Punting for fun and profit

grand_march_aida

A friend of mine is unemployed and was telling me a small while ago he did some temp work at another company. I suggested he uses the experience and knowledge he gained from this other company to set up on his own. He told me he hasn't the money to do this (quite a bit of equipment to invest in), but in short I said I could afford it and would fund his startup costs in return for a share of the profits.

I used to be a regular on the site a while ago in the DFW board and since becoming DF, my MSE ways have continued and I've stashed away a comfortable amount to allow me to take a risk like this without it really effecting me. I've a very low risk aversion level, but do trust my friend anyway and his willingness to work.

The startup cost for the company is around £5,000 and in order to protect my investment, I intend to buy the equipment myself and then rent it to the Ltd in a hire-purchase arrangement at an affordable monthly rental fee. My thinking is that if the company fails before the rental has been fully paid off then I will still own the equipment so it cannot be siezed by administrators. Only after the full value of the equipment has been paid to me will the Ltd then own it, by which time my initial investment has been repaid in full so there isn't any risk to me other than loss of a very small amount of interest.

Being a sleeping partner of the company I will be entitled to take dividends which will be the actual return on my investment.

I'm keen for thoughts from others regarding whether there's a better approach towards this. I'm a little wary about just handing over £5k in cash that I could technically then never see again!

hippyadam

If its a Ltd co being formed & you will be a director you can put the money in as a directors loan. That way you have a record that the company itself owes you 5K...

Other than that its a trip to an accountants for thee...:money:

grand_march_aida

hippyadam wrote: »

If its a Ltd co being formed & you will be a director you can put the money in as a directors loan. That way you have a record that the company itself owes you 5K...

Other than that its a trip to an accountants for thee...:money:

Yes but if the company fails for whatever reason then the administrator is likely to enjoy my £5k and I will never see a penny of it. By setting up a hire-purchase agreement with the company then the company only owns the assets when the money I spent buying them has been repaid; so if the company fails before I am repaid then I still own the assets and they cannot be taken by the administrator.

I'm just hunting around for any pitfalls to my plan.

paulwf

grand_march_aida wrote: »

I'm just hunting around for any pitfalls to my plan.

I'm presuming there would be some implications - otherwise everyone would take money out of their company on some nominal hire scheme to avoid taxes on profits. Pls ask your accountant for advice.

Is there really a risk of administrators taking the company assets? Unless you are buying lots of stock or renting premises then it is likely if the company fails it won't owe much...without any more info about the business it is hard to tell but perhaps you are worrying over nothing?

You might be able to set up a holding company that owns the assets then lends these to the trading company...again seek legal/accountancy advice.

Although it isn't to your advantage I can't help thinking that setting up a ltd company is overkill for what is essentially a £5K loan to a business startup. Could you structure it as a loan to a sole trader to avoid the expenses associated with running a ltd company?