Shares & what to do!!

Johenna

Hello - I'm hoping someone can help here as I am totally out of my depth

I recently inherited a 25% shareholding in a small family business which I believe will soon be making a profit. There have been no dividends paid since I inherited as an investment loan has been a priority for the business over the last 9 years or so. There are currently 3 shareholders (including me) & I've been approached to sell my share but have no idea what it is worth. I don't necessarily want to block as I'm aware that I don't add any value to the business & can appreciate the other 2 would rather I sold to them. How can I make sure I am offered a fair price.

Any advice out there?

cloud_dog

You don't need to sell to allow then to run the business, you are after all a minority shareholder.

Do you want to sell / need the money?

Johenna

No don't need to sell & will hold out if I think the offer is not good (but how will I know?).

The other thing is that the business has no interest for me - I don't make decisions (nor would I want to). I don't know what my shareholder responsibilities are either. Also, I know that if I was in business & had a 'passenger' I would be resentful if they were being rewarded (future dividends) at the expense of my hard work.

Do I ask to look at company accounts? Can I ask to see business plans? Would I understand them? Do I pay for professional advice?

Oh dear !

Reaper

You don't have to feel guiltly. Your money is at risk in the business, that is your contribution. I own a small number of shares in Debenhams which gives me a minority voting right and entitlement to any dividends. It doesn't mean I am expected (or welcome) to turn up at their head office and start bossing them around!

What it will be is the others want to exchange some of their salaries for dividends which are more tax efficient, but they have to give you your share too if they do. I expect that is what the stumbling block is.

I wouldn't begin to know how to value private shares and if you are talking large sums then some independant professional advice would be a good idea. I imagine it will involve looking at the Balance Sheet to see what the company assests are, then adjust it for expected future profits.

If you are willing to sell then how about all of you picking somebody you are all happy is independant to value the shares.

Pachira

"Also, I know that if I was in business & had a 'passenger' I would be resentful if they were being rewarded (future dividends) at the expense of my hard work."

Agree with Reaper. Don't feel guilty. I imagine whoever you inherited the shares from, either paid money into the business to help it get off the ground or to help get it out of tight spot or they actually put in hard work into the company themselves. Therefore the owners should be grateful for the investment, rather than resentful of awarding dividends to you.

"I don't know what my shareholder responsibilities are either. "

If you go to Companies House website you should be able to find the company using the websearch facility and download the company's Articles & Memorandum of Association. That will tell you the company's responsibilities to its shareholders, how/when general meetings are called, voting rights etc.

Also, do you have a copy of the original Shareholder Agreement? Again that will outline your rights and company's obligations.

"Do I ask to look at company accounts? Can I ask to see business plans? Would I understand them? Do I pay for professional advice?"

You are a part owner in the company so it is perfectly acceptable to ask to see accounts, find out what the company's plans are and future projections. The company should call an Annual General Meeting every year where they provide you with copies of the company's accounts and discuss the direction and future plans for the business.

"How can I make sure I am offered a fair price."
There are many things that will influence the value of a company. The industry type / sector it is in / projected earnings / growth potential. No different to trying to value listed companies. If you google "how to value a company" there is bundles of information available on the different valuation methods used.

Another consideration - there are tax benefits in holding unlisted shares - eg not subject to inheritance tax. And if you did ever actually get interested in the company and become an officer / employee you might also benefit from Entrepreneurs Relief.

Johenna

Pachira - really constructive advice. I didn't know what to do for the best but you've given me some really good pointers. If nothing else at least I should make myself aware of the value of these shares not just from a selling point of view either. Companies house here I come.

I think I need to pluck up a bit of courage too & ask the other shareholders for some projections/plans etc. Looking back on what I've written I must sound like a real mouse.

Many thanks - will definitely post here again!