[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.

[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.

[Dave A]

Oh woopie everyone just wants back what they put in so that they don't lose any money

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.

[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.

[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]

Glad to see I'm not the only hard ass around here

[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

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

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 " 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.