Director/Shareholder Advice Needed
Please help. I am a loyal employee of a small business. Having served for over 5 years (the business has only been going 5 and a half), I have been given the opportunity to become ‘more than just an employee’. I want a share of the business, in return for my valuable long term commitment. The reality is that I don’t know how to go about it. My employer knows what I want, and we’ve had many conversations regarding my future in the business. He seems willing, and wants me to go away, think about what I want, and come back to him with a proposal. I have researched schemes such as EMI etc, but don’t know exactly how this would work. I have little or no capital to invest, and was hoping that my loyalty in recent years, despite many approaches from competitors, might be recognised. Can I remain an employee, or do I need to become a director? How would I be paid if I were to become a shareholder? What guarantee would my employer have that I’m not going to turn around and walk away, expecting him to buy back my shares..? Any advice would be gratefully received. Thanks.
You can remain an employee and become a shareholder.You dont need to be an emoployee or a director to be a shareholder.Think of all the shareholders at M&S they are not employees.Some of them are customers! If you became a shareholder you will be paid dividends when the business makes profits as by law the company is allowed to pay divis out of profits only. If the company makes a loss surely you won’t get any dividends.The only guarantee you can give the employer is by drawing up a contract between you and the company to say that you will remain an employee or a director for ‘x’ number of years which you both should be happy with. But think about the commitment you are making as well.Also note that though the company makes profits they can refuse to pay dividends. It is up to the directors to make a decision on the dividends.They can also decide how much profits they can pay as dividends (%) as well.It is best if you can speak to an accountant but if you jave any more queries post them here – I am an accountant – will try and help as much as I can.
Thank you very much. This sounds like excellent advice, and has actually answered more questions than I thought I had. I had thought that my offer to become a director would in some way be payment for shares. My commitment long term is valuable I’m sure, and I also have some quite deep fondness for the organisation (so I have no wish to go elsewhere). I have been here almost from the start and have seen it grow, and been a part of that success. I’m therefore happy to make the commitment. Is there some way that shares can be offered free..? I assume that this is not tax efficient…?! In the same way, a friend of mine has mentioned ‘nominal value’ which interests me, as it implies that shares can be acquired at less than market value. It is curently a private limited company, with one director, who is a 90% majority shareholder. There is one other shareholder at the remaining 10%. I don’t know the share allocation, and presumeably can’t find this out without acessing the company accounts. Thank you again for your advice, I’m really grateful. Regards.