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Hi I started a small company 13 years ago. It expanded and…

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Hi I started a small company...
Hi
I started a small company 13 years ago. It expanded and I took a partner to help run a division that I could no longer run, as well as my core business. We reigstered a company where I retained 20% of the business and she has the remaining 80%. I did the same with another company that I had started with a 3rd partner. My 2nd partner has now started running in direct opposition to my 3rd partner!! We never signed anything and no restaint of trade. Is there anything I can do?
Submitted: 8 years ago.Category: South Africa Law
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Answered in 16 minutes by:
6/14/2010
Lawyer: Mike Otis, Legal Advisor replied 8 years ago
Mike Otis
Mike Otis, Legal Advisor
Category: South Africa Law
Satisfied Customers: 2,161
Experience: B.Comm; LL.B; LL.M.
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Dear Sir / Madam,

Would you kindly provide more details regarding the registered entities? From the information above, it appears that we are talking about companies?
Are both registered as such?
If so, are your partners directors of either of these companies?
If not, what are your partners' positions within the companies?

Also, kindly expand on the nature of the two businesses and if it was changed at any time during the past 13 years, please provide information on the changes. Importantly, how has your second partner started to run the company other than how it was run all along, in order to be in opposition with the second company. Is it possible that the second company is in fact in opposition with the first company instead?

I trust you find the above in order and look forward to your further information.

Yours faithfully,
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Customer reply replied 8 years ago

Hi Gys

We have 3 seperate companies. The original one is a pest control service company which I owne soley. I then had a call for hygiene services from my existing clients so started out offering them that service as well. When it got too big (about 6 years ago), I got a friend to take it over and we registered a seperate company, which I am a 20% share holder. The same happened with deep cleaning, so once again another partner and I registered another company, of which I am also a 20% share holder. It is the hygiene company who has now started offering deep cleaning services, in opposition to the 3rd company set up. We all work out of one premises and my company is the only one with a sales consultant, who sells on their behalf as well. We all trade under one name, but have different second names, eg pest control services, hygiene services and cleaning services, so I would like the 2nd partner out of here, but I want to retain the name I started with 13 years ago.

Kind regards

Rose

Lawyer: Mike Otis, Legal Advisor replied 8 years ago
Dear Rose,

From the facts provided, and especially because no prior agreement exists to deal with a conflict of this nature, I am afraid that the Companies Act, and corporate law in general, does not provide for a remedy such as the forced removal or buy-out of the offending partner.

Are these partners of yours only directors of the companies that they are running, or are they also directors of the other companies concerned? If they are directors of the other companies as well, their fiduciary duties as directors would have placed a duty on them not to compete with another company that they are a director of. If so, you would be able to obtain an interdict or other appropriate relief.

Are you a director of any of these other companies? If so, you can try and block the competition at board level, but with the shareholding as it is, you may face removal as a director by the offending partner, if he/she is serious about continuing with their course of action.

Apart from the above, the only possibility (bear in mind that this is not guaranteed and will depend on the specific facts and circumstances of your case) could be to base your claim for an interdict, or damages if any, on unlawful competition. Due to the fact that the 3 of you have over the past number of years worked so closely together and with the collective interest in mind, an argument will certainly be possible that the offending partner is not a bona fide outsider who is merely subjecting you to healthy competition, but is in fact abusing his position as an insider to gain an unfair advantage over the third company. Similar to what the position would have been had he been a director of both companies. The fact that you have shared offices and staff and the long history of working together would certainly support such an argument. Presumably the offending partner also had access to all the details of existing clients of the victim company.

In order to obtain an interdict of this nature would require an application to the High Court in your area. If you choose to follow this option, it is strongly suggested that you instruct a local attorney who is familiar with this type of case to assist you with any litigation that flows from this dispute.

Once litigation is instituted, the parties may be amenable to reaching a negotiated settlement whereby the offending partner is bought out (he will have to be remunerated for the value of his shares) with the condition that he does not use the knowledge gained from his involvement with your business to compete against you.

I trust you find the above in order.

Yours faithfully,
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Lawyer: Mike Otis, Legal Advisor replied 8 years ago
Dear Sir / Madam,

May I be of any further assistance? If my answer lived up to your expectations, kindly click on the "accept" button in order to release my fee. Alternatively, I would be happy to provide further assistance.

Yours faithfully,

Edited by SALawGuide on 6/24/2010 at 12:24 PM EST
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