Director / Conflict of interests

[Garyfable]

Morning. This is my first post but I hope you can help.

I'm a director of a company with 4 other people who have equal shares. Without going into too much detail we work with a number of clients who pay us to carry out work for them as part of their contracts with us. All of us work with various different clients.

However one business partner and fellow director has recently been working very closely with a client to the point where they've offered him a role within their business. This would mean that not only will she leave the business to go work for them but we'll also lose the contract we had with them as well and all the money and work that came with that.

I just wanted to check whether this is deemed as a conflict of interests or is there anything that can be done here as they are effectively taking business/money away from the company.

Thanks

Gary

[Lance]

I'm a director of a company with 4 other people who have equal shares. Without going into too much detail we work with a number of clients who pay us to carry out work for them as part of their contracts with us. All of us work with various different clients.

However one business partner and fellow director has recently been working very closely with a client to the point where they've offered him a role within their business. This would mean that not only will she leave the business to go work for them but we'll also lose the contract we had with them as well and all the money and work that came with that.

I just wanted to check whether this is deemed as a conflict of interests or is there anything that can be done here as they are effectively taking business/money away from the company.

Yes it's a conflict of interest. But unless you have some contracts between the directors there's not a lot you can do.
Most consultancies protect themselves with very restrictive covenants for directors. Unlike normal employees, a covenant restricting a director can be far more restrictive and over a far longer timescale.
You probably need legal advice immediately. And potentially a cease and desist letter sent to the other director, but only if you have a leg to stand on.

[sal]

Definitely legal advice, as even ignoring conflict of interests regarding the work for that specific client you now have a director and shareholder of the company that is presumably not going to do any work for the company but still entitled to 1/4 of the dividends distributed, which I assume the other 3 of us are not going to be happy about.

[Lance]

Definitely legal advice, as even ignoring conflict of interests regarding the work for that specific client you now have a director and shareholder of the company that is presumably not going to do any work for the company but still entitled to 1/4 of the dividends distributed, which I assume the other 3 of us are not going to be happy about.

their fiduciary responsibilities may also have some bearing here.
Time to get lawyered up.

[b0redom]

This should probably be sticked as a 'why you shouldn't mix business with mates' thread.

[northernladuk]

This should probably be sticked as a 'why you shouldn't mix business with mates' thread.

Totally this. 4 individuals does not a business make. Can't see how these setups would end any other way.

[Freud]

Morning. This is my first post but I hope you can help.

I'm a director of a company with 4 other people who have equal shares. Without going into too much detail we work with a number of clients who pay us to carry out work for them as part of their contracts with us. All of us work with various different clients.

However one business partner and fellow director has recently been working very closely with a client to the point where they've offered him a role within their business. This would mean that not only will she leave the business to go work for them but we'll also lose the contract we had with them as well and all the money and work that came with that.

I just wanted to check whether this is deemed as a conflict of interests or is there anything that can be done here as they are effectively taking business/money away from the company.

Thanks

Gary

This scenario should either be covered in your company Articles, a separate Shareholder Agreement or a Director's employment contract.

If it is not specifically covered, then there may not be much you can do.

Go read the legal documents you all signed or get a lawyer to read them for you and then advise.

[fidot]

A bit late now, but your contracts with clients should include a "no poaching" clause

[d000hg]

Totally this. 4 individuals does not a business make. Can't see how these setups would end any other way.

This should probably be sticked as a 'why you shouldn't mix business with mates' thread.

Where does he say they are mates? Isn't it just 4 people starting a business together?

[b0redom]

Where does he say they are mates? Isn't it just 4 people starting a business together?

Where did I say they were mates? I've seen threads where people are talking about getting their mates in as subbies/using their companies to help out mates who aren't full blown contractors/employing their wives/kids/parents....

Just pointing out that this is what can go wrong.