Shareholding Directors Salaries

tominator

A simple question (I hope)... your input would be much appreciated.

I am aware that all shareholders must be paid dividends equally and proportionately based upon the percentage share they hold (unless a waiver is in place). However, my question relates to the salaries of shareholding directors.

I have been told that if equal shareholding directors are drawing a salary and dividends, that their salary must be equal.

Eg. If both hold a 50% share and one has a salary of £20k, the other MUST also have £20k.

That doesn't make sense to me, surely for example you could have a 50% shareholding director who is semi-retired who could draw a smaller salary but come dividend time be paid out equally with the working shareholding director?

Any input would be much appreciated. I'm not concerned about tax efficiencies, etc etc, just the technical fact of whether equal shareholders must have equal salaries.

Many thanks in advance!

steampowered

Untrue, the salaries of directors may vary.

Directors' salaries are not linked to shareholdings. A director does not have to be a shareholder to draw a salary.

tacpot12

I'm not aware of this being the requirement. I thought that the salary needed to reflect the work the director did for the business. So a director who finds customers and does work for them full-time (and acts a director) would have a much higher salary than a director who does the books on a part-time basis (and acts as a director).

Who told you this and what are their qualifications?

tominator

Thank you for your response and for confirming what I thought.

I was told last year by the two directors (husband and wife) of the small business that I work for that they wanted to make me a shareholding director of the company and were to give me a 33% share in the business.

They are now totally denying that the conversation happened and are claiming that the proof is in the fact that it would not have been practical for them to do so as they would have to pay me the same salary as they each take (given that I would have the same shareholding).

I was made a director, but not shareholder. I hear the cries of 'didn't you get it in writing' or 'didn't you question why you weren't given shares certificates'... but the two directors also happen to be my in-laws so I took the offer in good faith and I never thought in a million years that they would go back on it.

Thanks again for your help.

LilElvis

To be honest I can understand them not wanting to effectively give away a third of their business. How long have they been running the company compared to your length of service? How much of their personal money has been invested in getting the company to the stage it's at now compared to your investment? Should you and their child divorce it could create an unholy mess.

marliepanda

With no proof of the conversation they can blame it on anything, the sky was blue that day, they had pancakes for breakfast.

It doesnt matter that their 'reason that they wouldnt have said that' makes no sense, as it doesnt need to.

tominator

I joined the company 1 year after its inception (13 years ago). I have not invested financially but neither have they. The company was 'started from nothing' as a side project and built to where it is today by customer retention and growth.

I have been responsible for driving the business forward and now run the business by myself in their retirement. In fact, the truth is I'm not even the director, I asked them to give the directorship to my wife (their daughter) because that made me feel more comfortable.

I understand your comments regarding them not wanting to give it away, and it doesn't matter what the excuse is etc... but the long and the short of it was that the offer was made, which my wife also witnessed.

I realise I don't have a leg to stand on but wanted confirmation that their 'excuse' was not valid, which it was not.

I was not seeking opinion, just a factual answer to a question which has now been gratefully received.

Thanks all.

Brynsam

tominator wrote: »

I am aware that all shareholders must be paid dividends equally and proportionately based upon the percentage share they hold (unless a waiver is in place).

Only if they are the same 'class' of shareholder. Companies often have different share classes, typically called A shares, B shares etc. This is common practice where the desire is to avoid diluting actual control of a company: only one class of shares will carry voting rights as well as the right to a dividend. Other classes will just carry the right to a dividend, which need not be the same for all classes.

bap98189

Someone has advised you incorrectly. There is no requirement for either dividends or salaries to have any relation to a director's shareholding.

tacpot12

Given the situation you describe a gift of 1/3 of the company would not be unreasonable. If you are turn around the situation, I think you are going to have to get to the bottom of the reason for their reluctance; which may just be they don't want to lose a third of their income. You need to find some good reasons to make them follow through on their promise. If you try to force the issue I can guarantee it will cause problems, but you do have one major point in your favour - without you they wouldn't have an income.