civil case through his own stupid admissions

 

[jpod]

You need a large bloke, unless you already are one. This is done. Time to fold it and set up again.

This is your friends reputation not yours. Make sure everyone knows he is a whinny bitch who can't tale a bit of constructive criticism and set up your own Wordpress site and Facebook page and lead a good life (the best revenge).

In respect to folding and your liabilities seek legal advice.

 

[Polarbear]

Did you give any personal guarantees for the 3 year premises lease? If you did that is going to make it hard to just walk away and start again (which was my first reaction when I saw how old the company was).

 

[llamadal]

Your friend seems like total ####### #####! Hope you get it sorted, he's being very petty and vindictive.

 

[233]

Did you give any personal guarantees for the 3 year premises lease? If you did that is going to make it hard to just walk away and start again (which was my first reaction when I saw how old the company was).

No guarantees given,

Going to speak to the land lord about taking over the lease if I let the current ltd co go under rents paid up until Feb anyway