Adding a shareholder to a existing company?

[Regy53]

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

 

[Regy53]

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.

 

[Regy53]

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

 

[Regy53]

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.

 

[Regy53]

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.

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