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I bought into my local crossfit gym back in december, (in

Customer Question

Hi
I bought into my local crossfit gym back in december, (in the UK) with the following agreement / contract signed by both myself and Katie, the lady I was buying 33% of the shares and ownership off of. At the same time I paid the £7,000 in cash.
Katie needed this £7k to help fund the 55% stake that she was buying off of 2 other part owners, (Martin and Marie).
All the ownership has now transferred from Martin and Marie to Katie but before getting me put on the paperwork as a 33% owner / director and shareholder, Katie has said that she has decided that she wants to be the sole owner which was her original intention and only approached me to support as she needed the money to buy the others out and that she never really wanted to share the ownership with anyone else.
She initially asked if I eanted to pay £3-4k upfront for lifetime family membership. I said, no but that I would be prepared to become a part owner for £7k, which we both agreed on, (see agreement below).
I have said to Katie that I'm sorry but that I want to stixk to what we've agreed and she hit the roof, saying that because of experiences when she was younger and issues with the last 2 part owners, she needs to be a 100% owner and not have to share the decisions etc with anyone. I've said,"look I've fot a full time job elsewhere so I'm happy as per our agreement for you to make all the day to day operational decisions and only consult on big decisions such as moving location, borrowing dunds etc". She's still not happy, not because it's me but because she just feels she needs to be in control for once in her life". Binsread she is asking if I would be prepared to be a Preference Sharholder of 33% of the shares or Ordinary Shareholder, where I'd get fixed dividends" and where I'd still have the family membership etc," but where I just not be a director / paet owner.
I get on with Katie ans we've never falleb out. I find her approach unfair and a bit irrational and personally I'm proud to be a part owner etc but the most important issue for me is to a( protect my £7k investment, b) get a monthly income from this moving forward, eg starting in say 2yts time once the 50 strong membership has increased to 100+.
Please could you let me know your thoughts on this in terms of the best option(s) for me.
Thank you
Lorenzo
Formal Agreement - Crossfit Lutterworth Ltd
This is a formal agreement between Katie Dunk of***** Lutterworth, LE17 4DA (Katie) and Lorenzo Guarrasi of 2 Johnnie Johnson Drive Lutterworth, LE17 4GN (Lorenzo) in relation to Crossfit Lutterworth Ltd, (CFL).
The terms of the agreement are as follows:
1) Katie has agreed to sell Lorenzo 33% of the shares and an equivalent % of the ownership of Crossfit Lutterworth Ltd for the sum of £7,000 on or before 18th December 2015 ie as soon as Katie has acquired 100% of the share & ownership of CFL, with the purchase of a 55% share from Marie Collis, (ie 45%) and Martin Leeland, (ie 10%).
2) Katie will arrange for all legal documentation to be completed, to reflect the change in ownership of CFL, including but not exclusively changes with Companies House, HMRC etc.
3) Lorenzo has agreed to make his £7,000 payment for the 33% stake in CFL up front to Katie on or before 12th December, in order to help Katie fund the purchase of the 55% share from Miss Collis and Mr Leeland.
4) Katie has agreed to a non dilution agreement, ie where she will not take any action to dilute the share holding and value of shares prior to Lorenzo taking this 33% stake in CFL.
5) Katie has also agreed for the following points to be included in a shareholder agreement between the shareholders and directors, (ie Katie, 66.6% and Lorenzo, 33.3%), which will be in place on or before 18th December 2015:
a. As a shareholder, Lorenzo will receive free full family membership at CFL for up to 4 people at any one time.
b. Lorenzo will be able to purchase any items CFL sell, (eg clothes, supplements, food etc) at cost price.
c. Every effort will be made to bring CFL into a sound financial position within 3 years, whereby it will then look to pay suitable dividends to it’s shareholders and / or director’s remuneration on a regular / on going basis, ie where a minimum of 75% of it’s post tax profits will be paid as a dividend or directors remuneration, unless Katie and Lorenzo agree otherwise.
d. Every effort will be made to minimise CFL’s debt and liabilities to ensure its long term survival and success.
e. The aim will be to pay the Head Coach and Coaching staff salaries moving forward, which will be in line with the market value for Crossfit Coaches in the area, also taking into account the cost of CFL membership in comparison to other local Crossfit Gym / Boxes.
f. All directors of CFL will need to be in full agreement on the following before they could take place:
i. Any salary, bonus, dividends, director’s remuneration or other incentive payments for employees or directors are either initially made or changes to this payments are made.
ii. CFL’s loans / debt / borrowings being increased.
iii. Any substantial business contracts are entered into.
iiii. Any CFL legal proceedings are entered into.
v. Any payments or outgoings exceeding £1k are made.
vi. The sale of additional shares or any changes to the structure of the CFL.
g. If Katie decides to sell any of her shares, Lorenzo will get first refusal in terms of deciding whether to buy them all or a chosen percentage of them at the market rate determined by an independent expert at that time, or an agreed rate between Lorenzo and Katie, as well as first refusal to find an alternative buyer.
h. If Lorenzo decides to sell any of his shares, Katie will get first refusal in terms of deciding whether to buy them all or a chosen percentage of them at the market rate determined by an independent expert, at that time, or an agreed rate between Katie and Lorenzo, as well as first refusal to find an alternative buyer.
i. Katie will make all day to day decisions regarding the running of CFL but will keep Lorenzo fully informed about any changes as a matter of courtesy.
j. Lorenzo and Katie will have full visibility of CFL’s finances at all times, including visibility of it’s bank account(s) balance, any loans / debt, P&L accounts etc.
k. Lorenzo will be able to attend any internally run courses by CFL free of charge.
l. Katie will do Lorenzo’s Individual Crossfit Programming for up to 10 hours a week and provide 1-2-1 coaching for up to 3 sessions a week, at least until the end of 2016.
m. Lorenzo will have the option to become a Crossfit Coach and work at CFL once he’s successfully completed his Crossfit Level 1 Course.
n. Whilst they are shareholders and directors of CFL, neither Katie or Lorenzo will ever be able to be voted off the board of directors eg by an “ordinary resolution” etc, regardless of the size of their shareholding etc and regardless of what other directors there may be on the board at any given time.
o. No director should enter into competition with CFL, eg with any other business interests.
Signed By:
I hereby sign to confirm that I fully agree with all of the above…
Full Name:​​​​Signature:​​​​Date:
Full Name:​​​​Signature:​​​​Date:
Witnessed By:
I hereby sign to confirm that I have witnessed both of the above parties sign and date this agreement and that I have witnessed Lorenzo pay £7,000 in cash to Katie for his 33% share and equivalent % ownership of CFL.
Full Name:​​​​Signature:​​​​Date:
Full Name: ​​​​Signature:​​​​Date:
Submitted: 1 year ago.
Category: UK Law
Expert:  Alex J. replied 1 year ago.

Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you. I am a company law expert. Going forward as a resolution do you think a) you can work with her or b) get her to change her mind? If neither of these were possible do you just want your money back? Kind regards AJ

Customer: replied 1 year ago.
Hi AJI get on with Katie and she is also my Coach, so no issues here.In terms of getting Katie to change her mind in terms of ever wanting to share ownership of the business, I think that is very unlikely as it's clear that she wants to be a sole owner and have 100% control, which is nothing personal against me but purely down to her past experiences.Although I would not have an issue with getting my money back, I do benefit from free montgly membership for me and my son which saves me £90 a month, so keeping this for life or atleast 10 years would be beneficial but not worth £7k upfront of course.I would like to get a guaranteed monthly income moving forward, based on te performance of the business. It's got 50 members at the moment and growing fast with 15 new members so far this year.
I don't want any income to be dependant on Katie / the business deciding whether to pay me, as I'm confident the business will be able to afford this. It also has about 18months left on a loan for equipment which on e paid off would leave the business in a food position to start paying me a dividend / return on investment.Ultimately I would like what we agreed in writing back in December ie with me as a part owner / director as I feel that I would best benefit financially from this in the long term.Let me know your thoughts.ThanksLorenzo
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. The problem you have is potentially you do have a right to the shares as that is what you paid for. If you wanted the shares and ownership in the business (and she wont give it to you voluntarily) you would have to sue her, this would undoubtedly break down the relationship. How much would you be prepared to pay for the ten year membership? Kind regards AJ

Customer: replied 1 year ago.
Hi AJFor a 10 year family membership, I would be prepared to pay £3,000 as a) I'm paying alot up front, b) my son only goes now because he gets it free. Plus if I paid annually as i did before it only costs me £600 a year and c) I doubt I would have continued to pay for 10 years membership if I hadn't paid it all up front.I agree that suing Katie would break down the relationship which I'd want to avoid if possible.I've been thinking about proposing the following. Let me know your thoughts on this and also any other suggestions you may have.1) Stay as 33% director but where Katie has the option to buy me out at any point in future, (so as soon as she can afford it she buys me out).
2) Buyout is fixed at £7,000 within 2 years but increases by £500 a year thereafter until I am bought out. A year being the anniversary date from date of original payment / contract.
3) I keep lifetime family membership and coaching, (min 2yrs coaching and 1 years free programming for the 2 years interest free £7,000 that Katie has received.
4) If not paid back in 2 years, guaranteed fixed dividend of 7.5% on remaining amount of money not paid back incl any additional amount accumulated to be paid on 2yr anniversary on money originally being paid and on that anniversary date thereafter.
5) I get first refusal on any additional shares being sold / extra directorship ever being offered, including the sale of CFL, (Crossfit Lutterworth) if Katie ever decides to sell it and always at a mutually agreed price or the current market / independently assessed rate if we can't agree on a price.
6) No dilution clause at any point in future until I've been paid back in full, ie to ensure my 33% is not diluted.
7) First refusal on any shares of the company being sold at a mutually agreed price or at the current / independantly assessed market rate.
8) Mention in contract that Lorenzo has agreed this to supersede last contract as Katie has decided that she was not happy with original agreement.What's also important to me:
1) It's also improtant to me that I can never be bought out without me agreeing to sell my shares, ie unlike Preference Shares where the directors can decide to buy the shares back at any time.
2) I would never want to be in a position where my dividend doesn't get paid and accumilates etc as of course it would be too easy for Katie to day, I'm really sorry I cannot afford to pay you at the moment, whoch could just be a lie to save some money.
3) I'd like a dividend payment to be fixed and even tied into the number of members, this ensuring that as the business grows, my dividend automatically grows and the exta income from additional members can't just be spent on equipment etc and my dividend not reflect the strong tirnover of the business.Let me know your thoughts. Thank youLorenzo
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. I am reviewing this now I will revert to you as soon as possible. Kind regards AJ

Customer: replied 1 year ago.
Thanks AJ. I really appreciate tour help with this.
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. I have reviewed, can you confirm two small points, were you ever issued a share certificate by the company? Were you ever actually appointed as a director? If you want your money repaid the best way would be to say it is a loan and there is an obligation on her or the company to repay it along with interest (and ideally you should have security for repayment - i.e a charge or debenture). I would avoid getting preference shares, because if she or the company ever went insolvent you would definitely lose your money.

Customer: replied 1 year ago.
Hi AJThanks for the response. I've not received a share certificate nor have officially been appointed as a director yet, as Katie has not fulfilled her obligations since signing our agreement back in December which I attached to my original question.In view of this, please let me know your opinion, thank youLorenzo
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. If you have not been issued with a share certificate, then it is possible you have not actually been issued with any shares - in which the default position is it is just a loan - did you pay the money to her personal bank account? Kind regards AJ

Customer: replied 1 year ago.
Hi AJI paid the £7k in cash which was witnessed by Christian Loyer who was a witness who signed the document / contract.
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. Was it personally paid to the owner of the company? Kind regards AJ

Customer: replied 1 year ago.
it was paid to the owner of the conpany, ie Katie Dunk
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. This may be the best scenario all round (ie that she owes you the money) - have you approached her to propose a repayment plan and also the possibility of membership for 10 years as you require?

Customer: replied 1 year ago.
Thanks AJSo just to confirm is your suggestion for me to:Suggest to Katie that this is a repayable loan and that as part of the deal I get lifetime family membership, (whoch I'm happy with).Obviously I could have had this for a one off payment of £3k initially which is what Katie suggested.With this in mind, I would want to get all £7k back but where Katie would get the loan interest free for say 2 years or 3 at worst but then whatever is bot paid back on 3 deadline date, it would accure 7.5% interest on any outstanding amount. Then interest would accrue annually at 7.5% on any outstanding amount each year st the anniversary date.Or Perhaps where we agree a monthly repayment rate starting in 1 or 2 years of say £100 a month where the whole loan remains interest free but where if the standing orders of £100 are ever missed, £50 gets added to the outstanding amount and that court action will be taken if Katie is ever more than 3 months in arrears.Please let me know tour view on this or any other option(s) / suggestions.Thank youLorenzo
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. You will need to get her agreement, but you are far more likely to get your money back if you agree this is a loan and never actually received shares -if you take preference shares you are reliant on the company making a profit. The repayments should just be whatever you can mutually agree.

Customer: replied 1 year ago.
Thanks AJIf we agre on terms for a loan and Inget this in writing, with signed witnesses etc. if Katie doesn't pay or says she can't afford to pay it back at any time, hoe much is it likely to cost me to take her to court etc.Also, would it be wise for me to insist on being a Director of CFL until the loan is paid back in full and also get lifetime family membership and that the money is interest free until paid back? This feels better for me and gives Katie the incentive to pay me back as quick as possible.
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. This could be done through the small claims court

https://www.moneyclaim.gov.uk/web/mcol/welcome - the costs should be relatively small.

Yes you can insist on being director, but obviously she will have to agree to appoint you. The ideal situation would be to ask for a legal charge on her house or business as security until you are repaid.

I would be most grateful if you would rate my answer if you have a moment. Kind regards AJ

Customer: replied 1 year ago.
Thanks AJIn terms of a legal charge, how do I do this?Lorenzo
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. This would have to be done by agreement, you would need a simply charge document which you can get from the Land Registry. The first point would be to agree that this is a loan arrangement. Kind regards AJ

Customer: replied 1 year ago.
Hi AJI met with Katie Dunk again today to discuss options. It has become clear that a) Katie would bot be prepared to provide free lifetime family membership beyond tve term of a loan and b) Katie does not feel she can committ to paying back any large amount, ie £100+ per month starting in a couple of years when the business is small now and where there is no way of knowing how fast it will grow.Therefore, I wanted to get your view on the following, which I was thinking of proposing:
1) Free lifetime family membership, (max 4 members).
2) I become a 33% shareholder, (ordinary or preference)
3) I add a no dilution clause to the contract etc, so no additional shares can ever be issued, unless I ever decide to sell my shares to Katie / the business but not if I sell them to another individual, (thus they get the same benefit).
4) I get a guaranteed monthly dividend of between £50 and £60, (i.e 8.57% to 10.28%) which I'll negotiate with Katie and which starts in 1-2 years, (which we can negotiate).
5) The free lifetime family membership at my discretion, if I sell my shareholding at any point can either stay with me or I can pass it onto the buyer, (ie to help make my shareholding more sellable).
6) The monthly dividend being guaranteed, would need to be paid regardless of CFL's financial situation.
7) All terms of this agreement remain in place regardless of whether Katie is a 100% owner, part owner or has completely sold the business to someone else.
8) That I get first refusal on any directorship / ownership if Katie ever decides to share ownership with anyone in future.
9) That the £50-£60 dividend is minimum and tied into profit, turnover or perhaps % of share value, eg if we agree say £50 / 8.57% of the current £7k, the shareholding is either mutually or if mutual agreement is not reached, then independentally assessed either annually on a set date on every six months and will be 8.57% of the value of the, then current 33% shareholding but minimum of the initial £50 we agree.
10) The above dividend agreement would also need to be transferrable to whoever I ever decide / agree to sell my shares to, ie to ensure I've got a good sellable shareholding.
11) The business would never be able to force me to sell my shareholding eg so they can buy it back without my agreement.
12) I would also like a record of the original agreement in place and why it has changed on record so that if I ever needed tobgobto court, the judge / magistrate would be able to see what effort I've gone to, to help Katie after her U turn on our original agreement, ie to ensure it's not her word against mine but instead in the agreement / contract / articles of association / minority shareholders agreement etc which she and myself both sign and get witnessed.Please let me know your view on the above and how best to get this into acwater tight agreement that would stand solid in any court, should the need ever arise to invoke it.
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. The main issue I have with what you are proposing is the "Guaranteed dividend". A dividend is a distribution of company profits, the company therefore has to have a profits to pay a dividend, if she guaranteed a dividend every month she could potentially be doing something illegal (i.e declaring dividends for profits that do not exist) and become personally for the company debts if it went insolvent. The other question I have is would she be prepared to sign a shareholders agreement?

I would be most grateful if you would rate my answer in the mean time and I am happy to carry on assisting you. Kind regards AJ

Customer: replied 1 year ago.
Thanks AJIs there a way to achieve everything I have mentioned but where the guaranteed payment is bot a dividend but some other form of guaranteed payment but where Instill own 33% of the shares etc.Also, yes I believe Katie would be fine to sin the shareholder agreement.Please advise, thanksLorenzo
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. If you accept 33% of the shares then you have the benefit of any future capital growth and future dividend stream. Is the company likely to make a profit in the forseeable future? Kind regards AJ

Customer: replied 1 year ago.
Hi AJ...It's making a small profit of several hundred a month but Katie is working full time without a wage so its main priority is to begin paying Katie a wage of around £20k a year before dividend payments. This should be feasible whem membership numbers are at the 100 mark vs 50 at present and 150 target level.I think Katie would be happy to commit to a £50-60 a month guaranteed income proving she gets her 100% ownership. I just need to find the best way of achieving this.Could we perhaps have a loan where £50-£60 a month starting in 2years is the guaranteed monthly interest being paid on say £3k but where the other £4k buys 33% of the companies shares?If not what other options could achieve what I've suggested as a new proposal above?
Customer: replied 1 year ago.
Hi AJ ... Are you able to reply to the above. Thanks.I'll give you a top rating as soon as this is finalised with a solution.
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. My apologies this did not appear on my alert list. I will review this tonight and revert to you as soon as possible.
Kind regards AJ

Customer: replied 1 year ago.
Thanks AJ
Customer: replied 1 year ago.
Hi AJReally sorry to chase but is there anyway you could reply asap tomorrow on this, as I've got a meeting to finalise this with Katie on Thursday.Thank you so muchLorenzo
Customer: replied 1 year ago.
Ho AJ.. I really need an answer asap. Please can you reply as soon as possible. Thank you
Expert:  Alex J. replied 1 year ago.

Hi, Thank you.

My apologies - the arrangement you are describing is fine - but it is all dependent on whether she will agree to sell you shares - will she give you shares in the company? Kind regards AJ

Customer: replied 1 year ago.
Thanks AJ... Katie is happy for ne to own 33% of the ordinary shares in the conpany for the £7k I have paid but just not director shares / part ownership.So based on what you have said above, if I propose to Katie that £3k is a loan where she pays a guaranteed £50 - £60 a month starting in 2years time as interest and where the other £4k buys a 33% stake in the company.I guess this would allow Katie to pay me £3k back if she wanted and say I'm not paying you the £50/£60 a month interest now, so I'll perhaps propose that £4k is the loan and £3k is 33% of the shares, which will make it less likely that she want to oay me back.I'll also need an agreement that I get lifetime family membership with the share holding and that I can either choose to keep this or transfer it if I sell the shares at any point, unless you think that the lifetime membership would need to transfer with the shares automatically.Also what about if I sell the shares. The person will want a dividend on the shares but Katie will naturaly think I'm paying Lorenzo £50-£60 a month on his loan, so I'm not gonna pay anyone else a dividend on the shares. Unless we can somehow attact the loan to the shares so that if I sell the shares, I get the option to transfer the loan, without Katie being able to step in and stop or change the agreement.Let me know tour thoughts on this.ThanksLorenzo
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. If you are going to get shares then I would want to ensure the following:

(i) You will need a shareholders agreement;

(ii) You will need a loan agreement detailing interest and repayment terms;

(iii) You will want to ensure that your shares cannot be diluted.

I would note if you own the shares, will you be allowed to transfer the shares (i.e sell) freely to a third party? Kind regards AJ

Customer: replied 1 year ago.
Thanks AJI've just got a few last questions to help clarify things....1) So I'll propose a loan agreement with repayment terms, although in effect it would be an interest only loan over say 99 years but whereby she could repay the amount in full at any point to prevent the need to pay tbe £50-£60 a month interest. Plus the interest would be fully oayable until all the outstanding amount has been repaid. Is this ok?2) I'll also get a shareholder agreement as you suggest to include a clause that prevents the dilution of shares and the ability to sell freely to any third party. Would you recommend any shareholder agreements?3) In terms of the free lifetime membership, I would like this to be transferrable at my choice if I ever sell the shares. Should I get this written into the shareholder agreement?4) Also, I would need to ensure the free lifetime membership continues if Katie ever decides to pay off the loan in full, ie because I would still be a 33% shareholder. Can this go into the shareholder agreement?5) I would want to be able to pass on the loan if I decide to sell the 33% shareholding at any point, so that the new shareholder would get the £50-£60 a month, (thus making the sale of the shares more sellable. How can I get this to work, ie can this be written into the shareholder and loan agreement or both?I think we're nearly there now. Thank you for all your support. It's been great.
Expert:  Alex J. replied 1 year ago.

Hi, Thank you.

1) Yes you can agree an interest only loan agreement. If it is going to carry on for this long (99 years) though - is there no way you can build a capital repayment into it? I would bare in mind that if this person subsequently goes bankrupt for any reason this loan agreement wont survive bankruptcy - so it is worth trying to arrangement repayment;

2) I would recommend you agree some transparency on financial matters so you can see the accounts and also a mechanism for valuing the shares should you wish to sell (for example a using a third party accountant);

3) The lifetime membership is obviously enforceable against the company - it would therefore be a good idea to include it in the shareholders agreement but make sure the company signs the shareholders agreement as well as the other shareholder. If the company went insolvent the membership would likely not survive insolvency;

4) Thank you -Yes you could have a contractual obligation that survives you being a shareholder in the shareholders agreement;

5) The loan should remain a separate arrangement, especially if interest is being payable on it - also the loan is in the name of the individual not the company.

No problem happy to help.
I look forward to hearing from you. Kind regards AJ

Customer: replied 1 year ago.
Thanks AJHow much would you charge to do the legal paperwork on this, ie the shareholder and loan agreement? I know Incould get standard ones and make up the wording but just wondered if you could do it for a small fee.
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. We cannot draft documents on this site, it is just a question and answer service. What I can recommend is you contact the Law Society - www.lawsociety.org.uk and request that they recommend someone near to you. This is a relatively straight forward matter the documentation should not be overly complex or expensive as long as the other party is in agreement. I am happy to discuss any other aspect of this matter Kind regards AJ

Customer: replied 1 year ago.
Thanks AJ
Customer: replied 1 year ago.
Would you recommend any standard shareholder agreement paperwork or loan agreement paperwork, ie forms that I can complete that would be ideal for this?
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. Sometimes people use simply docs

simply-docs.co.uk/ - if you are going to draft it yourself I would at least try and have a lawyer check it over before you sign it. I would be most grateful if you would rate my answer at this point. Kind regards AJ

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