Employee and also Shareholder

[JackGrealish]

Hi. Hoping I can get some advice.

I'm a full time permanent employee and approached my director with a new business idea, initially with me having no interest in shares or comission, perhaps just hoping for a end of year bonus.

Upon further research, the market is a lot bigger than I first realised and have told the Director I want a slice of the pie when the new company is setup.

It's only me who has the skills required for the new business and I could have done this on the side, but as I've already discussed the business with the Director this is no longer an option, mainly down to respect for him.

We've both agreed it makes it a little awkward with me being an employee to the main business.

Options on the table at the moment are;
Comission
Small shares, 20%
Comission to start, with option to buy shares within a set period.

Your comments on if I'm being too greedy/too honest, or any other options that we've missed would be great.

Thanks.

 

[The Resolver]

If the company would depend on your skill and knowledge in running this new operation then all sides should be looking at a reasonable shareholding.

20% is significant, but less significant than 26%+ since that is when your agreement is required for certain Resolutions such as amending the Articles of Association (the rules by which the company is governed) changing the company name or going into liquidation.

Of course in taking shares and looking to dividends as income (after a small initial salary) and share value growth as a longer term investment of your time you are taking the risk that the business will succeed whereas just agreeing a commission off the top of sales give you short term revenue but no benefit/security in the longer term. A good boss would prefer his employee in this situation with a great new idea for the business to demonstrate his confidence and commitment by seeking shares.

Tax advisers may come on here to consider any issues that may benefit from using one of the HMRC approved employee share schemes. I see the intention si not to give you shares in the existing company but to set up a new company so there may well be no tax issue (existing shares being transferred rather than new ones in a new company, may be seen as a benefit in kind.

If you do elect for shares , and they are on the table for you, you will need the protection of a full Shareholders Agreement. For example you want to ensure the new company is not unfairly burdened with expenses that should be carried by the current company. Importantly you need detailed provisions to resolve disputes as they turn up (as they will) . See my article on Shareholder Agreements and why it is totally reckless to be a shareholder without one (by clicking on 'Dispute Avoidance' at BoardroomResolve com. The benefits are for both sides. .

 

[Ford Jones]

hi