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Stuart J
Stuart J, Solicitor
Category: UK Law
Satisfied Customers: 22620
Experience:  PGD Law. 20 years legal profession, 6 as partner in High Street practice
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I have recently (within last two months) gone into a

Customer Question

I have recently (within last two months) gone into a partnership with a person that I was previously working for. I was made redundant after an incident at the business which meant the business could no longer continue to operate. At this time I was owed and still am owed 1 months notice pay plus 10 days work.
6 months after the redundancy myself and my ex boss have gone into a new venture, a new company of which I am a 25% shareholder and he is a 75% shareholder. We don't have anything in writing but was agreed he would provide £100,000 for 75% whilst I provide sweat equity.
The venture is an online business of which I have a background in. We are currently at a point where we are ready to go live however my partner does not want the site to go live. I keep getting different excuses for not pushing the site live. At the moment he has invested around £30k into the business.
My question is what would happen if he decides not to continue, I have been working constantly on this project for the last two months to ensure it is a success but keep getting barriers from my partner. Is there anything legal that can be done here. Can I sue my partner, can he sue me?
Submitted: 11 months ago.
Category: UK Law
Customer: replied 11 months ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Expert:  Stuart J replied 11 months ago.

Is this a partnership or a limited company. You use the phrase shareholder which implies it’s a limited company.

Do you mean that it’s a partnership and of the partnership, you own 25% of the business and he owns 75%?

Why the different proportions?

Was the business you were previously working for a limited company? Why have you not put a claim in for redundancy pay and notice and holiday pay and unpaid salary?

What excuses has he come up with thus far for not starting the business?

Are you concerned that he will either abandon this or do it on his own?

Would you be able to do it on your own?

Customer: replied 11 months ago.
Hi,The partnership is a limited company, it is a new company we set up together. We agreed 25% for me because I am not bringing any money into the company but will provide all the work that is needed to setup an ecommerce store, this includes setting up the website and marketing from scratch.The previous business was a limited company and there was an arson attack at the business in December 2015. All the workers came in one day and were told we had no jobs left as the business in finished. I did not claim for redundancy immediately as I wanted to allow my boss time to pay, he said he will pay when he is paid by the insurance company. At time my wife had left me around 6 months before the arson attack and I was also depressed which led me to not caring about too much anymore.He is currently finding excuses for tweaks needed on the website, I am aware of them and have agreed to have them done by EOP Monday 15th August 2016. I am not a developer but come from a marketing background, he agreed to invest £100k into the business but so far we have spent £15k on the website and £15k on stock. The website is almost completed and I want to get it live so we can begin to get the money back that he has invested. I have proven my marketing experience when working at his previous company increasing sales month on month but he chooses to ignore this which makes me suspicious.I am worried about this individual since he has a history of opening and closing companies, suing people, oweing people money etc. I am concerned he will try to hustle me out and take on the business or try to force me to invest which is not what we agreed.I can do it on my own, I only need money for stock. I am very nervous at this point and have only come on this site because it is anonymous. Please let me know what other info you need, I have tried to cover everything but I am sure there is a lot I have missed. Also I dont have a contract so I am worried there is nothing I can do if he decides to call the shots.
Customer: replied 11 months ago.
I want to add I have been working non stop on this site (sometimes upto 18 hours per day) and it has really taken a toll on my health. I feel really stressed and have lost a huge amount of weight as I have been worrying and working on this site only for the last two months.
Expert:  Stuart J replied 11 months ago.

Thank you.

This is not a partnership. It is a limited company and you are shareholders in that limited company. You are presumably both directors.

In this scenario there are two applicable agreements albeit that neither of them have been formalised. Nonetheless, they are both legally enforceable provided there is no dispute over the content.

The two agreements are a directors service agreement and a shareholders agreement.

The directors service agreement is basically an employment contract because the directors (the two of you) are employed by the limited company and the directors service agreement dictates what you do, what you don’t do, what you get paid et cetera in exactly the same way that a contract of employment would. It may also include an arrangement for the directors to purchase shares.

The other document which you would normally have is a shareholders agreement which says what share holders are going to invest, who the shares can be sold to, what happens if one person dies, what happens if one person wants to sell, and what each person is going to invest.

Money which goes into a business can invested by way of share purchase or as a loan to the company (directors loan).

In this particular case it would appear that the investment money is going to be a directors loan and it would appear in the accounts in the directors loan account to be repaid at some stage in the future.

There is an agreement that he would put a certain amount of money into the company and he has failed to do so and hence, he is in breach of the directors service agreement albeit a verbal one

On the other hand, you appear to have done everything which you said that you were going to do.

You are both under a duty to act in the best interest of the shareholders and the delay is prejudicing that.

It would be possible for you to take him to court for breach of the agreement but it’s going to be lengthy and costly litigation with no guaranteed outcome. It’s not something that I would encourage you to undertake.

Any work you have done on this or that he has done on it belong to the limited company and hence, neither of you could leave and take that with you. There is no intellectual property or copyright in an idea and hence, if either of you left and set up the same business idea using your own resource, there is nothing either of you could do against the other. It would be different if there was a restriction in either of your contracts (you don’t have them) preventing that within a particular radius or period of time.

Hence, the practicalities of suing the director for failing to put the money in really make it not worthwhile but if you wanted to go off, either of you, and do your own thing, you would be at liberty to do so.

I am not certain whether that answers the question for you or not but I am happy to answer any specific points arising from this. Kind regards

Customer: replied 11 months ago.
Hi Stuart,Thank you for the reply, he is however the only director and I am down as a shareholder owning 25%. Does this change things? Also he has invested £30k so far into the project. We are now in my opinion ready to launch the website. Website as been delayed by 1 month and £5 over budget buy these are things that happen in business. What do you think
Expert:  Stuart J replied 11 months ago.

The action you would bring against him would be not acting in the best interest of the shareholders. However I can tell you that this kind of action is not a do-it-yourself job even though there is no legal reason why you cannot do it yourself, companies act actions are extremely technical and complicated and potentially financially risky.

If you start to threaten legal action, that could be the end of the business relationship if he starts to dig his heels in and then you would be faced with pursuing that legal action which you may not have the money to be able to fund. At this stage, I would still advise caution but plan for the future on the assumption that this is never going to happen and that you are going to have to go off and make other arrangements. If it does happen, so much the better.

Customer: replied 11 months ago.
If we both seperate then I am entitled to the company files since I am a shareholder
Customer: replied 11 months ago.
By companie files I mean the website that I have spent two months working on
Expert:  Stuart J replied 11 months ago.

The files belong to the company and you only own 25% of the company and therefore, that doesn’t give you absolute title to them.

However the situation with regard to the intellectual property is that if you are employed, then the intellectual property in whatever you create for the company, belongs to the company in the absence of any agreement to the contrary.

If you are self-employed, then the intellectual property belongs to you in the absence of any agreement to the contrary.

Being a shareholder has nothing to do with employment.

You can be a shareholder of British Telecom without being an employee and you can be an employee without having any shares.

I think you could successfully argue that as you have had no remuneration, you are self-employed and hence, you are entitled to what ever you created.

Not the physical files (which do belong to the company) but the content.

There is no intellectual property in an idea so if this website is a fantastic new idea for a new business, you are free to go away and recreate that as you wish.

If it was possible to protect an idea, there would only be one price comparison website instead of dozens of them.

Please don’t forget to use the rating service to rate my answer service positively. It is an important part of the process by which experts get paid.

You may think that the thread closes after rating, but it does not, it remains open and we can still exchange emails if anything needs clarification.

Kind regards.

Customer: replied 11 months ago.
If that is the case and we both go off, would we both be entitled to keep the code that has been created
Expert:  Stuart J replied 11 months ago.

If you were employed by the company, it becomes an asset of the company and neither he nor you can take it legally. If the company gets wound up, it belongs to the liquidator.

If you were a self-employed consultant, it belongs to you and you can do with it what you like.

Practically of course if either of you ran off with the code and decided to do your own thing, the litigation would need to be brought by the company which would need funding and that means that the director would need to put money into the company to fund that

Customer: replied 11 months ago.
Am I able to keep the code of the website I have been working on?
Expert:  Stuart J replied 11 months ago.

I answered that in my previous reply.

Customer: replied 11 months ago.
If the director goes off is he then entitled to the code because it was his money. What about my sweat equity for two months
Expert:  Stuart J replied 11 months ago.

The director of the company has no more right to this than you do.

It belongs to the company not the director.

He may have put money in but that is a loan or share purchase. He didn’t buy the code.

Similarly, your sweat equity is either a loan, purchase of shares, or unpaid wages.

Customer: replied 11 months ago.
I have a meeting with him on Thursday. Do you want me to close this question now if you feel you have answered enough or can I keep it open to update you on the meeting?
Customer: replied 11 months ago.
Also this phone call is it then £40 + £49 or just £49 as I don't have to pay for the questions you just typed?
Customer: replied 11 months ago.
Hi Stuart, is there anything you think he can sue me for what about the time delay, what about the extra £5 spent. Can he force me into some legal battle for the £30 spent?
Expert:  Stuart J replied 11 months ago.

You pay one fee for this whole question thread. If you want a telephone call, there is another fee for the telephone call. They are dealt with separately.

I will keep the thread open, yes, please update me. I’m not certain what you’re talking about regarding the £5 and the £30