Unequal input by directors

[Gingeenee]

Hello,
I hope someone can offer advice. I am a co-director in a bespoke floristry business. When we started the company a few years ago, my co-director (let’s call her Jo) and I agreed that once we were making a profit, our personal income from the business would be based on activity and would be paid as a combination of salary and dividends.
We both work part time: I work Thursday-Saturday and she works Monday and Tuesday.
Because I work an extra day, my client income is higher than hers. However we both take out the same salary each month and if there is any extra then we share the dividends 50/50 although this past year Jo has taken more dividends than I have as she had some personal expenses to cover.
The problem is that the current arrangement is unfair and not what we agreed at the start of the business. Jo’s monthly salary is very close to her monthly client income so she is only really contributing £100-£200 to the business each month. This means that my client income after my salary is the only one supporting the business and paying rent, rates, staff and stick costs, etc.
I have politely and professionally pointed this out to Jo and reminded her of the activity based income model we agreed to. I said that we should both be contributing the same amount of our client income to the business and after that amount has been accounted for, we can take the rest as salary. However she has said no to this on the basis that she does a lot of extra duties for the business. As we are not in the office on the same days I don’t know exactly what she does so I asked her to make a list of those duties so we can look at them and see if I could take some on or if our staff could, leaving her more time for client projects. She has avoided doing this list for a few weeks and now says she isn’t going to do it as she doesn’t want to delegate any of these mystery duties.
In addition to the actual client work, my duties are:
Marketing and advertising
Staff management (planning holidays, dealing with issues, hiring, etc)
Ordering non-floral stock (e.g. wire, beads, ribbon, adhesives, etc)
Stocktaking
Our office manager takes care of invoicing and flower ordering. Jo and I jointly select the flowers.
We have an accountant who does bookkeeping.
Jo does the payroll for staff (four people) but I don’t know what else she does. I have never done payroll before but would guess it would take no more than a couple of hours each month? I suggested that if she can’t take a monthly salary cut that she could work an extra day to increase her client income (there’s plenty of work and she has no other commitments) but she doesn’t want to do this.
I feel like I’m solely supporting this business and am getting annoyed by the unfairness of the situation.
Can anyone advise what these mystery duties Jo is doing might be? Or can anyone advise how I can rectify this situation? I obviously want to avoid conflict or legal intervention as we have to work together and the company is successful.
Thanks for your time.
G

 

[Rafael Mediator]

It sounds like you have tried being reasonable in your approach to your co-director. If you want to avoid going legal, perhaps a mediation would be a good alternative. Happy to discuss.

 

[Chris Ashdown]

Shareholders are meant to get dividends equal to their shareholding by law, presumably your share are still awarded equally, but held by the company for you to use later as you wish

 

[Gingeenee]

Hi Chris, unfortunately there’s nothing left in the dividends pot as everything is used to pay the bills, staff, stock, etc. We did have a few k earlier this year but Jo took it as she had some financial problems.

 

[Newchodge]

Regular payroll for 4 people would take less than half an hour.

 

[Gingeenee]

Thanks Rafael, mediation may be a good idea.

 

[Gingeenee]

Aha! So even less time on payroll than I thought! Thank you.

 

[GoingOnline]

Hi Chris, unfortunately there’s nothing left in the dividends pot as everything is used to pay the bills, staff, stock, etc. We did have a few k earlier this year but Jo took it as she had some financial problems.

She took money from the company on her director's loan. That means she owes money to the company (offset by however many dividends you have officially declared on the company profits) and the company owes you money (assuming you are 50/50, that would be the other hand of said declared dividends). I would make sure you get this sorted right because the tax office doesn't appreciate when people play it funny with dividends, salaries, etc... and if your director's loan is over 10k you do need to declare it on the company accounts.

 

[Philip Hoyle]

You have right to equal dividends. She can't unilaterally decide take more than you, just as you can't do the same yourself. Best way of dealing with unequal time input is to have different wages, proportional to your time spent. That messes up your "low wage" tax saving philosophy, but you can't have everything and compromises are needed, i.e. pay a bit more tax/nic on your higher wage to ensure a fairer overall outcome.

 

[Noah]

Regular payroll for 4 people would take less than half an hour.

In fairness, that might be for a knowledgeable operator with a straightforward familiar system.

If you're also compiling and checking timesheets, handling the unpredictable stuff, working with a manual system, etc. an hour or so is probably fairer.

 

[Newchodge]

In fairness, that might be for a knowledgeable operator with a straightforward familiar system.

If you're also compiling and checking timesheets, handling the unpredictable stuff, working with a manual system, etc. an hour or so is probably fairer.

Possibly, although the OP seems to be handling the staff management side of things.

Actually, it is presumably payroll for 6 as the OP and her partner are on payroll as well.

 

[arnydnxluk]

I think the exact amount of time spent on payroll is irrelevant given the additional on-going duties you have as well as the extra day's work (1 hour, 3 hours, it's not much either way).

As others have said you really need to get the dividend issue sorted out as a priority. If you're 50/50 shareholders then Jo can't just take a few k from the bank because she's having financial difficulties. If she has just taken it without a dividend being declared (and without your equal share being paid) then it's a director's loan which should appear on the balance sheet and will need to be repaid in some form.

After the dividend issue is resolved and repayment plans are in place for any loans, the next step will be to review how you're paid. I would make sure you each receive a contracted salary taking into account expertise and the amount of time put into the business, just like any other employee. Then any profit leftover can be distributed as dividends as per your shareholding.

 

[NathanG]

Sounds as though you were honest and reasonable, perhaps try another approach

 

[marcus_bond]

I would find a highly recommended company lawyer to have an hour's chat with, who will advise you on your own personal behalf, not the companies. You can take along the company formation documents etc. These sorts of disputes are common in my experience, companies get set up poorly, and situations change, but they can quickly spiral out of control if you start taking *any* informal action without proper advice. A top company solicitor can advise on the best way forward for you, so that you, and your investment in the company, is protected. If nothing else, a 1 hour consultation will put your mind at rest, and give you a way forward.

 

[Gingeenee]

Thanks everyone, I really appreciate all this advice and will take it on board. I had wondered if I was being naive and that there was something Jo was doing that was taking hours of her time every week, but it appears not and so it look as though I will need to call in a mediator or spend some time speaking to a legal advisor - or both.
It's a little tricky as we are not 50/50 company owners. We both have 30% and Jo's brother has the remaining 40%. He is not involved in the business, was merely an investor, and does not take dividends but wants 40% of any profit when the business is sold at a later date. We all signed an agreement based on this.
As for dividends payments, there really aren't any as all the money from clients is used to pay for overheads and staff, including our own salaries. I'm sure that there could be dividends payments in the near future because the business is doing very well. Basically, if Jo was putting in as much time as I was, there would be dividends! My concern is that while our payments are almost entirely in monthly salaries that these need to reflect the amount of work we both do, and currently that is not the case.
I suppose if she doesn't want to take a cut in salary or increase her hours, or increase my salary, that another option could be for me to increase my share so that either Jo or her brother could give me some of their shares in lieu of a fair salary payment. Jo has suggested that I could do the same number of hours as she does then everything is fair, but that would not be good for the business as we then would not have enough income to pay all the overheads. I'm basically the only one paying for anything at the moment and if my income were less, then the bills would not get paid.
It is so frustrating as this could be a more successful business if we all had the same work ethic! I could extend my hours to take on more work but am not going to do this until the disparity in salary payments or dividends is sorted out.

 

[Noah]

You are being exploited (caveat : we've only heard one side of the story of course), and you need to stop that.

If I may risk offering a little unwonted but sincerely-meant advice : before further negotiations, reconcile yourself to the possibility of closing the business down - or at least walking away from it and letting it die. If you do not do this, your business partner will be able to use your commitment to the business to hold you hostage, and you could find yourself mired even deeper in the swamp.

If you are confident in your ability, you can start up again.

Not that you should go in wanting to close down, but it needs to be a realistic option for you.

 

[Gingeenee]

Yep, I really don't want to do that because I can see the massive potential, but it has certainly crossed my mind. The trouble is I couldn't close it on my own, I could only leave, and starting up again would therefore mean relocating to a new area or waiting for Jo to fail and then starting up again. There's also the small matter of a mortgage and my own financial commitments. At the moment I'm doing fine financially, I don't need any more money, I just want things to be fair.
To be honest I'd be quite happy if she told me that she was spending several hours a week doing something useful - and could prove it.

 

[Newchodge]

I worry a bit about your use of terminology. You refer to your clients, your income, you paying all overheads. That is the way many look at things in a partnership they don't see the business as a whole, they see their bit and my bit. I assume, as you use the phrase co-director, that you are running a limited company. In that case you each bring in whatever you can and you each take a salary according to the agreement in the shareholders' agreement (whether or not that is in writing).

When we started the company a few years ago, my co-director (let’s call her Jo) and I agreed that once we were making a profit, our personal income from the business would be based on activity and would be paid as a combination of salary and dividends.

So why has this not happened? Does Jo deny the agreement? Are you both ignoring it?

Unless you can sort this you need to consider an ultimatum. Stick to the original agreement or you will walk.