Every business has its challenges. Most of them you expect and learn to manage. But sometimes the biggest problems are the ones quietly sitting in the background, unnoticed until it is almost too late.
This is a real story about how a small piece of forgotten paperwork almost brought a £12 million sale to a halt.
The forgotten shareholder
A founder was preparing to sell their business. The deal looked positive. The buyer was serious. The documents were nearly ready.
Then the due diligence report arrived.
Hidden in the filings was a name that had not been mentioned for years. The founder’s ex-partner was still recorded as owning 25 per cent of the company.
This was not done on purpose. It was not part of any dispute. It was simply something that had been overlooked during a busy period involving divorce, refinancing and day to day business pressures.
The real problem was that there was nothing in place to deal with it.
The company had no shareholder agreement.
There was no clear process to remove or buy out a shareholder.
The articles of association did not offer any protection.
Nobody had checked Companies House to make sure the records matched reality.
The deal team asked the obvious question: “Can we sort this out now?”
The answer was no. There was not enough time and the founder had no real leverage. The only way to move forward was to offer retrospective dividends and pay 25 per cent of the sale proceeds.
It was a painful and avoidable loss that came from a very simple oversight.
How to avoid the same problem
A few regular checks can prevent this kind of situation.
1. Check Companies House for your listed shareholders
Make sure the public record reflects the current position. If someone has left the business or transferred their shares, make sure the filings are updated. It only takes a few minutes and can avoid major trouble during a sale or investment.
2. Review your shareholder agreement and articles of association
If you do not have these documents, or if they are very old, ask a legal professional to review them. They should clearly explain what happens if someone leaves, how shares can be transferred, and how decisions are made.
3. Review your share schemes
EMI options, growth shares and other incentive schemes need ongoing attention. If they are not maintained properly, they can cause as many problems as forgotten shareholders.
A small amount of admin can protect a large amount of value
These issues rarely appear during the calm moments. They surface when the stakes are high, usually during a sale, investment or dispute. A short review once a year can protect your valuation and avoid unnecessary stress.
If you would like someone to look over your documents or help put the right protections in place, feel free to get in touch.
Ryan has helped a vast number of businesses protect and control their intellectual property as well as drafting and advising on consumer and commercial contracts.
