[Question] Removal of cc member

[MinnieMouse]

My life partner (boyfriend) and I are currently trading on a family friend's CC, while we waited for our VAT and CC registration. We have been trading for 6 months with a turnover of 1.5mil. Our documents are through and ready to go, however, we made the mistake of capturing soemone as a member on the new company, for BEE recognition. This, we have seen is NOT in our best interests -not in a racist point, but merely a business best interest. The shares are 52% white (my partner) and 48% black. We have not bought anything, generated income nor own anything - even the furniture is not owned by the new company. We wish to remove minority member but are unsure as to how. I have been paying both members and giving extra drawings, as well as spending large amounts on fixing minority members car that is not registered to the business, but we pay and use for business purposes - by fixing, we pay the maintenance plan as well as fixed preexisting problems on the van. Not only all of this, but he also lives on our premises and his rent, water lights and groceries are submitted through the 'borrowed' company. Surely, because we have not traded on the new company and do not own anything, we do not have to pay him out and due to the fact that we have not signed a Service Level Agreement (the guaranteed income), we can request his resignation and offer him a management position? He has not contributed ANYTHING, but has demanded many things.

Please please assist!!!

Thanks
Clueless.

[Dave A]

These partnership bust-up questions can be tricky to give an appropriate answer sometimes.

Why did the partners go into partnership in the first place?

[MinnieMouse]

The business was handed down to my partner from his parents through a messy divorce (the Major contract only, as business was liquidated). The father wished to further protect the mother by giving the minority member, access to become a member, as the mother owed the minority partner thousands, as well as many others.

[Dave A]

Sounds like if you want to "remove" the member cleanly, you're probably going to have to do it via a buy-out then.

If you proceed to original plan - The extra expenses problem should be resolvable by setting clear rules on budgets and cost allocations. Also be sure to differentiate between salaries to members as a result of work contribution, and drawings/dividends from profits via ownership interest.

In the dirty tricks department, there's always shutting down the current entity and forming a new one. Can get rather litigious, though. There's bound to be a scrap about the existing contract at the very least (it is an asset and based on your turnover mentioned, of reasonable value too).

[MinnieMouse]

But surely if the new company has not traded at all as yet, we can simply remove him? I am not wanting to move over to the new company untill I know where we stand. As it stands, he is not contracted to anyone or anything. The 'borrowed' company does not have him as an employee, only the new business has him listed.

[MinnieMouse]

or vote him out? The new company has not made one cent on paper as yet, all of its funds have come from my partner.

[BusFact]

It does sound messy. My view on the matter is that the minority shareholder owns a share of the business. If you don't have some sort of pre existing agreement about how a partner can be removed, then you can't easily force him.

Time to sit and negotiate and make him want to leave. Either by paying him out or by making life miserable, or somewhere in between.

In theory, as an owner you don't have to contribute anything other than to pay for your shares. As he already has them, I'm assuming thats been done, even if its a nominal amount. For example I own shares in Anglo American, but I don't do any work for them.

Unfortunately the cc format blurred the roles of everyone a bit, so it does get confusing. In the new PTY format the split of roles is clearer.

[MinnieMouse]

Yeah, like you said, he doesnt work, hasnt paid, he has literally just taken and taken and demanded more and more. It has become his personal piggy bank even though he doesnt own the CC we are trading on. It has gone as far as that I have to cook his dinner. If we continued to work the way we are, we could fire him easily. However the day that we change the Service Level Agreement to the CC he is listed on, he will be even more of a tyrant. He hasnt paid for Shares or for anything, he was donated the shares - even though there is no value, he is sticking it out, knowing that if the company signs onto the insurance, then hes a made man.

[Dave A]

I've actually consulted my wife on this (as she has somehow put up with all the BS business positions I've managed to put us in over the years) and her comment is "MinnieMouse is sick and tired of being a doormat."

As disturbing as it is to me that that sort of thought is rattling around in my wife's head, it does kinda confirm where my thinking is heading too - there's a rational level and an emotional level at work here.

MinnieMouse, have you ever read:
Men are from Mars, Women are from Venus by John Gray, or
Personality Plus by Florence Littauer

?

[MinnieMouse]

I have three children under 5years, Im also managing the two businesses from the ground up, my reading time is limited. I have two adult dependants other than the minority member - I am used to it, however Im not in the mood to fund a gravy train for someone that I have a feeling is going to make greater demands in the short future. My partner is the one wanting to remove him from power as it was a youth inspired decision made by his father 'in his best interests' to make minority part of the CC, and most definately not a welcomed decision by majority member.

[Dave A]

So let's cut to the chase with a clear suggestion then?

Based on what I've read so far, an option might be to buy the cc that you're "borrowing" at the moment with the ownership structure you want, and let the new cc die a death. But there might be an issue not raised yet that doesn't allow that option.

Here are some previous dicussions involving getting rid of members of a cc.

http://www.theforumsa.co.za/forums/showthread.php/8052-Major-problem-between-2-members-of-a-CC-Help

http://www.theforumsa.co.za/forums/showthread.php/7373-CC-Membership

http://www.theforumsa.co.za/forums/showthread.php/4706-Problem-with-members-of-CC

http://www.theforumsa.co.za/forums/showthread.php/8367-How-to-exit-a-cc-gracefully

http://www.theforumsa.co.za/forums/showthread.php/5394-Liquidation-of-a-company-the-process

http://www.theforumsa.co.za/forums/showthread.php/10541-Legal-Advice-Please

As you will see, generally the threads become very much shaped by the context of the person with the problem. There is no cookie cutter one-size-fits-all solution.

So, is buying the "borrowed" cc an option?
Do you need a BEE partner for this contract that seems to be the cornerstone of this rocky relationship?
How binding are the terms of the gift?
Can you just walk away?

[BusFact]

First answer Dave's questions, then:

If you are not trading through this new company, why are you providing minority with all this income and support? What would happen if you just stopped doing so?

He is not an employee so you can't fire him. He is a shareholder so will have to be bought out if you want the company. You may pay R1 or a lot more, but that is between you and minority to decide. The company does have value to you otherwise it wouldn't be stressing you so much. Paying him out might upset you now but could be a better and cleaner long term solution.

[MinnieMouse]

Dave -
Buying the CC is not an option . I suggested this a while ago and was blown out the water as it is a designated CC name for a field about to explode into SA. We do not wish to have a BEE partner nor any partner further from this. A lesson well learnt. There were no terms or contracts or agreements Documented with regard to it being a gift or anything for that matter. This contract is of major value and also our stepping stone to following in the steps of my partners father to become industry leaders.

BusFact-
Because he is set to be the member and neither of them are listed on the borrowed cc as members, they have equal drawings. We are looking to force him out the house and reposess the vehicle he has bought from our grandmother that he has made 1/3 of the payments stipulated in the agreement. The census is that if we give him enough rope, he'll hang himself.

The next turn of events is that he has a common interest business that he is registered to, and his 'friend' that he spends his waking hours with has a field related business, therefore showing that he could be trading underhandedly.

[Justloadit]

The next turn of events is that he has a common interest business that he is registered to, and his 'friend' that he spends his waking hours with has a field related business, therefore showing that he could be trading underhandedly.

But there is no agreement, so whether he does this is going to cost money to fight in court. If the company was a PTY, the fiduciary duties of a director would apply, but a member of a CC does not have this, I may wrong and stand to be corrected.

[Dave A]

I suggest disclosure between partners of possible conflicts of interest is pretty much a norm, regardless of whether we're talking a cc, pty or even an unincorporated partnership. Nondisclosure (if that's what has happened here) certainly is fertile ground for a scrap.

Strategically my concern would revolve around the amendment of the SLA as this involves an active move by the client. If the official provider needs to be amended to a new entity, and that amendment gets contested... Things could go pear-shaped.