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50:50 Shades of Grey - The Sequel

on Friday, 12 January 2018.

In this article David Emanuel, head of Family Business, looks at practical consequences of breakdown in relations between family members of a 50:50 company and how these can be avoided by careful planning.

Chained Together

I have not read 50 Shades of Grey, nor seen the film, but I gather one consequence of the very successful franchise has been a boom in the sale of pink fluffy handcuffs.

Imagine, however, a situation in which you and your partner (in this case, think of your co-shareholder) are both handcuffed to the bed (for bed, read your company), but unable to get at each other. These unfortunate and highly frustrating circumstances are analogous to the consequences of a breakdown in relations between the two members of a 50:50 company (or partnership).

The Ties That Bind You

If you get into a situation where you and your family co-owner have a serious fall out, some of the legal problems that can arise include:

  • Both of you as directors will have power to bind the company and take actions potentially without reference to the other (but subject to duties to promote the success of the company generally).
  • Neither director will have the power to remove the other as a director, or to prevent the other from continuing to take an active part in the business and interact with employees, suppliers and customers.
  • Both shareholders will need to agree to a voluntary winding up of the company - otherwise the only option to bring the business to an end will be for one party to make an expensive application to court to request the company be wound up on 'just and equitable' grounds.

I Want to Break Free

People setting up in business together don't expect their personal relationships to falter, or their interests to diverge over time. It can be difficult to broach the subject as you begin, or in the early stages of a business, or indeed in an established family business when new family members join who might have a different generational view.

Many family businesses continue successfully without problems, but as lawyers we are often advising clients in circumstances where deadlocks have arisen in the business which the parties cannot resolve, and where they have no agreement in place between them that could help deal with the situation. These can be highly emotional and expensive situations which often do not result in a favourable outcome.

A shareholders agreement will not be able to cover every eventuality, but it can provide a framework for resolution, and some solutions to take the heat out of the situation - a key for the handcuffs if you will.

In a future article, we will look at some of the issues you might want to address in a shareholders agreement.

For more information please contact David Emanuel from our Family Business team on 020 7665 0848.

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