Adding a shareholder to a existing company?

Regy53 · 13 Mar 2017 at 18:01

Hey all,

worth a try on here, basically i run my own company and a complicated story but a fella works for me whom over the last year has helped make my company grow to almost double the size, he is very good at what he does and we get on very well. We have worked more as business partners than anything bouncing of each other. I overlooked his pay a bit and his nose was turned elsewhere which i do not blame him.

So we looked at money, i have solved and potentially i wish to gift him 20% of my company's shares.

How would one value such a item, i cant get my head around it. Running my own company means i do as i please with the bank balance as such, need money? paymyself a dividend etc etc. Would this mean i now need to play this differently?

The company has over 100k of directors loans in it (to me), how would it all work? would i need to give this new shareholder money each time i took some etc? are profits spread 80/20? etc

I know i need to see a solicitor i'm just trying to get my head around it in the short term so he can make a decision .

any help appreciated i am sure i cant be the first, i have googled

Destination · 13 Mar 2017 at 18:04

Regy53 said:
Hey all,
worth a try on here, basically i run my own company and a complicated story but a fella works for me whom over the last year has helped make my company grow to almost double the size, he is very good at what he does and we get on very well. We have worked more as business partners than anything bouncing of each other. I overlooked his pay a bit and his nose was turned elsewhere which i do not blame him.
So we looked at money, i have solved and potentially i wish to gift him 20% of my company's shares.
How would one value such a item, i cant get my head around it. Running my own company means i do as i please with the bank balance as such, need money? take it, buy a truck, etc etc. Would this mean i now need to play this differently?
The company has over 100k of directors loans in it (to me), how would it all work? would i need to give this new shareholder money each time i took some etc? are profits spread 80/20? etc
I know i need to see a solicitor i'm just trying to get my head around it in the short term so he can make a decision .
any help appreciated i am sure i cant be the first, i have googled

If he owns 20% of the shares, he's entitled to 20% of any issued dividend.
So yes, you would need to take a rather different approach to finances, but I'm not completely sure the current 'need money?... take it' approach you've had is strictly legal.
The company has loans you money? Is this an accountancy thing to avoid taxes? Have you a payment plan in place for this loan, or how is it legally offered?

See the solicitor.

-edit, would it not simply be easier to just pay him more, fix the salary, and stay away from shares in a company?

Regy53 · 13 Mar 2017 at 18:09

Hikari Kisugi said:
If he owns 20% of the shares, he's entitled to 20% of any issued dividend.
So yes, you would need to take a rather different approach to finances, but I'm not completely sure the current 'need money?... take it' approach you've had is strictly legal.
The company has loans you money? Is this an accountancy thing to avoid taxes? Have you a payment plan in place for this loan, or how is it legally offered?

See the solicitor.

-edit, would it not simply be easier to just pay him more, fix the salary, and stay away from shares in a company?

thanks for your reply.

so if i paid myself 100k dividends a year he should have 20k.

Sorry i mean, i dont take a wage as such i just take money as and when i need which my accountant puts as a dividend.

Rroff · 13 Mar 2017 at 18:09

Hikari Kisugi said:
-edit, would it not simply be easier to just pay him more, fix the salary, and stay away from shares in a company?

Guessing OP wants to both incentivise him more to further grow the company and tie him somewhat to the company?

Regy53 · 13 Mar 2017 at 18:16

Rroff said:
Guessing OP wants to both incentivise him more to further grow the company and tie him somewhat to the company?

Yes, reward for a hard years graft he took a paycut to join me. Very multi talented and while i did 3 years before he joined were now to big to cope on my own so why not reward for his hard work, and yes to the reward to grow further. I have no doubt of his work ethic etc

Destination · 13 Mar 2017 at 18:16

Rroff said:
Guessing OP wants to both incentivise him more to further grow the company and tie him somewhat to the company?

Doesn't really work unless you profit split directly.
Unless you pay ever penny of profit each year as dividend, then the worry starts over reinvestment/ expansion etc.

mattyg · 13 Mar 2017 at 18:20

Regy53 said:
thanks for your reply.

so if i paid myself 100k dividends a year he should have 20k.

Sorry i mean, i dont take a wage as such i just take money as and when i need which my accountant puts as a dividend.

Slightly more if hes 20%

If the dividend pot was 100k you'll get 80k he'd get 20k

mattyg · 13 Mar 2017 at 18:21

mattyg said:
Slightly more if hes 20%

If the dividend pot was 100k you'll get 80k he'd get 20k

Much better idea would be a profit share. Rather than actual shares.

POB · 13 Mar 2017 at 18:27

Your accountant is a better shout for advice.

Cromulent · 13 Mar 2017 at 18:37

Regy53 said:
Running my own company means i do as i please with the bank balance as such, need money? take it, buy a truck, etc etc.

I don't know who your accountant or your lawyer is but this is 100% false. You can't just take your companies money out of the companies bank account and spend it on whatever you like. A limited company is a legal individual and the money belongs to the company NOT to you. Therefore if you want money out of the company it has to come from legal means which generally means paying yourself a salary or paying yourself (and other shareholders) dividends. You absolutely cannot treat your companies bank account as your own.

This also means paying tax on your salary and your dividends.

Regy53 · 13 Mar 2017 at 18:40

Cromulent said:
I don't know who your accountant or your lawyer is but this is 100% false. You can't just take your companies money out of the companies bank account and spend it on whatever you like. A limited company is a legal individual and the money belongs to the company NOT to you. Therefore if you want money out of the company it has to come from legal means which generally means paying yourself a salary or paying yourself (and other shareholders) dividends. You absolutely cannot treat your companies bank account as your own.

This also means paying tax on your salary and your dividends.

yes sorry i know this, that's what i meant. If i need money i pay myself a divi as long as the moneys there and accounts are healthy.

Hyburnate · 13 Mar 2017 at 18:44

It'd probably work as an incentive. There would obviously need to be contracts drawn up and solicitors and accountants involved.

From his perspective, he would also be able to save tax, so probably look to go on a minimum wage contract similar to yourself I'd assume and the rest in dividend. He would obviously be able to take money from the company too and all of this would need to be preagreed.

englishpremier · 13 Mar 2017 at 18:45

You could issue preference shares, or just another class of shares, then you can issue dividends to them at different rates, and even withdraw any voting rights if you don't him to have a say in the company.

SpeedFreak · 13 Mar 2017 at 22:17

englishpremier said:
You could issue preference shares, or just another class of shares, then you can issue dividends to them at different rates, and even withdraw any voting rights if you don't him to have a say in the company.

Best approach.

Vonhelmet · 13 Mar 2017 at 22:19

POB said:
Your accountant is a better shout for advice.

Deffo.

There's loads of ways you could do this, so best to sit down with someone who's paid to understand all this and tell them exactly what you want to achieve and then they can tell you the best way to get there.

Greebo · 14 Mar 2017 at 10:22

englishpremier said:
You could issue preference shares, or just another class of shares, then you can issue dividends to them at different rates, and even withdraw any voting rights if you don't him to have a say in the company.

This and what normal people do. Makes it easier to issue as much or as little dividends as you want. Also mean that when he leaves you aren't tied into paying him 25% of your dividends each year.

MoRT489 · 14 Mar 2017 at 10:29

To reward an employee with shares you should be looking at issuing him a separate class with different class rights, unless you want him to have a proportional say in the business/share of the profits. Do not go into this without a solicitor, it is not straightforward.

Django x2 · 14 Mar 2017 at 23:26

mattyg said:
Slightly more if hes 20%

If the dividend pot was 100k you'll get 80k he'd get 20k

So...not slightly more, instead, exactly what the OP put....

mattyg · 14 Mar 2017 at 23:31

Regy53 said:
thanks for your reply.

so if i paid myself 100k dividends a year he should have 20k.

Sorry i mean, i dont take a wage as such i just take money as and when i need which my accountant puts as a dividend.

Django x2 said:
So...not slightly more, instead, exactly what the OP put....

Nope If the OP owned 80% and the other shareholder 20% and the dividend pot was £120k then the 20% shareholder would get £24k

koooowweeee · 15 Mar 2017 at 06:18

It would be simpler if you paid yourself a wage. Then every few months or at the end of the year split the profit (or a chunk of it) 80/20. You know where your up to then.