Co owned company worth and payments

[surge700]

Hi all,

I'd like some advice if possible.

I have a friend who lives abroad and runs a company. He'd like to open a UK branch of the company with myself running and owning a large minority stake in it.

What do I need to do to protect myself and ensure that the majority shareholder doesn't prevent me from realizing value from the venture? Is there an agreement required in the company formation documents to protect me?

My initial thoughts/concerns are that:
-as a majority shareholder could he prevent dividends from being paid and extract money to his company?
- if I am the sole employee of the company and forsake salary for equity, if the company is wound down my share would be worthless (as the value comes from my work, and without me there is no business)
- anything else I should be aware of?

Thanks in advance for any advice!

 

[internetspaceships]

Easy.

Contact a good commercial solicitor and get a shareholders' agreement set up that lays everything out before you do it.

 

[Andrew46]

A shareholders agreement is all very well but an important issue is the exit route whereby you may realise value from the sharers.
Are you being offered shares in the main company or a UK subsidiary (you refer to a "branch" in the UK). If the latter you may have limited opportunities to realise the shares. Can you negotiate shares or options in the holding company? Or a put option (right to sell your shares) in certain events e.g. your departure (otherwise than due to your default).
The tax impact needs to be considered also when structuring the arrangement.

 

[internetspaceships]

A shareholders agreement is all very well but an important issue is the exit route whereby you may realise value from the sharers.
Are you being offered shares in the main company or a UK subsidiary (you refer to a "branch" in the UK). If the latter you may have limited opportunities to realise the shares. Can you negotiate shares or options in the holding company? Or a put option (right to sell your shares) in certain events e.g. your departure (otherwise than due to your default).
The tax impact needs to be considered also when structuring the arrangement.

Yes but the exit strategy is what's also covered within a correctly written Shareholders' agreement.

 

[The Resolver]

A Shareholders Agreement is absolutely vital in this sort of situation. You are running it yet exposed as a minority shareholder. You just need to agree a fair set of rules including listing certain matters that require 100% (ie your) voting support. Yes an exit strategy should be agreed as well as a method of valuing the shares. You need clarity as to how the revenue in the UK is shared with the other company.

In a situation like this it is often better that the local director owns the majority with protection for the foreign company owner and agreement over the money split. That can be explained in a way that may find favour.

To answer your specific question, yes the majority can refuse to vote in favour of a dividend. If the use of the majority power is blatantly abusive against the minority then you would have rights of action in law but you don't want that headache and cost. Much easier to agree a SA that limits areas of dispute (but also sets ou a procedure to resolve any disputes that do arise).

Go to my page on this at http://www.boardroomresolve.com/#!shareholders-agreements for some other ideas of what is included in a SA. But there is no limit to what you may wish to include. Its just a binding agreement that transcends the default Company law and Articles of Association. The best thing about a SA over the terms in the Articles of Association is that they cannot be changed in future without the minority shareholders agreement. It is also private unlike the AoA

You can buy a DIY one at my site for £85 or a tailor made one for £750.