Co-starters bailing out of start up business - help!!

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nimu

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Just wondering if anyone could point me in the right direction to go for advice in relation to my current situation?

Along with others colleagues from a previous job, I set up a Ltd company with two of the party as Directors and the remainder as non-Director shareholders. We all have pretty much the same amount of shares, with no one person having a majority. We invested an equal amount of money each and received some grant assistance to go towards start-up capital. Nobody has drawn a salary as yet. Things have progressed at a slower pace than we initially anticipated but I am however confident that this is a viable business that we can do well from once established.

Last week the majority of the party have decided that they no longer want to proceed with the business and want to leave to find alternative employment. A minority of us want to continue with the business. As we have been working with no salary since we started, we are not in a position to buy the others out and have invested a good portion of our start-up money in to equipment with the remainder set aside for rent and overheads for the rest of 2012.

My question is can the shareholders who wish to leave force the company to buy back their shares (i.e. return their capital) or can they force us to close the company?

Many thanks for any pointers!
 
Very difficult for the shareholders to exit at this stage as they would be likely to lose out significantly if the business was wound up. Also very difficult to continue running this company with objections from the majority shareholders. A compromise of some sort will need to be discussed and agreed. Ideally with some arrangement to buy back the shares of the exiting members over an agreed period.
 
This is a difficult position for you but not unheard of. The majority of the shareholders have decided that the business does not have a future and want out. This happens all the time and from what you say the present state of the company is it is virtually without value as it is not generating profits nor is it generating an income for anyone.
The attitude of the leaving shareholders is important, if they are looking to recover all their investment they are putting you in a difficult position. The relaity is that businesses don;t always work or at least don't always work when with the initial structure. You see something in the business and therefore getting the auditor to independently value the company should be a solution. There will be loss for exiting shareholders and also there will be some pain if you have to pay for the value left in the company. I have my doubts about any real value in the company at this point.
The alternative is to take the idea (if that is possible) and start a new with the remaining willing shareholders.
 
Would the Memo & Arts provide guidance?

Thanks to you both for your comments.

The shareholders wishing to leave the company have yet to concretely decide whether they wish to redeem their shares. By all appearances, they seem to be happy to leave their investments stand on the hope of getting a return somewhere down the road (contradictory to their actions, I know!). However, this attitude we are seeing at present could change very quickly and hopefully we will be able to come to some agreement for the company to return their capital over time (some sort of share buy-back) or, as you both suggested, to buy them out at an agreed value.

Starting again from scratch would be a nightmare. We have put so much work in to laying the foundations for the company (business planning, getting grant assistance, professional memberships, equipment purchase, rental leases etc.) that it would be a real negative to us at the moment personally to have to go back to the drawing board. We have been establishing relationships with potential clients under the company banner and to disappear for a while and come back under a different name would look really dodgy and would be hard to maintain any credibility.

Do you know if the M&A of the company would provide guidance on this situation? Do you feel we should get legal advice at this stage to try to protect the remaining shareholder that wish to give this a go?
 
The only way those leaving can force a 'redemption' of their shares is by putting the company into voluntary liquidation and all its consequences and costs. You should come to some agreement as they will be a millstone around your neck in the future if they continue as ordinary shareholders. It a common enough occurrence and there are loads of possible solutions.

Has the company appointed auditors? If so, they can be a good source of practical advice without breaking the bank. Some form of mediation would seen to be the route to take.
 
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