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We are raising investment with individual shares valued at £5.

A founder & director is leaving the company and claiming owed salary and directors' loans need to be paid or converted to shares. We don’t have the means to pay.

The founder is leaving on bad terms, are we obliged to give him shares valued at £5 considering we’ve not closed the investment round yet?

How do we value our shares, and what would we be obliged to hand over?

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  • Didn't the contract or incorporation document(s) specify how compensation will be paid or how to proceed in the event of a shareholder's departure? The term salary suggests that his capacity as founder is irrelevant to that compensation.
    – Iñaki Viggers
    May 12, 2022 at 13:19
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    The use of "£" suggests this is in the UK, can you confirm so the correct jurisdiction tag can be applied please.
    – user35069
    May 12, 2022 at 13:38
  • What does the contract with the director say? If there is loan, there has to be a loan agreement. If he is working for the company, there has to be an employment contract. Do what the contracts say. Unless one of the contracts explicitly states that payout and/or repayments must be made in shares, you can tell the director to go pound sand.
    – Hilmar
    May 13, 2022 at 13:05

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He can claim all he likes, that doesn't make it true.

First let's look at the shares. Your company doesn't own any shares so it can't sell any to him. The shareholders own the shares, and they won't sell any to him. The company could issue new shares and sell them, but he can't force the company to do this, and the shares wouldn't be sold to him for what I assume is a ridiculously low price, but to the highest bidder.

Next, his salary. What is actually his salary? Very often company directors get a minimal salary and hope to make money by getting paid dividends. Since you have no money, he has no right to dividends. Paying him dividends would actually be illegal. But what is his salary? You can check his contract. You can also check what salary you told HMRC about and what salary you paid PAYE for, or what you wrote onto his paychecks. Since he was a director, reporting fake numbers to HMRC would get him into a lot of legal trouble. So it's quite likely that you don't owe him any salary.

And third, his director's loan. Look at the contract. I gave my company a (tiny) director's loan, and the contract says it has to be repaid when the company can afford it. Obviously I didn't want to rip myself off :-) But this will at most give him the same rights as anyone who is owed money by the company. Actually, repaying his loan before you pay salaries (to people who are still employed), or paying for goods, could also be troublesome. You can of course avoid having money and having to repay him by adjusting everyone else's salary. And you wouldn't pay his loan back without first paying the other directors.

What he really wants is to push the risk that he took by starting a company to the other founders. There is no reason why you would allow him to do this.

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    While the first line is true, this answer seems full of assumptions. e.g. "Your company doesn't own any shares so it can't sell any to him." Not necessarily true, and probably not true if they they are selling stock (at 5 pounds) in an investment round. While directors are often paid minimally, especially in larger companies, a quick google search gives an an average CA director compensation at around $90k, and could very easily be higher if no one objected, as a founder with until now minimal other share holders. Also, source on "not paying his loan back w/o first paying the other directors?
    – sharur
    May 12, 2022 at 15:58
  • sharur, this is a startup quite obviously run by people with no business experience, and the former director is obviously trying to pull a fast one. In places where directors have $90k salary, they get paid and don't give loans to the company. In places where directors give loans to the company and don't get paid salaries, that's the same for all directors, so there's no reason to give preferential treatment to the one who has left. PS. I'm quite good at making assumptions. OP is free to check them.
    – gnasher729
    May 12, 2022 at 18:31

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