Q: I’m a 50-50 shareholder in a small business which was set up just over three years ago. We’ve passed into profitability, which is excellent, but there’s one big problem – my partner simply isn’t pulling his weight, and it’s reached a totally unacceptable situation for me. I can safely say that I do the majority of the work and bring in at least 80% of the business, whereas he believes you can get rich without working hard – and we both draw the same amount of money from the firm. We don’t have a shareholder’s agreement in place, and he’ll probably be reluctant to sell his shares. What can I do? Is there anything I could do that would force a sale? If I left, would I then get in trouble for trying to contact former clients?
A: Your situation is, sadly, a common one, but we would urge you to be cautious. At the risk of sounding glib, everyone believes that they’re the ones carrying a greater burden in the workplace – for all you know, your partner has a grievances list as long as your own.
That’s why we’d recommend trying the optimum route first: resolving a damaged business relationship. While this isn’t easy, neither is splitting up a business, starting a new one, and avoiding any legal fallout. Only consider a split if you’ve exhausted all your options for repairing the relationship, addressing your issues with the workload of the business. It’s worth investing in some kind of professional arbitration if that’s required to have a genuine resolution – while you’re at it, you should get a shareholder’s agreement in place.
Failing that, you can go down the road of buying your partner out of the company. Don’t expect this to be particularly cheap, particularly if the firm has assets besides clients and a web presence – your partner will expect remuneration for his work setting up. If your partner is amenable to this, then you’ll find a previous Q&A we wrote on buying out a partner here. In these circumstances, you should probably get your partner to sign a non-compete agreement.
If you can’t repair your relationship, and your partner will not be bought out, then you’re looking at going solo – you’ll have to resign as a director, either hanging on to your shares in the firm or forfeiting them. You can do this by filing a Form B69 with the CRO. If the only directors are you and your partner, the company will have to nominate a second director to take your place.
As for contacting former clients, you’re on dicey ground, as the client list is the property of the company – not you. While you’re safe letting them know that you’re leaving the company to set up on your own, and where they can contact you, anything more aggressive than this will open you up to legal action. If you have contracts of employment outlining non-compete clauses (which I’m guessing is unlikely given the lack of a shareholder’s agreement) then you’d have to tread even more carefully.
You probably see now that this is extremely messy, and that your personal circumstances will take a hit if you walk away. Most business partnerships go through phases when one person feels they’re bringing more to the table, and would be better off going solo – the grass always being conceivably greener on the other side. But having seen how these situations typically play out, we’d recommend instigating a messy business split only as a last resort.