Advice on offer of Directorial Role

[Cpattz80]

Hello!

Hope this is the right place for this kind of query but I'm seeking advice after being offered the opportunity to buy in to an SME as Director/shareholder.

I've only previously worked as an employee and was thinking that the best next steps would be to seek out some legal/financial advice covering the various implications around salary vs. dividends, pensions, NI, insurance, what type of shares would be made available to me etc.,

If anyone has been in a similar situation any any pointers would be greatly appreciated.

Thanks,

Craig

 

[fisicx]

Hi Craig and welcome to UKBF.

Being a director and shareholder are two different things and neither have anything to do with earning a wage, paying NI or getting a pension.

This is a good place to start:

Being a company director

Understanding your role as director of a limited company and your responsibilities to Companies House.

www.gov.uk

The shares you get will be detailed in the company shareholders agreement so you need to read that as it will tell you about dividends.

To get a salary you have to be employed by the company. You can do this as a director.

Being a director doesn’t mean you get any money. It just gives you a lot of responsibilities and some control over how the company is run.

 

[Mark T Jones]

So much to ask say here it's hard to know where to start.

Could be the opportunity of a lifetime, or could be a disaster in the making.

How well do you know the business? Including bang up to date financials.
How well do you know the people?
Do they have an existing shareholder agreement? (should detail dividend policy etc)
What are you bringing to them (other than cash)?

Just a few to get things rolling.

 

[Deleted member 335660]

Hi Craig,

@fisicx and @Mark T Jones have given you some sound advice.

I would just suggest you ask yourself, why me?

Do they want you to join because you have money, skills or contacts or all. Important you know.

Secondly, in terms of the role the Institute of Directors is worth a look. They run courses, have a library etc.

 

[IanSuth]

Been there done that took years to recover

I worked for a company, MD was getting older

She looked to 2 senior staff (inc me) to take over the company. Plan was to get a bank loan to buy her out then repay from earnings

Other member of staff left, I bought with own savings (inheritance wife received) first tranche of shares (33%) with a view to an earn out over 2 years instead (I would take no commission/bonus instead the extra retained profit would allow clearance of directors loan of MD plus leave enough in bank when she walked away for day to day cashflow)

That was xmas 2006 - under a year later the financial crash happened. In Mar 09 we were in the position of either having to both dip hands in pockets for money for cashflow or something else. MD couldnt see getting the money back in short term and had reached 68 so we had to do a phoenix selling the name / goodwill to another company who employed me as a non shareholding employee (and i even had to get court clearance to do that). The only other option would have been a new lease agreement with my house as a guarantee plus a loan to cover cashflow also with personal guarantee - in hindsight looking at the sales figures in the following 18 months that would have been touch and go as to whether we would have survived so glad i didnt

Luckily due to an error on part of the insolvency firm that ended up being a TUPE transfer (tested in IT by previous cleaner) so when i was made redundant during covid i got enough to repay wife the last of what I had borrowed in 06 so she could put it away for the childrens use in the future.

 

[The Resolver]

The shares you get will be detailed in the company shareholders agreement so you need to read that as it will tell you about dividends.

Most (72% on a survey I undertook) of limited companies do not have a Shareholders Agrgeement.(SHA) You MUST insist on having one agreed if there is none. Ask to see tany existing one. This , with the Artciles of Association, set out he ground rules. If you don't take advice on what the Articles say and any SHA you are going in blind.

Being a Director involves not only responsibilities but strict legal liabilities,notwithstading you are trading under a limited company.

If there is just one lesson most Directors who find themselves in dispute with their co-directors need to have learnt at the beginning is to ensure that they have full and open access to ALL financial and trading information. That is their right as a Director. Financial does not mean the historic accounts but all management and book-keeping data including open access to any online accounting system.

As to detail, when you say you will 'buy in' are you buying shares from one or more of the existing shareholders or being allocated new shares thus increasing the share cpital of the company. If the latter, is your money treated as new capital of the company , which you will not receive back, or is it a loan with a right to be repaid? If the latter you need to agree terms for repayment. As you are an existing employee, there is also a potential tax situation if HMRC believe that the value of your shares is significant, For that reason you may be better being given the shares under one of the HMRC approved employee share schene.

As you will gather there are so many matters to consider and many more . You are welcome to book into a free advice call with me to take you through other matters (see in my sig below) .