Adding Director & Shareholder

[Pafranklin]

Hi,

I have a couple of questions relating to the structure of a company.

Currently there are three directors (and shareholders) with the Managing director having a 40% share and the two other directors (effectively silent partners and not involved in the day to day business) have 30% each.

The Managing Director wants to add a new director and shareholder. I'm assuming that appointing an additional director is pretty straightforward and all three directors will approve the move.

However the Managing Director would like the new director to have a nominal share of say 10% and therefore the question is how is this best achieved?

The two other directors (effectively silent partners in the day to day management of the business) will want to protect their on share, whilst the MD will not want to give away 10% of his own share. However the MD wants to facilitate this change to bring in the new employee who is seen as key to the future direction of the company.

Any advice would be greatly appreciated please....

Kind regards.
Paul

 

[teddys]

You cannot have a new 10% shareholder without the existing shareholders diluting their stake unless you create a new class of shares

E.g. Class A - all current shareholders
Class B- the new shareholders.
You could then define what rights the new class B shares will have.

 

[DavidAshdown]

There seems to be a bit of confusion amongst you as to the difference between Directors and Shareholders. You cannot have silent directors in the day to day running or management of the business. Directors are officers of the company and MUST be aware of everything that is going on and be involved in the decision making for two prime reasons;

1. They have a duty of responsibility to ensure the business is being run in the best interest of the shareholders and
2. They are liable for all the actions of the business legally.

Correct me if I'm wrong, but it sounds a bit as if the MD is a bit of a bully and trying to get all his own way and run the business for himself. Is that possibly correct ?

 

[DavidAshdown]

Also, all decisions need to be agreed by vote. 51% gives control of day to day management decisions and 75% gives the power to force through any resolution effecting major changes to the business. This does not however apply to your existing shareholding although as the post above says, a separate class of shares could be issued.

If the MD has 40% he has no real power if the remaining 60% do not vote in his favour.

 

[Pafranklin]

There seems to be a bit of confusion amongst you as to the difference between Directors and Shareholders. You cannot have silent directors in the day to day running or management of the business. Directors are officers of the company and MUST be aware of everything that is going on and be involved in the decision making for two prime reasons;

1. They have a duty of responsibility to ensure the business is being run in the best interest of the shareholders and
2. They are liable for all the actions of the business legally.

Correct me if I'm wrong, but it sounds a bit as if the MD is a bit of a bully and trying to get all his own way and run the business for himself. Is that possibly correct ?

Many thanks for the reply but unfortunately no the MD would welcome the involvement.

The fact is the other two directors have other business interests that they manage / run full time, leaving the MD to run the other business alone and unaided. Despite their liability they have no engagement in the day to day activities.

In this case there are three directors who are also shareholders. Two of them (who have no involvement in the business) own 30% each with the MD owning 40% and their is a desire to sort the situation for BOTH the shareholder and director situations.

Any input on both areas would be much appreciated.

Kind regards.
Paul

 

[Pafranklin]

You cannot have a new 10% shareholder without the existing shareholders diluting their stake unless you create a new class of shares

E.g. Class A - all current shareholders
Class B- the new shareholders.
You could then define what rights the new class B shares will have.

Thank you for the reply. Therefore in terms of shareholders there are only two options?

1. All directors agree to a re-apportionment of shares to include a fourth shareholder
2. A new class of shareholder is created for new shareholders. But if only one class B shareholder how would this work and how do you define the rights to be as close to class A as possible (EG Voting rights)?

Many thanks again.
Paul

 

[teddys]

Just to illustrate:

Class A - say 1000 shares - one vote for each share
Class B - say 1000 shares - one vote per 1000 shares!! If that suits the new shareholder!!