offered to be a shareholder

imaginary_binary

Hi all a friend of mines has agreed to put me down as a shareholder in a business he is setting up in exchange for my 'knowledge' and help.

Is there anything I need to be aware of or ask him - it seems like I won't have to do much other than offer advice etc.

paddyrg

Not really, if the shares are paid up, that's the minutes if your liability, and assuming he does the usual and issue 100x£1 shares, you're unlikely to affect your tax code with a few!

In reality, you'll probably never be able to sell them, or at least sell them to anyone but him (this will be laid out in the M&A), and their value will be pretty notional. If he issues a dividend on that class of share (assuming you have the same share class) to take money out of his company for himself, you'll get cash too (and will need to declare it for tax).

The real upside will be if the business becomes a big hit AND he sells it without diluting your share by further investment rounds. That may not happen. In truth, it's probably a lovely gesture but worth not a lot to you financially.

Pennywise

Realistically, be prepared for the shares to be worthless and to get nothing out of it at all. Regard the time you spend as a freebie and if you did get something in years to come, a bonus. At the end of the day, whether you get anything out of it will depend on the current owner/shareholder as even if things work out, there are easy ways for them to wriggle out of paying you anything. At best, it's a gentlemen's agreement or handshake!

If, however, this is your business and you're relying on the shares to pay for your time in lieu of a proper wage/fee, then you need to get some safeguards put in place, and need advice from a solicitor/accountant as to the type of share being offered, the rights of those shares compared with other shares, etc., basically to negotiate a safer/better deal for you with safeguards in place to stop them by-passing you and leaving you with nothing.

Pennywise

And another thing, being a shareholder leaves you in the clear if the company goes under or gets sued, as your only liability would usually be to buy the shares.

Your real risks come if they sign you up as a director too, which on one side gives you more power and say in the company, which is good, but on the other hand, if things go wrong, you could find yourself in trouble if the company has acted illegally or wrongfully as you, as a director, have a liability to third parties to ensure the company is operated properly.

Mistral001

"Knowledge and help" might actually be worth quite a lot of money if the friend does not have much experience of the business he is in and relies on the OP's experience. OP ask yourself whether the friend could run the business successfully without you? When you start a business you are totally on your own. You cannot ring up friends in the same business who work for competitors or who are actually competitors themselves and ask them for advice. You can, but they will probably not tell you anything very useful.

slink85

Mistral001 wrote: »

"Knowledge and help" might actually be worth quite a lot of money if the friend does not have much experience of the business he is in and relies on the OP's experience. OP ask yourself whether the friend could run the business successfully without you? When you start a business you are totally on your own. You cannot ring up friends in the same business who work for competitors or who are actually competitors themselves and ask them for advice. You can, but they will probably not tell you anything very useful.

then you need to get a new circle of friends.