Advice needed, starting a ltd company with shares

[lauram315]

Hi, I've been self employed for many years without an issue. However last year I made the suggestion to a friend that we team up.



In short, I'm a tailor. I make for individuals and other businesses. My friend runs a boutique. I suggested that we open a new company providing manufacturing services to small businesses etc. She lives on her dad's farm, and they had the perfect space to get started. I moved in just before Christmas. And have been ticking over by myself since then.



Her dad was interested in becoming a silent investor too.



So we have a meeting on Thursday to discuss the details. Although I'm having second thoughts.



Originally we agreed dad could have 20% and we'd split the rest equally between us and both be directors.



Thing is, she's opening a second store in a few months, and I probably only see her for an hour or so a week because she's busy. Plus I'm not really sure what kind of job she can do within the business. (Apart from social media and probably a bit of marketing)



I've calculated my assets, equipment and tools. I'm investing £40k worth of equipment etc (not a cash investment).



Realistically I think she's got about £3k max of equipment and fixtures and fittings.



And her dad hasn't agreed anything yet.



So as you can probably see the numbers don't really add up for splitting it equally anymore.



She doesn't have the cash to invest, and I'll be running it. In fact if it went under both her and her dad would still have their businesses but I would loose everything.



Sorry for the long post.



So I was thinking about suggesting she switch to a shareholder rather than a director and base the value of the shares on the equipment/fixtures and fittings value.



Which at the moment would take her from 40% shareholder/director down to 7% shareholder only.



Obviously I'm nervous about this, as it's a huge decrease. But I really can't see how we could equally split the business if I'm the one with the largest investment, and doing the daily running of it.



Firstly am I doing the right thing in suggesting this, and how do I go about suggesting it without upsetting her.



Again sorry for the super long post

 

[lauram315]

Should probably also mention I'm paying rent for the building

 

[Scalloway]

Why are you going to put your exisiting business equipment into the new company? I would get the new company to buy your services. That way if it folds you still have your exisiting business.

 

[Chris Ashdown]

So what are you expecting to get out of the loose term partnership, just your goods advertised in her shop and what's her father bringing into the business, from what you have stated both answers seem to have little or no value to you

To bring in others you need to see they are contributing far more than a few quid or the odd hours work, you can buy customers with advertising far cheaper than giving a percentage of profit and no doubt differences in opinion in the future for little if any gain

Stay independent and control your own destiny

If you continue with the others make sure you pay for your solicitor to make a "Shareholders Agreement" which among other things states what happens if the relationship turns sour

ps load your equipment to the company don't give it

 

[Mark T Jones]

Firstly, it's great that you are having these thoughts and concerns now, rather than 18 months in to the business. Now is the time to be having this discussion openly and quite bluntly - leading to a proper shareholders agreement.

Nobody can tell you what the right split is (but remember Dad and daughter is likely to constitute one vote in reality)

Include the ideas above in your discussions