Giving shares for free

[samirgy]

Hello,

I've been running my own ltd company for a few months now. Even if I did understand how to get good leads through my website, I am still struggling to conclude deals with customers as I am really bad for selling my own service! (I am French so sometimes struggling with English accents by phone)

I met a person a few weeks ago that I am sure she is able to successfully manage this part. We talked about working together and she would like to be a partner as she does trust in the potential of my business.

Therefore, she's asking me to split my shares with her. As I am convinced about her skills, I would be happy to collaborate with her and do not mind to split my shares as my company is worth nothing at the moment. I prefer having 50% of a business that works than 100% of a business that makes no sales!

My question is: do you know if I am allowed to give half of my shares for free (I do not want to sell the shares) to someone who will become my business partner and will share the same liabilities as mine?

Thank you in advance for your answers

 

[NickGrogan]

Dont do it, you will regret it. Have they made any sales for you yet?

Once they got the shares you can't get them back and you have no guarantee that they will ever do anything for you.

Offer them a commission on all sales and a chance to earn shares.

Never give 50%, this means that neither of you have control of the company.

 

[samirgy]

Thanks for your reply. The thing is I can not go further without any help and I do not have the necessary money to recruit someone.

I do not really mind to split my shares as my business is worth nothing. Currently, my business is only a website where people give their contacts to get called back. The value of this is really low. I only made one sale for £3,000.

She will be as involved as me in the business and if she contributes to develop the company, she deserves the same money as me. If she fails I would not have lost anything.

 

[CriticalThinker]

I can not go further without any help

When you say help are you referring to feet on the ground (i.e. additional person) or is this a training and development need?

There are several aspects to consider with your above suggestion (control, how much work do you need to generate to cover two peoples income vs one etc). I think you need to understand what help you are actually seeking as this will more than likely lead you to an answer.

If it is a training and development need, how to get a sale over the line for instance, then investing in some one to one training or study would be worthwhile. Give yourself the tools to do the job, don't just pass the buck to someone else hoping they will do what you want to be able to do.

I run often run Sales courses for clients staff and they come in deflated saying 'I can't convert a lead' and by the end of it they believe they can. What is sales? It's a confidence game!

 

[Jeremiah@RHJ Accountants]

Why give someone shares in your business when they did not put in any of the hard work to get you to this point.

I always advise my clients to make a list of pros and cons of giving shares away for free or for money.

Some things to consider like control, income splits what happens when the business reaches a certain size.

Is there a buyout or buy back of shares?

What is your actually short, medium and long term strategy for the business.

I would really strongly say seek professional paid for advise, form your accountant, solicitor and even have the business valued.

The amount of horror stories i have heard over years all because professional advice was not sought form the start.

 

[Mr D]

It may well be a lot cheaper to buy the expertise from that person or elsewhere rather than give shares.
The shares themselves may be (and remain for some time / forever) worthless. The capacity to cause you problems down the road exists.

 

[obscure]

Do not give shares UNTIL the person has proven that they can do what they claim. Hire them to do sales and give them a contract that says if, after 6 months/1 year they are successful they get 10%. Then after another successful year they get another 10%, then another.... but stop at 49%.

Never give 50% because if two people have 50/50 and they disagree the company can't function. You need to retain a controlling interest.

 

[Clinton]

If you are giving shares, for goodness sake do it properly and get a shareholder agreement drawn up! Yes, it'll mean paying a lot of money to a lawyer.

 

[Jessica A.]

50% is giving them a lot and you barely know this person. Are you absolutely sure that this person will follow through? Business partnerships starts with less than 10% of the total shares of the company. Think this through before you finalize it in writing.

 

[Dazdot]

If you are giving shares, for goodness sake do it properly and get a shareholder agreement drawn up! Yes, it'll mean paying a lot of money to a lawyer.

And the reciever will have to pay tax on the share value (as this will be classed as a benefit), so you cannot give for free as the tax man will want a cut. I know this as I have recently been through the same process.

 

[Newchodge]

And the reciever will have to pay tax on the share value (as this will be classed as a benefit), so you cannot give for free as the tax man will want a cut. I know this as I have recently been through the same process.

At the time of receipt?

 

[Chris Ashdown]

You need to consider the future and what it will mean to both of you if you are really successful as a company

If as others have stated you become a 50-50 shareholder, and disagree about anything , there is no solution possible to try either approach or plan, but if the shareholding is 51% to you and 49% to her then you always have the casting vote, not much if the company is worth nothing but quite a lot if you ever get a few hundred thousand euro turnover and employ maybe tens of employees

Before issuing shares consider a shareholders agreement, this covers major things like what happens to the shares if someone leaves the company, shares must be offered to other shareholders first and many other situations like how shares are valued if they leave the company, you may well be able to buy a general template from a solicitor and just have amendments made to suit your circumstances rather than pay to reinvent the wheel from afresh

Share percentages can be earned as a reward for the work they do with maybe 10% for the first year and every year for the first four years and the final 9% for the fifth year. with maybe a splitting of the profit over the same time as wages. Dividends could be used with discretion when applicable.

 

[Clinton]

And the reciever will have to pay tax on the share value (as this will be classed as a benefit), so you cannot give for free as the tax man will want a cut. I know this as I have recently been through the same process.

If you're thinking BIK, no this is not a benefit.

If you're referring to stamp duty, this transaction would be exempt as it's below the £1,000 threshold.

 

[Dazdot]

At the time of receipt?

Depends how your accountant works it, my tax is due in 4 installments over 2 years.

 

[Dazdot]

If you're thinking BIK, no this is not a benefit.

If you're referring to stamp duty, this transaction would be exempt as it's below the £1,000 threshold.

Our accountant had to have the company valued, and then the tax man took his 40% as it was classed as a benefit to the reciever.

 

[Newchodge]

Depends how your accountant works it, my tax is due in 4 installments over 2 years.

Tax on a purchase?

 

[Clinton]

Yeah, tax on a purchase? Maybe the confusion is with the terminology used.

Dazdot, by "receiver" if you mean the "receiver" of the consideration (rather than the receiver of shares) - ie. the vendor - then yes, there's capital gains to be paid. But unless we're talking over £10m the vendor would have got Entrepreneur's Relief and paid just 10%, not 40%. Maybe time to change accountants?