Company Control as Largest Shareholder Vs. Being a Director... Question..

May I ask any of the corporate / shareholder agreement law experts out there (and I know this is an important question probably not overly suited for this forum)…

If I am the largest shareholder out of 3 shareholders in a startup Australian 'Pty Ltd' company, of which I'm the sole founder (business is all my idea using my knowledge), but I'm choosing to not be a Director of it, do I still:
1. Have control and controlling vote over all decisions made for the company, and
2. Have ability to fire and rehire a sole Director (who would hand all day to day operations) or add another Director to the company (eg. me being the largest shareholder)?
3. Have ability to control basically everything and prevent anything or anyone in it from going against me as the sole founder and main ideas person of the business?

Trying to work out if I actually need to be a Director as well as largest controlling vote shareholder. I want to be able to have a full time job elsewhere (without conflict of interest) but not loose control of the business startup I was founder of and would remain largest shareholder of should it take off and be a long term thing on the side for me.

NOTE: the other 2 shareholder's combined shareholding would not be more than the amount of shares I would hold.

Thanks so much!

Comments

  • +5 votes

    Maybe, and hell I'm just some dude on the internet saying this, but maybe you shouldn't ask dudes on the internet for important sounding legal advise?

    Since your here:

    1. yo
    2. Yayby
    3. Noby
    4. Nes
  • +4 votes

    Control of a company is vested in the board.
    It is the board that binds companies to contracts, and which has power to make decisions for the company as a whole.
    Shareholders (generally - I assume the shares are all the same class and have the same voting rights) have the right to vote in general meetings, to call meetings, and the like.
    If you are not listed as a director, but still exercise control over the company, you might still be considered an officer of the company, or a 'shadow' director.
    Either way you should consider a SHA - and some proper legal advice.

    •  

      Thanks @blaircam…. Ideally i just want to be able to have voting control over how the company is run, overruling the Director in it if I need to and to be able to go get a standard fulltime job elsewhere in similar industry while still maintaining some control/voting rights over the company startup I'd be founding on the side of a fulltime job elsewhere. And therefore dont want a prospective employer to be able to, for example, search my name and find that im a Director of a similar industry company or providing similar services.
      Employers usually dont like their employee's to be Director's in other entities (no matter what they are) im guessing as they tend to have "must not be a Director of any other entity while employed with the company" in employment contracts for standard full time jobs.

      Do I need to be a Director of a company which is my idea that I want to maintain voting control over? Or can I just be a largest shareholder?

      •  

        If there are no conflicts of interest, there shouldn't be an issue for employers. You can always say that you are a director of your family's business. At the end of the day, if there are no conflicts, the employer shouldn't be concerned. At the same time, unless you make it obvious, finding out you're a Director would involve a deeper investigation. A good PI will come up with it if you were worried about being found out. That said, this usually happens for medium to bigger businesses. So if you're employee in a small business, I wouldn't worry about it.

        •  

          At the same time, unless you make it obvious, finding out you're a Director would involve a deeper investigation. A good PI will come up with it

          LOL.

          A P.I.????

          An ASIC personal name extract costs $20 mate. Will reveal all directorship positions and shareholdings for an individual.

  • +3 votes

    If ever someone needed professional advice…….

  •  

    Op, an ASIC search may contain information that you’re trying to hide from you potential employer.

  •  

    Wow you desperately need legal advice.

    If the company is your baby you should be on the board /thread

    Shareholders exercise a very low level of control. Certainly not over all decisions. In fact hardly any decisions. A rouge director could effectively control the business and take it in a direction you are not happy with before you are able to take any meaningful steps as a shareholder.

    Ability to hire and fire directors comes from the Company's constitution. Shareholders often have this ability but there is a process to follow and it is not always a simple majority.

    If you're worried about a non compete clause please see a lawyer - they're often unenforceable in any event.

  •  

    There is no position that has absolute power unless you're the sole Director.
    It's possible you want to be Chairman (however I think a Chairman only gets a deciding vote if the Directors votes are evenly split).
    As majority shareholder though you can call an Extraordinary General Meeting to spill the board of directors. However there will be financial implications to the company for doing this.

    A Chairman or Director need not be involved day to day.
    Just have a look mat the MANY seats that Directors hold in Blue Chip Companies.
    The most obvious example is Elon Musk he sits on the boards of Tesla, SpaceX and the Boring Company (not that any of them are Blue Chip rated)

    •  

      This is not entirely correct. Shareholders can resolve to liquidate and remove sole directors. Directors must act in accordance with sections 180 to 184 Corporations Act and have strict duties to shareholders. OP needs proper advice to consider the replaceable rules or constitution and assess risks - i.e. capital raising depleting his holding/etc.

      •  

        Absolutely OP needs proper legal advice.

      •  

        @kipps Directors fiduciary duties are equally for the best interests of the company with the threat of civil and criminal repercussions.

        They can easily ignore the instructions of a shareholder. A shareholder barking orders which they consider then ignore is unlikely to be a breach of any duty. The Corps Act provides several protections for their decisions in this regard.

        But of course they need proper legal advice. Their story doesn't add up and something is tactically missing from their post.

        •  

          Reads to me as though the company is in the process of being set up.
          OP is the founder and is undecided whether to be a Director or not.
          I don't smell anything fishy here.

          •  

            @scubacoles: OP is the founder of a company, apparently entirely of their own I.P., is the major shareholder, wants control and I quote "control basically everything and prevent anything or anyone in it from going against me" but DOESN'T want directorship?

            It most certainly smells fishy.

            •  

              @zeggie: Disagree, I think the company doesn't exist yet.
              The question posed is a hypothetical.

              If I am the largest shareholder out of 3 shareholders in a startup Australian 'Pty Ltd' company, of which I'm the sole founder

              (emphasis added)
              He is deciding whether or not to become a director at the official formation of the company.

              Almost definitely he's just a guy with a good idea who doesn't know much about corporate structure and doesn't want to get screwed over.

              •  

                @scubacoles: Possibly, but you'd think they would be getting legal advice right now since if they don't know the answer to their questions, they probably don't know how to setup a Pty Ltd lol.

  • +1 vote

    The shareholders appoint the board of directors so you being the largest shareholder hire and fire the directors.

    Nevertheless, you should appoint a strong board to give your company the best oversight, not a weak puppet one, in your best interest. A strong board will jointly own and drive the strategy and performance of the business from diverse backgrounds and experience. You want to leverage this diversity and experience, not constrain it. Strong, experienced directors will do their due diligence on companies before accepting board position, and if you're looking for complete control, you'll end up with a self-fulfilling prophecy - you won't get any experienced directors to join your board.

    Re 1. and 3. there are statutory requirements of directors which you can't control. E.g. if the company is insolvent, even if you don't want to, the directors will call in the administrators and wind the company up. There are also fiduciary responsibilities of directors to all shareholders, e.g. they won't screw the minority shareholders even if you want them to. Obviously if you appoint your family, mates, etc. then that is another story, but then you'll have to deal with the possibility of disqualification, fines and jail.

  • +2 votes

    Ok, address the elephant in the room time. The way you've worded your post screams this question - OP are you bankrupt?

    •  

      Op wants to be a silent investor in control.

      •  

        Nah. Read the post again. I don't buy it.

        OP is the "founder" and wants control, wants the ability to "fire" a director, but this is also a "side gig" and wants full time work in the same area. Doesn't add up. Silent directors are as common as anything. There has to be a reason.

        Like I said my first thought was OP is bankrupt.

        Second thought was maybe they are trying to avoid director personal liability for some particular reason.

  •  

    To answer the question properly, i.e. do you need to be a director, a better understanding of the actual issue you are trying to address is required.

    In general terms, as a shareholder, you have the right to install and remove directors according to the constitution and any other relevant rules of the company.

    Once installed, directors have the right to hire and fire management according to employment contracts and the general law.

    A shareholder does NOT have the right to "control the company" in the way you describe, i.e. "control basically everything and prevent anything or anyone in it from going against me".

    Some other things you need to be aware of …

    If you are trying to avoid being a director for some reason (such as to avoid director responsibilities/liabilities), the installation of puppet directors will not help you. I can't recall the specific term of the top of my head, but basically in such a scenario you would be seen as a director and subject to the same responsibilities/liabilities.

    If you are trying to avoid "conflicts of interest", the fact you own the majority of an entity that presumably has some competing product with your employer creates an enormous conflict of interest and should absolutely be declared. If you do not declare such a conflict, you are setting yourself up for potentially enormous legal trouble, especially if you are controlling the company in the way you have described.

    As noted above, the reasons for you not wanting to be a director need to be made crystal clear and then determine your best course of action. In the most basic terms, you can't "simply be a shareholder" AND "control everything" the company does.

  •  

    Posting here rather than getting legit legal advice because OP is sketchy AF and is either bankrupt as noted above or trying to weasel their way out of some form of liability.

  •  

    OP you should be aware that just because you’re not a registered director on an ASIC search you can nonetheless be a director within the meaning of the Corporations Act if you are what is otherwise known as a “de facto” or “shadow” director. Such directors also are bound by the officer’s duties found in sections 180 to 184 of the Corps Act.

    Seriously, get proper legal advice here. You absolutely need it.

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