Blog posts - directors partners shareholders

For the past few years the Civil Justice Council ADR Working Group has been looking at the role of Alternative Dispute Resolution (ADR) and considering how it can and should be used in the future. The main question posed was whether it should be compulsory.They published their Final Report in Novemb...

You havegiven a Personal Guarantee to a creditor of a debt payable by another personcompany or organization, the creditor has made a formal demand and followed itup with service of a Statutory Demand. What should you do?First ofall you must act quickly. To avoid a bankruptcy petition you must make p...

The recent high profile case between Jeffrey Blue and Mike Ashley has brought a reminder from the High Court on how a contract is formed in English law and why it is so important to record any agreement in writing.On 26 July 2017 Mr Justice Leggatt gave his judgment in a claim brought by the investm...

Whom do you turn to when you’re in dispute with yourbusiness partner(s) and what should you ask them? How do you know whether your accountant or local solicitor isthe best person to advise you? For many business owners and directors, their first port ofcall is their accountant. After...

Flat management companies are companies that are set up tomanage blocks of flats. They mainly deal with issues such as repairs but alsomay have a role in ensuring that flat owners comply with the terms of theirleases.It is usual for the shareholders of these companies to bethe flat owners. They buy ...

On 21 March 2017 the Ministry of Justice published thenew and long anticipated Pre-Action Protocol (“PAP”) on debt recovery . It willcome into force on 1 October 2017.So what will this mean in practice? It has long beenthe requirement of the Civil Procedure Rules that parties should foll...

Dismissing a director is not as easy as dismissing a normal employee. This blog sets out how to go about firing a fellow company director.The first thing to appreciate is that most directors in SMEs have three roles – that of a director, an employee and a shareholder – and to get rid of ...

It is important to make and record company decisions in thecorrect way as otherwise they can be challenged by a director, shareholder orliquidator and, in some cases, could result in the person who made a decisionfacing personal liability. Who makes company decisions? Most decisions need t...

Normally a director, or indeed a shareholder, will not have any personal liability for any debt of a limited company, but there are exceptions.One exception that I will cover in this blog is where an insolvent company is pursuing (or defending) litigation which is unsuccessful, and the company canno...

Most SMEs don’t give much thought as to how their shareholding should be structured apart from the number of shares to be held by each shareholder. One problem with this is what happens if there is a disagreement between shareholders. The majority group will always be able to out-vote the mino...

Stop Trading and Strike Off The simplest, and cheapest, way to shut down a company is to stop trading and then to apply to Companies House for the company to be struck off the Register of Companies. After 3 months have passed without the company trading, carrying on any business, undertaking any tra...

It can often happen, especially in small companies, that the directors get locked in a stalemate situation and cannot make effective decisions. The legal situation is that companies are run by their directors who collectively make decisions at board meetings. If there is a difference in opinion, the...

What rights does a shareholder have in the way a company is run? What can shareholders do if they do not like what the directors are doing? Companies are owned by their shareholders but are run by their directors. The directors make most of the decisions of the company: the major strategic ones as w...

Starting a new business is a very busy time and you are probably receiving advice from everyone as to what need to be done. Legal matters to attend to are perhaps the trickiest of all: it is easy to find advice on what you should be doing but what are the most important things to attend to? From our...

It often happens that, following a dispute, a director–shareholder leaves the company. A question often then arises as to whether that director should sell his shares. Before you make this decision, the first place to look is in the company’s articles or any shareholders agreement. Somet...

A director owes duties to the company which either arise as a result of the Companies Act, common law or contract. Duties under the Companies Act Under the Companies Act 2006, the duties are owed not just by directors who are registered as such but also by those who are held out as directors even th...

Reason 1 - Differences in contributions to the business After a while, it often happens that one director or group of directors ends up contributing more than the others. Often, one ends up bringing in more work, or provides more of the finance needed than others. This is perhaps the most common rea...

What is a partnership?A legal Partnership comes into force when two or more people start a business that does not have any other legal form such as a limited company.Often there is a written Partnership Agreement which sets out how the business is to be run but, where there is not, it is governed by...

So Gordon Ramsay got himself into a bit of a pickle and came off worst.It was all about a Personal Guarantee on a lease of a restaurant and hotel held by his company Gordon Ramsay Holdings International Limited.He challenged the personal guarantee on the basis that he did not personally sign it. His...

In SMEs, it is often the case that directors are also shareholders. If a director is removed from office, this will not generally affect their position as a shareholder and it will usually be the case that it is preferable to deal with the shareholding at the same time. It is sometime the case that ...

Shareholders have rights as shareholders, whether or not they are directors of a company as well. Many shareholders’ rights are set out in the company’s Articles and any Shareholders’ Agreement. These may extend or reduce some rights. However, the Companies Act 2006 also sets out c...

One of the things many entrepreneurs overlook in the rush to form a company and start their new business venture is the importance of giving thought to which individuals have ultimate control over the company.One of the advantages of going into business with someone else is that each person brings s...

People often go into business together with a view to being equal in the business: to contribute equally and to be paid equally from it. Sometimes they put equal sums into the business to start it up and run it but at other times, one partner provides some expertise whereas another provides the fina...

In my last blog in the series on personal guarantees, I will look out how you can bring a personal guarantee to an end, and what to do if the creditor takes action against you under the personal guarantee. Discharging a personal guarantee The only sure way to bring your liability under a personal gu...

In my last blog I looked at the nature of personal guarantees, explaining what they are and how they work. In this blog I will consider what you should do if asked to give a personal guarantee, the advisability and requirement for legal advice before signature, and the position where legal advice wa...

If you are a shareholding director and wish to leave your company, whether voluntarily or under pressure from your fellow shareholders, your main concern will be getting a fair price for your shares and other rights. This will usually be determined through negotiation and, before you embark on this,...

A personal guarantee is a security given by one person or company for a loan or other obligation of some other person or company (the “debtor”). The personal guarantee is given to a creditor or potential creditor (usually a bank, trade supplier, or landlord) of the other person or compan...

What Is a Director?Simply put, a director is someone who runs a company. They are responsible for leading, directing, overseeing, supervising, governing and controlling the company. Often a company will also have advisors, such as accountants, solicitors and business consultants of different special...

Often in small and medium-sized businesses, a company’s directors and shareholders are the same people. However, this is not always the case and it is not uncommon for directors who have left to retain their shareholding. Shareholders, as opposed to directors, have very limited rights when it ...

What authority does a director have? A company operates through its directors. The extent of powers that the directors have are set out in the company’s Articles, Memorandum of Association, shareholders’ or board resolutions, or other agreements. Unless authority has been delegated to in...

How do companies manipulate bonuses and dividends? The first point to make is that directors are paid in different ways to shareholders. Directors can be paid in two ways: by salaries or bonuses. Shareholders are paid through dividends. Salaries are usually a fixed amount paid each month and are typ...

A question I am often asked when advising a company about how to deal with a rogue director is what can the courts do to help.The first thing to appreciate is that directors owe duties to the company itself and it is usually only the company that can take court action rather than its shareholders or...

This article looks at the situation where a business is set up by two or more individuals who view themselves as equal ‘partners’, but the business is in fact a limited company. In many businesses set up by groups of friends, colleagues or relatives, the individuals often refer to thems...

An interesting recent study from by Imperial College Business School, Leeds University Business School and Durham University Business School has revealed that family businesses are better at avoiding bankruptcy and insolvency than non-family-owned businesses. The study looked at what were the partic...

I often advise companies who believe that a director can be removed from office simply by sending Form TM01 to Companies House. Unfortunately, this does not remove a director and is unlawful unless the correct steps have been taken beforehand. The following procedure should be followed: 1. Look at t...

Summary A partnership is a relatively simple way for two or more people to own and run a business together. However partners do not enjoy any protection if the business fails and you should definitely get a written Partnership Agreement drafted. How to make a business partnership legal This is ...

I am often asked if a Personal Guarantee is unenforceable if independent legal advice was not taken before it was signed. The answer, as with many things, is “it depends”. It is always worth looking to see if the bank or other person or organisation taking the guarantee has followed thei...

One of the most frequent enquiries we get at the moment is from company directors worried about bank Personal Guarantees they have signed. A Personal Guarantee is generally given by a director as security for money borrowed by a company in which they are also a shareholder. If down the line the busi...

Is there increasing friction between you and your fellow shareholders and/or directors? Are your board meetings starting to bear a striking resemblance to Alan Sugar’s ‘Apprentice’ ones? If so, then you need to take action and start to think tactically. The first points to consider...

It is a mistake to assume that personal gurantees to banks are always enforceable. It is true to say that these days the high street banks usually have watertight paperwork and have covered off any potential loophole, but one recent case demonstrates how a lender can get it wrong with the result tha...

As a solicitor who defends directors when they get into problems with liquidators, fellow directors and shareholders, suppliers and customers, as well as government bodies, I am constantly struck about how most of these problems could have been avoided if directors hadn’t made a few basic mist...

Many limited companies are started each year by friends, relatives or former colleagues who have a great business idea and a desire to create a successful business. Few, however, appreciate the potential problems they are storing up for themselves by not having a formal agreement in place to set out...

If you are setting up a limited company with others one of the many things you should consider is a Shareholders' Agreement. This article looks at why you need such an agreement and what such an agreement should contain. If you decide to enter into a business partnership with someone you would no do...

I must confess to a fascination with the Leveson Inquiry into the Culture, Practice and Ethics of the press. Piers Morgan was in the witness box yesterday answering questions about his time as editor of the Daily Mirror. His evidence echoed that of James Murdoch given to the House of Commons Culture...

Removing a director from a company is much more complicated than removing an employee. Before this is done, there are several things to consider and tactics to employ. The first thing to bear in mind is that, in SMEs, directors usually have 3 different legal roles and the legal position of each is d...

Whilst pretty rare up till now, there has been a recent increase in the number of SMEs who are making directors redundant, and we expect this to continue. It can often make sense: if a company’s activities have shrunk, with fewer sales and a reduced workforce, it can now appear too top heavy a...

If you’re considering removing a director, or if you are a director facing the prospect of being removed by your company, there are many tactics to consider to obtain the most favourable result. Taking early legal advice from a solicitor who specialises in directors’ duties is essential,...

The only people who needn’t read any further are those who are the sole shareholder in their company - unless you might be issuing shares to someone else at some stage, in which case carry on so that you will be prepared. Everyone else should have a shareholders’ agreement in place. Read...

Many directors of SMEs are taking huge risks when it comes to paying themselves without realising – and it is often on their accountant’s advice. It is very common that a company’s accountant will advise directors of owner-managed companies to take the majority of their pay as divi...

Current market conditions mean that many business owners and directors are having to face up to the consequences of personal guarantees they signed when they first started their business, took out a loan or signed a lease agreement. I've heard of numerous small business owners who have had thei...

As we enter 2011, one thing is for sure: company directors have never before faced so many duties, responsibilities and potential personal liability for the companies they control. Based on recent trends, we predict that the following 4 areas will be the main ones for directors of SMEs to watch out ...

If a director who has loaned money to their company resigns, or is dismissed, can they get their loan back? Many companies, especially in the current economic climate, seem reluctant to repay a director’s loan in this situation. The first thing to look at is the loan agreement itself, if there...

Company directors are subject to so many duties that, if they are not careful and don’t take proper advice, they can easily find themselves in breach of one or more of their duties. But, in SMEs and family-owned companies, the directors and shareholders are usually the same people; so who care...

When preparing to sell your business, it is crucial to take the right advice as this can have a big impact on the success of the sale, the amount you receive and any ongoing liability following completion. Here are 10 reasons why it is essential to use a good solicitor when selling your business: 1....

We are often asked “Which is really best - partnership or limited company?” The answer is that it depends! Have a look below and decide what cover and what formality you feel you really want. Partnership In a partnership, two or more people share the risks, costs, and responsibilities of...

Directors are under a legal duty to maintain detailed accounting records of their company. In particular, they must maintain records: to show and explain transactions, and disclose the financial position of the company at any time with reasonable accuracy; to enable them to compile balance sheets a...

As the credit crunch deepens into what looks like an unavoidable recession, directors are asking us what they can do to protect themselves personally should their business be affected. The events since the Lehman Brothers’ collapse have been frightening for most, if not all, SMEs and family-ow...

Data Protection sounds, understandably, a very boring - some may say largely irrelevant - subject to small business owners. But it can cost you many thousands of pounds to ignore it. Many business owners are not aware of the effect the Data Protection regulations may have on how much they can sell t...

The Data Protection Act 1998 introduced certain principles in dealing with personal information. The Act regulates dealing with ‘data’ which relates to any living person. It is important to realise that, as a small business, you certainly deal with ‘data’ under the Act on a d...

Although many don’t realise it, being a director of a limited company is an onerous task. As a director, you personally owe many legal duties to the company. Historically, it’s been difficult to find a clear guide to all of these duties and, although the new Companies Act 2006 compiles a...

The new Companies Act has made some changes as to who directors are and registration requirements. Most of these new rules came into effect on 1st October 2009 but it seems many Directors know nothing about them.Who is a director?A director is anyone who has either been formally appointed as a ...

As businesses continue to struggle at the moment, there’s been a recent increase in the number of SMEs who are making Directors redundant. It can often make sense: if a company’s activities have shrunk, with fewer sales and a reduced workforce, it can now appear too top heavy and under p...

The Insolvency Service today published their statistics for the number of company insolvencies for the 1st quarter of 2009. These show that there were a total of 4,941 liquidations in England and Wales (an increase of 56% compared to a year ago). Of these, 1,579 companies were wound up by a court (a...