Except he was suggesting that from the £100k available dividends, £20k should go to the other shareholder. He wasn't saying he'd take £100k and then give another £20k to the shareholder.
At least that's how I read it
Adding a shareholder to a existing company?
- Thread starter Regy53
- Start date
Except he was suggesting that from the £100k available dividends, £20k should go to the other shareholder. He wasn't saying he'd take £100k and then give another £20k to the shareholder.
At least that's how I read it
Also - no - even if you are running your company in somewhat bizarre way where you "take money as and when you need it" from now on if there is a profit - he is entitled to 20% share of the profit. If you, for whatever strange reason, don't take your share of the profit - he still is entitled to his cut.
It's also a situation that requires law and contract and you agreeing on what is actually "shared":
- does he participate in 20% of company's profit from as it is now in perpetuity, and thus is straight away entitled to 20% of everything your company currently has in bank accounts plus stock, plus assets
- is he only entitled to 20% of assets, stock and dividends from this point onward - regardless of how much the company earned in previous years?
- is there a limitation to what he can do with his 20% - if he decides to sell his stake to your competitor the next day, or make the rest of the crew shareholders etc
I think, in most cases it is more practical to offer someone annual bonus of 20% profits, rather than make them shareholders.
It's also a situation that requires law and contract and you agreeing on what is actually "shared":
- does he participate in 20% of company's profit from as it is now in perpetuity, and thus is straight away entitled to 20% of everything your company currently has in bank accounts plus stock, plus assets
- is he only entitled to 20% of assets, stock and dividends from this point onward - regardless of how much the company earned in previous years?
- is there a limitation to what he can do with his 20% - if he decides to sell his stake to your competitor the next day, or make the rest of the crew shareholders etc
I think, in most cases it is more practical to offer someone annual bonus of 20% profits, rather than make them shareholders.
Except he was suggesting that from the £100k available dividends, £20k should go to the other shareholder. He wasn't saying he'd take £100k and then give another £20k to the shareholder.
At least that's how I read it
I think we read it differently
I read it that if HE took 100k then the other guy should get 20k. Which still wouldn't get him his 100k anyway. But I suppose for the ease of quick maths/ The Ken Dodd accounting method when close is good enough......Plus its only a back of a fag packet calculation example anyway.
Its not a bizarre way as i say i dont take a wage apart from the tax free allowance, so as and when my account gets low i pay myself, its a very healthy company so can do it this way thus keeping money in the bank and stock which i use to earn more.
I understand now this 20 % thing is a ball ache. Real hard if you setup on your own and which to take extra steps to growing
Why not just offer him a payrise and a bonus which is linked to % profits, rather than issuing shares? I would only give out shares if he was a true partner in your company. Option 2 would be a separate class of employee share with no voting rights and whatever dividend rights you determine are suitable, coupled with a separate contractual obligation for him to transfer the shares to you (or share buyback by the company, if possible) upon termination of his employment.
Soldato
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As above, you should bear in mind and protect yourself against the event that he leaves the company. Wouldn't be much fun if you gave him 20% and then he left anyway.
If they guy is good and has really helped expand the business then offering equity is a better way of retaining him and perhaps fairer to him. Some separate class of shares with an arbitrary dividend isn't really making him much of a partner though perhaps worth exploring as it is advantageous from the OP's perspective.
If he really wants to make him a business partner (albeit a junior one) then he should simply be getting a % of equity, same dividend rate as the OP gets and have a buyback clause incase he leaves.
OP needs to get some professional advice on all of this really.
Associate
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Find a suitable lawyer (or not some massive firm), send an email saying that you wish to restructure your company and are looking for a lawyer to redraft shareholder agreements/finalise things.
Don't worry about coming here to figure out the basics. Most will have the time of day to our least have a 5 minute call where you can outline your situation and they can give general advice.
Then comes the money of course haha. But you will have to pay someone remember that. Fees can be negotiable though, and shop around.
Geting the legals right would be my main advice... you don't want headaches in a few years because you went for a back alley lawyer.
Don't worry about coming here to figure out the basics. Most will have the time of day to our least have a 5 minute call where you can outline your situation and they can give general advice.
Then comes the money of course haha. But you will have to pay someone remember that. Fees can be negotiable though, and shop around.
Geting the legals right would be my main advice... you don't want headaches in a few years because you went for a back alley lawyer.