Becoming a Director.

[GarethE]

I'm posting this in the 'General' forum as there are questions I want to ask on various topics.

To give you a brief insight, I've been offered the position of 'Director' at the company I have worked at for 16 years. It has been offered to 'reward my efforts', but I have a tiny element of doubt that I wish to have cleared up.

The offer is, in my eyes, very generous.
I have been offered 10% shares of the company, and an end of year bonus equaling 20% of the net profit. I am to be paid a basic salary, and in addition I will receive dividends which will equal my current monthly gross.

The company has never been particularly profitable, and we are certainly in a bit of a 'slump' at the minute. The MD has said he thinks we can work out of the slump with a little bit of effort from everybody.

I guess my initial questions are, what are the personal risks of becoming a Director?
Are there any tax implications of being gifted shares, if so, what?
Am I right in thinking that a basic salary will be enough for NI contributions, and being payed in dividends will mean I will not have to pay tax?

What do I need to be wary of???

Bear with me please, I'm sure I'll have further questions, but I'll try drop them all in here so as not to flood the forum with things that have already been asked.

 

[Twinkle Toes]

You are being offered a pay cut that they are trying to make look like a promotion (didn't know this "scam" still went on these days). If there are no profits then there are no dividends.

Also make sure they don't ask you to sign any directors guarantees.

There's a whole host of pitfalls in becoming a small shareholder director in a business that is on it's knees, check out their finances on company check before even considering going further. It's probably time to look for new employment.

 

[AllUpHere]

You are being offered a pay cut that they are trying to make look like a promotion (didn't know this "scam" still went on these days). If there are no profits then there are no dividends.

Time to look for new employment.

I must admit, that's the first thing that came to my mind too. Matching your salary with dividends is simply a way of them not having to pay you your salary if money is tight.

 

[GarethE]

That was my initial worry.
I guess here (if I was to accept) I would need a huge amount of trust.

Like I say, I've been here 16 years. I have been through the thick and thin before...I guess that is where my doubt stems from.

 

[GarethE]

It's probably time to look for new employment.

Something I have been expecting at some point, and certainly not something I have been looking forward to thinking about.
I guess I could always go to the Start Up pages, I keep telling myself I would be able to do a better job of things, it's just hard to look at leaping with a young family to fend for!

 

[AllUpHere]

What is it you do? What business are you in?

 

[GarethE]

We supply cleaning equipment.
I have always been on the service side of things and now run the service department.

 

[AllUpHere]

Is that the business you would like to get into if you decided to go it alone?

 

[GarethE]

Potentially.
I know the trade well, I know where there are gaps that need filling.

 

[Steve-InTouchUk.com]

Agree with all the posters. I assume your salary will be a minimum of around £660 per month then dividends which will be proportionate to your shareholding. If a 40% shareholder received a £4000 dividend you with your 10% would get £1000. It may well be taxable if your total earnings take you over the higher rate threshold. You would not have to pay N.I. on them.

Remember dividends can only be paid out of profits made so no profits, no dividends. If you were paid a dividend when no profit were made this would go on the accounts as an overdrawn directors loan account. If this were the case and the business did go under you may be required to repay your loan account.

Agree about making sure you don't sign personal guarantees and I would make sure the business is solvent and has a future before thinking about this offer. On the face of it, it doesn't seem too attractive.

 

[Scalloway]

Potentially.
I know the trade well, I know where there are gaps that need filling.

That is my view too. If you are a director you are in a position to do things that you might not be able to as an employee. But you still need to bear in mind the warnings in earlier posts.

 

[LawHound]

Definitely proceed with caution. Firstly find out what sort of shares you are being offered and ask them for a copy of the proposed shareholders' agreement then take some advice before proceeding. A lacklustre profit profile in a company seeking to make up your existing salary from profits does not sound much like a great offer to me either. It's a big risk share for you and so don't be in a rush to sign up to this before you take advice.

 

[GarethE]

Well, I didn't rush in, and I raised a few questions.
Things are on hold for 6 months until it can be determined that the company can be profitable enough to justify it.
It gives us chance to build the company into what we want, without the personal risk.

It also gives me much more time to look into things properly (I was given approximately 3 week to make a decision previously!)

 

[GarethE]

Thanks for all your input.