# General Business Category > General Business Forum > [Question] Urgent Advice regarding CC member

## Gillian

I started a company together with 2 friends and each has equal shares.

NO capital investment has been made by any member and the company has made NO profit at all.

However, for marketing purposes we started advertising in magazines and signed a 6month prepaid contract with the advertising company.
Each member contributed their share and we paid everything in full.

One of the members has decided to resign as a member and the other is following in his footsteps.

No contracts or agreements is in place regarding the contribution each member made towards the marketing and so there is nothing that states that if a member decides to resign that the contribution that he has made will be paid back on resignation.

The other two members has not been acting in good faith, or even attempted to benefit the company in anyway by involvement.

All progress that has been made within the company has been done by myself therefore with their resignation i can not afford to lose all the progress that has been made thus far with regards to marketing and prospective clients that has started to show interest now.

The company has only been starting to make a name for itself.  

I feel that i have no obbligation to payback their contribution towards the advertising seeing that it was a contribution to introduce the company to the market and no documentation, agreements or even a verbal agreement has been made.

I do not want to close this company when it is just starting to show signs of success.

Please give advice on how i have to handle this because i really dont mind them leaving but i do mind giving back what is not deserved when they did not contribute to get the company started.

PLEASE HELP

----------


## Cream

Are they still owning shares within the company and are you the majority shareholder owner?
They cannot force you to purchase shares by leaving. They have to relinquish their shares at a value, and to a party agreed by all shareholders.
But a lot depends on your shareholders agreement.

----------

Gillian (12-Oct-10)

----------


## IanF

Gillian
I would offer to pay them out there contribution out of future sales/profits. Then also just get the paperwork sorted out. Put the offer in writing and if they start to blanch at it have a sweetener to offer them say interest or half of the first years profit. This way the company funds the buyout. This is meant to be a though starter which should help you find an offer you can live with.

Let us know what happens, and feel free to bounce your ideas here, and welcome.  :Yes:

----------

Gillian (12-Oct-10)

----------


## Dave A

Oh woopie  :Roll Eyes (Sarcastic):  everyone just wants back what they put in so that they don't lose any money  :Stick Out Tongue: 

If you're not prepared to stick around until the harvest, you're lucky to get anything at all.

From what I gather:

No clients. No sales. No profits. Those shares are worth peanuts. Certainly not what might have been "invested" in a marketing campaign.

My first gambit would be to buy the name and rights for something nominal and wind up the cc.

Second option would be to make a buy-out offer on the other members' shares - at most based on 28% of the accumulated trading loss in the cc (I'd offer 10% as an opening gambit personally) - realistically the only "asset" of any value by the sounds of things.

If they don't go for that - wind up the cc - go on your own taking as much as you can with you and find a lawyer to tell them to sod off if they try to sue.

----------

BusFact (12-Oct-10), Gillian (12-Oct-10)

----------


## robinsonwang

I don't know much about the business staff, but I know something about how to work together.
Maybe you haven't chosen the right cooperaters with you at the first beginning.
we may consider too much of  our cooperaters, such as the abilities on doing business, their basic economic funding, but the msot important is their personality, strong enough willpower of perseverance.
You should become the biggest boss and then you can consist on what you have done and what you want to do.

----------

Dave A (12-Oct-10), Gillian (12-Oct-10)

----------


## BusFact

Sound advice given by all at the moment.

I'd take the same tone as Dave. They want their money back? Boo hoo, so do we all. Who are they going to sue? The cc has no funds and they'd be throwing good money after bad to employ the services of a lawyer.

What they have spent on advertising is irrelevant. All a shareholder can get is what their portion of the company is worth ... in this case nothing.

Its all down to negotiation now. They can accept the token payment from you for their shares so that you can have the convenience of continueing with the same cc, or they can get nothing and you have the inconvenience of starting up a new cc. I'm sure you can find a way to redirect the advertising enquiries to your new cc.

And once again this post raises the importance of having an "exit" agreement when (not if) the business relationship sours. When setting up the venture and everyone is friendly, draw up a simple agreement as to what happens when one of you either wants out or wants the other out.

----------

Dave A (12-Oct-10), Gillian (12-Oct-10)

----------


## Dave A

Glad to see I'm not the only _hard ass_ around here  :Big Grin:

----------


## Martinco

Certainly sounds like a toffee apple !
In my humble opinion there is no way the other guys can expect anything back.
No money has been made in the business so there is nothing to share and everybody put in there share in the advertising.
In any business there is an element of risk and I am afraid the risk was taken and did not pay of. ( for them )
If it was my situation, I would not offer anything, BUT how do you get them to sign over their percentage ?
Maybe by informing them that you are continuing with the business but should the business fail, they are also liable !
All things being equal, I do not think the situation can work as it stands.

----------


## Gillian

Unfortunately for me they still own their share, but all share owned is split equally three ways.
Nobody has majority share.
When it comes to profits, its not even worth mentioning.
Cant I just give them the profit thus far so that they will leave.
At least they will get a little more if i dont want to share in the profits seeing that split three ways you not going to be any richer.
It would not bother me at all to do that.

----------


## Dave A

Go for it, Gillian  :Thumbup: 

As Robinson and Martin point out quite clearly, the relationship seems dysfunctional and you need to sort that out now (definitely don't put this off).

What you are prepared to offer to achieve this is up to you. I think the message from the tough nuts among us is don't feel obliged to be overly generous.

----------


## BusFact

> Cant I just give them the profit thus far so that they will leave.
> At least they will get a little more if i dont want to share in the profits seeing that split three ways you not going to be any richer.
> It would not bother me at all to do that.


Yes you can, but you have to get them to agree to it. You need to negotiate and convince them that it makes sense. You can't force them to do anything and simlarly they can't force you to do anything either.

----------


## Martinco

> Unfortunately for me they still own their share, but all share owned is split equally three ways.


Ok , approach them and ask them what they want and take it from there.

----------


## Gillian

All i want is to keep my business name. Nothing more.
For all i care take the profit and leave but now their mission is to either dissolve the business or liquidate it.
When all else fails that means starting over when business is picking up, but also being lost because of the dispute and their ignorance.

Their is not much more that i can offer.

Loosing the advertising contract, that is where I am going to lose money well spent and I'm not willing to lose that amount of money.  That is the investment I made.

Maybe I'm being difficult but the more I'm trying to get this matter sorted out, the more excuses they have to drag this thing out.

I know I'm putting up a heck of a fight, which might end up in a war, but I will not back down.
Now that scares me because now its boils down to getting messy which is what i tried to avoid, but they are being unreasonable and very unprofessional.

Thanks for all the advice but please, I need MORE advice.

What next?

----------


## Gillian

> Go for it, Gillian 
> 
> As Robinson and Martin point out quite clearly, the relationship seems dysfunctional and you need to sort that out now (definitely don't put this off).


I'm trying not to put this off, its going nowhere slowly.

They are not willing to attend meetings which I have called numerous times and they just refuse to attend.

If this continues its never going to end.
The question is why are they not willing to meet face to face?

----------


## Dave A

> The question is why are they not willing to meet face to face?


I'd guess either fear (of you - possibly guilt complex related or you've communicated aggresively already) or procrastination, putting off what they expect to be an uncomfortable experience.

The other option is you're being played and they're biding their time for more leverage, but you did say these were friends, at least when it started out, so I suspect that's unlikely.

Either way, you need to close down the avenues of "escape", whatever that may be (too busy to attend meeting, something came up, I forgot). There being three of you, you only need to get one other to a properly notified meeting to start passing resolutions. Set the next meeting at one of the other member's house  :Big Grin: 

The other tactic is a honey trap. A call going "Hi, I think I have the solution to the problems we're having - tell you all about it at the meeting  :Smile:  " sort of thing. A prospect of something positive that they'll *want* to turn up for.

Most important, don't be bitter, aggressive or desperate. 

Make peace with the fact that you might have to walk away. It might not be what you want, but knowing what you'd do in that circumstance will drastically improve your posture at negotiations.

----------

BusFact (12-Oct-10), Gillian (12-Oct-10)

----------


## Gillian

> I'd guess either fear (of you - possibly guilt complex related)


I think its a fear knowing since this started the first thing I did was studying the Close Corporations Act (Pretending that I know everything) and they should have acted accordingly.

Thanks for the advice, I'm definately going to organise the next meeting at the house of the shareholder who started it all. Hopefully this works.

Another thing, I'm not able to get into contact with the other shareholder at all.  His phone is of and basically he is nowhere to be found.
Obviously the other has to still meet with me regardless seeing that there is no response whatsoever?

According to the Close Corporations Act, I understood that if the other shareholder does not attend the meeting he then forfeit his vote?

Its a tough lesson to learn but now I know the secret of life is to appreciate the pleasure of being terribly, terribly deceived.

Thanks for all the help

----------


## Martinco

What about going the route via the auditor/accounting officer to set up a meeting between the parties. ( To discuss the financial statements )
Dave, you might know better but is there not some or other clause in the CC Act that stipulates such meetings and what the procedure is if a member/s is/are unwilling to attend a meeting ?

----------

Gillian (13-Oct-10)

----------


## Dave A

> Another thing, I'm not able to get into contact with the other shareholder at all.  His phone is of and basically he is nowhere to be found.
> Obviously the other has to still meet with me regardless seeing that there is no response whatsoever?


Just make sure notice of the meeting is delivered to the address of your missing member as per the cc documentation - and have proof of delivery just in case of a challenge later.

If you expect a serious challenge to any decisions taken _in abstentia_ of one of the members, it's probably a good idea to have _members interests_ or something similar on the agenda given in the notice too, although to avoid ducking and diving I wouldn't have it as the only item. Bit of a judgement call given the situation.

----------

Gillian (13-Oct-10)

----------


## Dave A

1. You only have to buy out one member to get control of the situation.

2. This is Africa - where it's easier to ask for forgiveness than to ask for permission.

----------

Gillian (13-Oct-10)

----------


## IanF

Gillian
Have a look at this Getting to yes. This has worked for me. 
The 4 steps:
Separate the people from the problem
Focus on interests, not positions
Invent options for mutual gain
Insist on using objective criteria

But read the article, the steps are hard especially if you have nice people :Roll Eyes (Sarcastic):  to deal with. Take the emotion out, look for your walk away position. Don't lose your temper. Easier said than done but it works.  :Wink:

----------

Dave A (12-Oct-10)

----------


## BusFact

> All i want is to keep my business name. Nothing more.
> For all i care take the profit and leave but now their mission is to either dissolve the business or liquidate it.


Why is so important to keep the business name? Surely the customers can be redirected to a new business quite easily?

----------

Gillian (13-Oct-10)

----------


## Gillian

> Why is so important to keep the business name? Surely the customers can be redirected to a new business quite easily?


You right.  Decided to give up on the name, I'm just stubborn because of all the time wasted and having to give it up after all the effort 

So be it.

----------


## Gillian

I have decided to start my own business. This whole going into business with other people, isn't working for me.

Not going to make them an offer and then they can take care of the paper trail from there.

Now I can at least get my share of the non-existing profit and
I'm pretty sure I will be able to get at least one Happy Meal from Mcdees. :Roll Eyes (Sarcastic): 

Seems "sharing is caring" will not be one of my good traits anymore.

I know I am going to need even more help to get this off the ground but thanks to all whom already helped. :Thumbup: 


"Never attribute to malice what can be adequately explained by stupidity"

----------


## BusFact

> You right.  Decided to give up on the name, I'm just stubborn because of all the time wasted and having to give it up after all the effort 
> 
> So be it.


On the face of it, I think thats a good decision. You're probably already feeling less stressed. But I'm still not sure why it was time wasted. I assume you found clients from your advertising and so have their contact details. It should be fairly easy to redirect them to your new business?




> Not going to make them an offer and then they can take care of the paper trail from there.


I am wondering if it would not be better to resign as a member, otherwise you're still responsible for tax returns and annual returns. Make a clean break and don't have loose ends that come back to haunt you in a few years time.

Any other readers know about the pitfalls of resigning as a member or not resigning?

----------

Gillian (13-Oct-10)

----------


## Dave A

It's hard to establish a successful business without burning your fingers a few times along the way.

Great attitude, Gillian - onward and upward  :Thumbup:

----------

Gillian (13-Oct-10)

----------


## Gillian

> I am wondering if it would not be better to resign as a member,


If I resign they will have ownership of all the graphic design work as well as all previous designs done for the company.  I'm unhappy about that but if it would be a better option I will definitely do that.
It is just a great deal of designs that will be lost for my portfolio.

They are planning to deregister the company which mean I have no say in it because they will have majority vote?

----------

