Any accountants on board?

[swee'pea99]

There are clearly people on this thread much more expert at such matters than I, but sometimes there's a value in ignorance, so...

What, exactly, are you proposing to buy?

And what (if anything) is it really worth to you?

Seems to me that thinking clearly about those two questions should be worth your time.

As a couple of contributory factors...

...you say you are the major fee earner - would/could that not remain the case outside your current corporate vehicle?

...does your 'company' offer any value to you at all, really? Would your time and energy not be better spent designing yourself a new logo and letterhead and taking as many clients as possible with you (along with the staff you actually rate) when you leave? 

Final thought: if he's who you say he is (and we have no reason to think otherwise) it sounds to me like you'll be on a hiding to nothing trying to get any kind of reasonable settlement out of your MD. This is his last throw of the dice; he has nothing left to lose. Baulking you will probably be the last bit of fun he gets out of his career. If I were you, I'd try to think outside this box; think about the skills that have made you 'the major fee earner', and how best to put them to work for your benefit.

 

[MacB]

I think ASC is right here, the guy's offered you 20% of the company but I would have expected that to be moving forward not retrospectively. Whether you'd created an inequal partnership or Ltd Co I think he'd still have put an existing valuation down as owable to him.

Effectively there's been a Ltd Co created and it has bought an existing business from the sole proprietor. I don't see anything unusual in that to be honest.

 

[rsvdaz]

What if when he offered me the 20% that we declined to go ltd?
it was my understanding he was giving me 20% equity in the current business..perhaps it was my misunderstanding and niavity?

 

[accountantpete]

A couple of points rsvdaz.

It is very difficult to force him to sell the shares to you.

On the other hand when you try to sell your shares the minority stake will attract a severe discount in relation to the number of shares/value of the company because he has a controlling interest.

Get in contact with a Solicitor who knows this area of law and have a chat so that you know precisely where you stand.

Personally I'd start building up my own "private" portfolio of clients if poss and then get out of there.

 

[rsvdaz]

cheers pete..I already have wheels in motion for this as a back up plan..i know i cant force him to sell his shares..but to see sense i suppose 80% of something is, i guess something...80% of nothing is..er nothing

 

[ASC1951]

[quote name='swee'pea99' timestamp='1284543729' post='1397715']
Would your time and energy not be better spent .... taking as many clients as possible with you (along with the staff you actually rate) when you leave?
[/quote]
Risky. It's a clear breach of your contract to entice staff or customers way, even if you haven't got a written contract. I know people do do that, but they also get slapped with an injunction and in some cases pursued successfully for a share of the profits of their new business.

Rsvdaz, if you can show (as opposed to being sure it's what you were told) that you were offered 20% of the existing business, you need to go back to the solicitors and accountants, ask them why that isn't what they have produced and tell them to put it right.

That is a separate issue to the future of the business. Even on your version of the agreement, you are only worse off by 20% of the historic value and you knew that he was still going to have 80% of the shares, 80% of the directors' loan and 80% of the future income - so TBH I don't see why you feel so disgruntled. You signed up to being a minority shareholder in a company run by this guy, so why are you feeling hard done by when that is what you have got?

OK, his performance may have fallen off a cliff, or you may have changed your mind. These things happen. If the business is struggling to pay both your salaries and you are the major earner, clearly you are in a strong position no matter what the shareholdings may say. I suspect that there is a deal to be done, but only if you approach him in an open, straightforward and realistic way - after all, he is the one who built the business up and you aren't going to get the right result by complaining that you have had your leg lifted or telling him that he is past it. You need to persuade him that he will be better off by doing less work and letting you do more, on condition that you both agree a framework and timetable to transfer at least 30% of his shares to you.

Building a new business from scratch is not easy. I've done it a few times and it takes its toll of health, friends and relationships. IME you would be foolish to throw away the existing platform until it is clear that you cannot reach a deal which is at least as good as going it alone.

 

[rsvdaz]

again wise words ASC..something i need to mull over for a while

 

[MacB]

Getting messy is rarely the best way forward, you've already mentioned he's ageing and maybe a slow wind down could be in order. You could propose a deal to transfer majority ownership to you over a period of time. That way he keeps working for you and the existing client base, as opposed to working against you.

How about a 4 year plan with you aquiring 15% each year under whatever terms you hammer out. This gives you the added benefit of being able to transition the customer base clearly and above board. It swaps your positions leaving you at 80% and him at 20%, and keeps goodwill alive.

 

[rsvdaz]

trouble is the company cant sustain the current expenditure.
its a catch 20/20 situation..hes not productive enough and I need someone productive to stop the shrinking turnover
I have been thinking of talking to him on the lines of me aquiring 31% now and becoming the managing director with him dropping down to a consultancy role paid on an hourly rate.
This will give him a chunk of money now, the promise of a income (albeit reduced) then when I turn it round a considerable dividend. This would free up the capacity to take on someone more productive