Shareholders - seems they have no rights!
Discussion
I presume they are "ordinary" shares. If that is the case, his voting power is dictated by the number of shares he owns - one share equals one vote. If he wants to stop the company doing what the majority of the shareholders want, he would have to try persuasion (or other methods
).
You say he WAS a director. Obviously, as a director he would have been in a more influential position but that option seems to have gone.
If he has other types of shares (such as "preferential" shares), he might have additional voting rights. If that was the case, he would need to look up what it says about the rights of these types of shares in the company's Memotandum and Articles of Association.
). You say he WAS a director. Obviously, as a director he would have been in a more influential position but that option seems to have gone.
If he has other types of shares (such as "preferential" shares), he might have additional voting rights. If that was the case, he would need to look up what it says about the rights of these types of shares in the company's Memotandum and Articles of Association.
Correct, it comes down to the M&A. Unless they have been changed from standard your friend has no option (excuse the pun) but to go along with the rights issue and hand over some cash, or get diluted to a point where potentially he has no "control" at all, i.e. less than 10%.
Think about it though, the company would not want to harbour a "sleeping partner" and pay dividends etc on an ongoing basis unless there was some amicable agreement between the company and the shareholder. If the company is deliberately trying to dilute your friend out of the business then he/she might want to discuss it with the board. If bridges have been burned then I'm not really surprised by the companies actions.
IMO, it was probably an oversight that the company didn't get all shareholders to sign-up to an agreement whereby your friend would be forced to hand back or sell his shares when he/she left the company (it's fairly typical).
I don't want to cause "trouble", but one avenue your friend might want to take is legal action. If he/she genuinely feels mistreated or duped by the company then there may be a case for compensation... it would certainly rock the boat, and companies don't like that! It really depends on how much value we're talking about and how "sour" your friend is happy to make the situation.
Alternatively, your friend might want to approach the company on a positive note, accept that they don't want a sleeping partner and offer to be bought-out fair and square. The company would almost certainly prefer to buy all the shares back (rather than dilute which would potentially be more expensive, clumsy, and not the outcome they really want). Personally, this would be my recommendation - either way your friend will lose their stakeholding, but this way they keep the relationship friendly and get some dosh! If that doesn't work, play it the other way...
P.S. I'm not a legal-eagle, but I have been close to this kind of scenario.
Think about it though, the company would not want to harbour a "sleeping partner" and pay dividends etc on an ongoing basis unless there was some amicable agreement between the company and the shareholder. If the company is deliberately trying to dilute your friend out of the business then he/she might want to discuss it with the board. If bridges have been burned then I'm not really surprised by the companies actions.
IMO, it was probably an oversight that the company didn't get all shareholders to sign-up to an agreement whereby your friend would be forced to hand back or sell his shares when he/she left the company (it's fairly typical).
I don't want to cause "trouble", but one avenue your friend might want to take is legal action. If he/she genuinely feels mistreated or duped by the company then there may be a case for compensation... it would certainly rock the boat, and companies don't like that! It really depends on how much value we're talking about and how "sour" your friend is happy to make the situation.
Alternatively, your friend might want to approach the company on a positive note, accept that they don't want a sleeping partner and offer to be bought-out fair and square. The company would almost certainly prefer to buy all the shares back (rather than dilute which would potentially be more expensive, clumsy, and not the outcome they really want). Personally, this would be my recommendation - either way your friend will lose their stakeholding, but this way they keep the relationship friendly and get some dosh! If that doesn't work, play it the other way...
P.S. I'm not a legal-eagle, but I have been close to this kind of scenario.
danhf said:
They are using company funds for them, the other directors, to take up the options leaving him to either let them go or dig deep to keep his stake.
If they are really doing this then he should speak to a lawyer sharpish. IIRC it is absolutely illegal for a company to make loans in the following circumstances:
1) To a director (Companies Act 1985 S.330)
2) To enable purchase of shares in itself (S.151) unless a private company in which case S.155 gives the power to do so, however the set procedures must be followed (needs a special resolution which requires 75% of the votes cast at the meeting, therefore he could block it if he has 30%)
Also under S.157 if he holds more than 10% of the class of shares he can ask the court to set aside any decision by the company to financially assist in purchase of the company shares.
Other questions, do the director's have the authority to issue shares in a rights issue, either actual authority, or, are there any shares available for issue?
Share issues must also be 'for a proper purpose'.
I suggest he looks at the Companies Act 1985 as the follwoing sections are specifically regarding minority protection - S.5, S.127, S.157, S.176, also S.122 of the Insolvency Act 1986 may be helpful.
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