Clean Exit

[justjuzzy]

Hi guys!

First time poster to this forum, but long time reader.

I've got a large problem with a long history, and I will try summarise it as below.

Background: I've registered a company where a partner came on board and got 60% of shares. The primary motivator for it was for the BEE scoring *if* she managed to get clients from the public sector. Since then, I've been asked to perform various business activities which I refuse to do whilst there has been zero input from the partner. In other words, I've made a grave mistake.

The Goal: I want her out of my business but I know that getting her to sign any papers will be impossible. I've already engaged with a few of my clients that I want to start a new Pty Ltd. They will follow me as I've engaged with them one on one. (I had to take a big gulp of pride syrup).

The Questions:
1. How would I be able to relinquish my shares in the first company? I want to totally surrender the shares.

2. How should I ensure that when I surrender the company to her, that all is good? Should I bring the financial year-end to the last date of tenure?

3. Assets and software licenses - I am the only person running the company right now - should I sell the software licenses and hardware to myself and reflect it as a capital contribution in the new company?

4. Anything else which I need to do to cover my own ass?

 

[qwertydudeza]

Hi guys!

First time poster to this forum, but long time reader.

I've got a large problem with a long history, and I will try summarise it as below.

Background: I've registered a company where a partner came on board and got 60% of shares. The primary motivator for it was for the BEE scoring *if* she managed to get clients from the public sector. Since then, I've been asked to perform various business activities which I refuse to do whilst there has been zero input from the partner. In other words, I've made a grave mistake.

The Goal: I want her out of my business but I know that getting her to sign any papers will be impossible. I've already engaged with a few of my clients that I want to start a new Pty Ltd. They will follow me as I've engaged with them one on one. (I had to take a big gulp of pride syrup).

The Questions:
1. How would I be able to relinquish my shares in the first company? I want to totally surrender the shares.

2. How should I ensure that when I surrender the company to her, that all is good? Should I bring the financial year-end to the last date of tenure?

3. Assets and software licenses - I am the only person running the company right now - should I sell the software licenses and hardware to myself and reflect it as a capital contribution in the new company?

4. Anything else which I need to do to cover my own ass?

Do you have a ShareHolders Agreement? Is their performance clauses?
Doing this, she has a case against you for running off with clients etc. Best to see a lawyer with the agreement else this will make a dirty divorce look pretty. The law is not on your side.
You better off finding a reason on breach of contract for lack of contribution, but she owns 60% of the company and is entitled to its worth (including perceived worth) at the date you break away. Plus damages and her legal cost.

 

[Magnum]

Just sell your shares. partner does have first choice. Don't sign any document that prohibits you from entering the market again directly?

 

[justjuzzy]

Just sell your shares. partner does have first choice. Don't sign any document that prohibits you from entering the market again directly?

Yeah, that's the idea to just sell it off for R1 a share - walk away without a restraint of trade. Basically, I've brought in all the business for the company so there is no claim I'm "stealing clients."

 

[justjuzzy]

Do you have a ShareHolders Agreement? Is their performance clauses?
Doing this, she has a case against you for running off with clients etc. Best to see a lawyer with the agreement else this will make a dirty divorce look pretty. The law is not on your side.

There is no shareholders agreement. However, the meeting agenda where she got assigned 60% of the shares was in order for her to start securing some public enterprise contracts - so it has been made an implicit expectation of her expected contribution.

As for clients being "poached" - the clients were all brought onboard by myself without her input. That's part of the reason for me finding this business relationship very annoying, apart from her just wanting to plunder the income which the business generates.

You better off finding a reason on breach of contract for lack of contribution, but she owns 60% of the company and is entitled to its worth (including perceived worth) at the date you break away. Plus damages and her legal cost.

Agreed. That's why I want to reverse it - instead of kicking her out, I kick myself out. Obviously, I need to cover my basis when I kick myself out, because when I'm out, I'm out and will only have the written docs to prove that the company was in good standing when I was there.

 

[HavocXphere]

Ouch. You should definitely consult a lawyer. That said...some guesses.

1. How would I be able to relinquish my shares in the first company? I want to totally surrender the shares.
You'd lose minority shareholder protection so not sure this is a good move, plus you'd be making a loss

2. How should I ensure that when I surrender the company to her, that all is good?
As per above not sure thats a good idea

Should I bring the financial year-end to the last date of tenure?
No idea what you're trying to say here. You don't even have the power to move fin year end anyway if that is what you mean.

3. Assets and software licenses - I am the only person running the company right now - should I sell the software licenses and hardware to myself and reflect it as a capital contribution in the new company?
Thats a pretty certain way to get sued.

4. Anything else which I need to do to cover my own ass?
Consult a lawyer

And yeah the whole taking client with you has a very good chance of getting you into trouble too, even if you were the primary driver behind acquiring them.

Seriously dude...lawyer. You very obviously have little grasp of company law so don't try to wing this.

 

[Gypsy Moth]

Don't play with your future, as it seems to now be in her hands.
You'll be better off seeking professional advice on this one.

 

[qwertydudeza]

There is no shareholders agreement. However, the meeting agenda where she got assigned 60% of the shares was in order for her to start securing some public enterprise contracts - so it has been made an implicit expectation of her expected contribution.

As for clients being "poached" - the clients were all brought onboard by myself without her input. That's part of the reason for me finding this business relationship very annoying, apart from her just wanting to plunder the income which the business generates.

I am going to assume this is a Pty and you are both directors.
The clients belong to the company, the company is its own legal persona. Therefore the clients needs to be bought out from the company with majority agreement, you are not a majority and therefore cannot make a decision. This is like a marriage, you are getting divorced and you don't even have the majority say.

Agreed. That's why I want to reverse it - instead of kicking her out, I kick myself out. Obviously, I need to cover my basis when I kick myself out, because when I'm out, I'm out and will only have the written docs to prove that the company was in good standing when I was there.

You can't kick yourself out and take the assets, which include the clients, the law is not on your side. That is wreck less and bring the compromising the current company which the majority owner has claim too.

 

[justjuzzy]

You can't kick yourself out and take the assets, which include the clients, the law is not on your side. That is wreck less and bring the compromising the current company which the majority owner has claim too.

You're right about the clients being the assets.

Suppose that I do just leave, and the company is unable to provide the services anymore, and the clients naturally follow me. That puts the conversation a little out of scope of the initial question, but you did give some reason to caution the exact moves.

For what's it worth, I am willing to buy out the other shares (or forfeit my own). The end goal is to get me back into a position where I am able to grow the business.

 

[SlinkyMike]

You say "my company" but she owns 60% ...bro, that's her company and you'll have a tough time proving otherwise.

I think you're in a very poor situation overall and the poaching of clients is definitely something you'll have to defend (probably at large cost to yourself - financially.)

You need a lawyer either way, that's the only statement I feel comfortable making categorically.

 

[Garson007]

What bugs me is how anyone would sell a majority stake in their company and still want it to be /their/ company. Logically it doesn't make sense.

 

[Verde]

Don't relinquish your shares in the company or resign as director- keeping them will give you leverage, protection if partner gets difficult.
Give it +- a year , then resign as director if no legal action was instituted by partner or the company. No need to ever sell the shares, unless you get a good offer.
If you signed sureties for the company, get legal advice.

Resign from your position in the old company by giving notice in accordance with your employment contract - if there is no contract get legal advice on notice period required.

Make sure you did not enter a restraint of trade agreement with the old company.

After the notice period you can start working for new company. Clients can voluntarily move their business to the new company, provided they are not contractually bound by the old company.

 

[Hendrix]

Did you give 60% away or did she pay?

 

[justjuzzy]

Don't relinquish your shares in the company or resign as director- keeping them will give you leverage, protection if partner gets difficult.
Give it +- a year , then resign as director if no legal action was instituted by partner or the company. No need to ever sell the shares, unless you get a good offer.
If you signed sureties for the company, get legal advice.

Great advice! I did not consider waiting it out for the time. Thanks for showing the woods from the trees when there was no contractual clause which spelt out how one would go about resolving the dispute.

With regards to the other contractual and notice period parts, I'm in the clear (including that clients can move their business; I never want to be locked in to a supplier, and I extend the same courtesy to them in the contracts). The whole premise and core principal which I live by: if I am adding value to you and we have a fair deal, let's do our thing.

As for the other comments regarding about *whose* company it is, it is a long story. I'm claiming it as mine when the strategy and execution has been solely on my effort, and not hers (and when you are the PO and TR too). As I said, it is a long story how it came about to be right now, but there was good reasoning at that time - you sometimes have to make decisions with the information at hand.

 

[HavocXphere]

As for the other comments regarding about *whose* company it is, it is a long story. I'm claiming it as mine when the strategy and execution has been solely on my effort, and not hers (and when you are the PO and TR too). As I said, it is a long story how it came about to be right now, but there was good reasoning at that time - you sometimes have to make decisions with the information at hand.

Sorry mate...its about who's name is on the share register. Nothing else matters. The only other viable argument is that the share register hasn't been updated for decisions taken (as you say if she was allotted shares at a meeting).

Not that it matters since you want to jump ship anyway.

 

[qwertydudeza]

Great advice! I did not consider waiting it out for the time. Thanks for showing the woods from the trees when there was no contractual clause which spelt out how one would go about resolving the dispute.

With regards to the other contractual and notice period parts, I'm in the clear (including that clients can move their business; I never want to be locked in to a supplier, and I extend the same courtesy to them in the contracts). The whole premise and core principal which I live by: if I am adding value to you and we have a fair deal, let's do our thing.

As for the other comments regarding about *whose* company it is, it is a long story. I'm claiming it as mine when the strategy and execution has been solely on my effort, and not hers (and when you are the PO and TR too). As I said, it is a long story how it came about to be right now, but there was good reasoning at that time - you sometimes have to make decisions with the information at hand.

Company law comes into affect. If you knownly and deliberately materially affect the value proposition of a company, the law is not on your side. In fact it could be regardless criminal as reckless trading.

The fact is as others have said and I repeat you are not legally a majority shareholder. Rather spend an hour on a lawyer now than be in for many down the line.