Bringing family member on board

[tuneguru]

Hi everyone,

Just looking for some advice regarding my about to be launched business, particularly if you already run a business alongside family members.

Background: I am the director and my wife and I are equal shareholders (1 share each)- we have both taken part in the technical side of setting up the business and will also share the running of the business. We are now at the stage of starting marketing and sales which is my brother in law's field and I feel he would be a great asset to the project (and he is also keen to be involved).

I want him to be fully recompensed for his contribution, but would prefer to avoid becoming an employer, so my thought was to make him a shareholder so that he will benefit from any success of the business.

Are there any potential pitfalls with this approach? And what would be a fair shareholding? I'd be happy with a 3 way split but would this risk losing control of the business further down the line if there were unexpected problems?

Thanks in advance for your help

 

[billybob99]

Are there any potential pitfalls with this approach?

Yes, but only when it all goes t!ts up.

I'd give him 2% to start with.

 

[WaveJumper]

You could of course issue some non voting shares if you wish to protect yourself / company for the future

 

[Mr D]

For him to be recompensed then get him to invoice the company for work done and the company pays the bill.
Giving him shares is nice and all but doesn't pay bills. Shares make him money after you issue a dividend - if you ever do.

 

[Paul Norman]

If you wish to remunerate him, you have to either employ him, and pay him a salary, or engage him as a contractor, and pay his invoices. Giving him shares is nice, if those shares ever become of value. So in the meanwhile, he will not be paid for his efforts.

My advice with regard to family members is always this. Treat them exactly as you would anyone else, only be doubly careful to get everything in writing. No favours. No under the table deals. And probably, no shares at this stage.

However you do proceed, get proper legal agreements in place. Shareholders agreements if you do go that way. Employment contract, if you go that way. Ensure these agreements spell out exactly what will happen on the day you all fall out. I know you don't want that to happen, but this forum is full of examples of where it did.

 

[Newchodge]

If you wish to remunerate him, you have to either employ him, and pay him a salary, or engage him as a contractor, and pay his invoices. Giving him shares is nice, if those shares ever become of value. So in the meanwhile, he will not be paid for his efforts.

My advice with regard to family members is always this. Treat them exactly as you would anyone else, only be doubly careful to get everything in writing. No favours. No under the table deals. And probably, no shares at this stage.

However you do proceed, get proper legal agreements in place. Shareholders agreements if you do go that way. Employment contract, if you go that way. Ensure these agreements spell out exactly what will happen on the day you all fall out. I know you don't want that to happen, but this forum is full of examples of where it did.

^^^^^what he said. Plus do the same for the other shareholder. Even if the other shareholder is your soulmate and childhood sweetheart, personal relationships can change and you want to make absolutely certain that any change in a personal relationship does not destroy the business. Whether you offer your brother in law any shares or not, you need a watertight shareholders' agreement now.

 

[obscure]

I want him to be fully recompensed for his contribution, but would prefer to avoid becoming an employer, so my thought was to make him a shareholder so that he will benefit from any success of the business.

As already pointed out, shares are a long term return. He will only get anything if you declare a dividend - and that requires that you make a profit.

In the short term you will need to pay him as a contractor or as an employee. If you want it to be the former, rather than the latter you will need to ensure that you/he don't meet the employer/employee criteria defined by HMRC.

 

[tuneguru]

Thanks for the advice everyone, I'm quite new to this side of business so great to hear from those with experience