Business question

[AJ_07]

If both directors of a company came to a decision to separate from the company and only one of the directors has taken a salary from the company and the other director decided not to take a salary, is that director legally entitled to the total salary i've accumulated over the amount of time that I started to take out a salary for myself as well as half of the profit that the company has generated?

 

[fisicx]

Directors do not take a salary. Employees get a salary. Shareholders get dividends. Directors get nothing.

So no, the other director is not entitled to anything.

 

[Newchodge]

If both directors of a company came to a decision to separate from the company and only one of the directors has taken a salary from the company and the other director decided not to take a salary, is that director legally entitled to the total salary i've accumulated over the amount of time that I started to take out a salary for myself as well as half of the profit that the company has generated?

What was the formal agreement at the time about who would receive what, boith while the company existed and on dissolution? What have the shareholders go to say about this?

 

[MyAccountantOnline]

Directors do not take a salary...

Did you mean to write that?

 

[MyAccountantOnline]

If both directors of a company came to a decision to separate from the company and only one of the directors has taken a salary from the company and the other director decided not to take a salary, is that director legally entitled to the total salary i've accumulated over the amount of time that I started to take out a salary for myself ....

I think you are saying can the other director change his/her mind and draw a salary now - if so generally no, you cant back-track on something agreed, but it will depend on agreement(s) made between you.

A thought - is the director entitled to National minimum wage?

 

[MyAccountantOnline]

..., is that director legally entitled to....half of the profit that the company has generated?

Are both directors also shareholders holding equal shares of the same class?

Do you have a shareholders agreement?

 

[Sean Lee-Amies]

This is likely the kind of experience that teaches the lesson of "never enter into a partnership without a detailed partnership agreement in place".

Disclaimer: I am not a finance or legal expert. If you choose to act on anything I've said, please ensure you get the proper legal or financial advice.

General rule of thumb... Anything not agreed in writing will be settled by lengthy/heated debate that often requires unpalattable compromise from everyone involved. Relationships rarely survive these type of disputes.

Before I reply to your question directly, as a Director myself I know that your pay can be put through as a salary via PAYE, taken as dividends and/or money into/owed by the business can be accrued as part of a director's loan account.

My first question would be: why did the first director decide to enter into an unfair agreement and not take any salary?

"is that director legally entitled to the total salary i've accumulated over the amount of time that I started to take out a salary for myself"

I don't know what you mean by this. If you/the director agreed not to take any salary and work for free, technically you will not have accrued anything.

Unless you have a contract with the company that you are a director of, you won't be treated as an employee and won't be enetitled to the same rights like national minimum wage.

You need to look at this from the other directors perspective as well.

For example, does what you want reduce their payout to a negligable amount? Regardless of right/wrong, in their position, with all the time and energy put into the business, would you be happy with whatever your proposed split would leave them with?

If you've got nothing tracking or documenting work input, time spent on the business, success metrics or personal KPIs, it's all just your word vs theirs, it's going to be a difficult process.

You will likely need professional advice and you probably won't walk away with what you consider to be a fair outcome for you.

For example, why was their input worth paying whilst yours was not? Were they adding more value to the business? Is it fair to assume a 50/50 split of the profit? It's very difficult to have these conversations with no agreement in place and without objective performance/contribution data.

 

[MyAccountantOnline]

....., as a Director myself I know that your pay can be ....., taken as dividends

.....

But only if you are a director and a shareholder.

Not all directors are shareholders and those that arent cant be paid dividends.

 

[fisicx]

Did you mean to write that?

Yes. An employee gets a salary. Directors can be employees.

 

[eteb3]

Yes. An employee gets a salary. Directors can be employees.

I think you're right that of itself the office of director doesn't attract a salary, whereas an employee isn't an employee without one.

My understanding is that technically a director is an office-holder and not an employee, even if paid a salary for being a director - hence can be removed from office by 51% majority, no obligation to be treated fairly (except minimal right to address that meeting), no right to be supplied with work, etc.

Interested to hear if @Newchodge agrees.

 

[Newchodge]

A director is an office holder and can be paid for carrying out the duties of an office holder. Payment goes through payroll as if it were salary. But it is not salary. A director does not have to be paid NMW for carrying out office holder duties.

A director who also works in the business is also an employee and subject to all the laws affecting employees, for that part of their role.

 

[MyAccountantOnline]

I think you're right that of itself the office of director doesn't attract a salary, whereas an employee isn't an employee without one.

My understanding is that technically a director is an office-holder and not an employee, even if paid a salary for being a director - hence can be removed from office by 51% majority, no obligation to be treated fairly (except minimal right to address that meeting), no right to be supplied with work, etc.

Interested to hear if @Newchodge agrees.

If a director has a contract it makes them a worker and hence entitled to the National Minimum Wage.

NMWM05140 - Entitlement to National Minimum Wage: directors and office holders - HMRC internal manual - GOV.UK

www.gov.uk

 

[fisicx]

If a director has a contract it makes them a worker and hence entitled to the National Minimum Wage.

Agreed. Which is what we said in previous posts. That link calls them contracted workers - what we refer to as employees.

 

[numbersrule]

If both directors of a company came to a decision to separate from the company and only one of the directors has taken a salary from the company and the other director decided not to take a salary, is that director legally entitled to the total salary i've accumulated over the amount of time that I started to take out a salary for myself as well as half of the profit that the company has generated?

Your wording implies that you might believe that the other Director is not entitled to a 50% share.
Are you both shareholders and in what proportion?
Is there a shareholders agreement?
What period of time have you both been Directors and what period of time have you been shareholders?
Did the other Director agree to not take a salary to ease cash flow and maximise profits?
Do you dispute that the other Director has made an equal contribution to the company?
If you do dispute that, then why?