Bringing a shareholder on board - Concerns

Bookworm225

uknick said:

My comment had nothing to with the control of the company.  This was dealt with in detail by other posters.

If you still have to pay out 30% of dividends to the new person, having a share with a different dividend rate is moot.  Unless you're saying the new shareholder gets a class of share that awards 30% of the remaining profits after the original shareholders take their share.
 

Yes that is the point being made:

If there are 3 shareholders each with the same class of shares then it is impossible to have any other situation than each person gets the same dividend rate per share. Where you seem confused is in that circumstance there cannot be 30% of dividends paid to the third person unless the net ownership is changed from 60/40 between two people to 40/30/30 between three as each person must get the same dividend rate per share as there is only one class of share. (Changing ownership ratios like that would have immediate personal tax implications for the two current shareholders) 


The alternative is there are two classes of share where, lets say, A class takes 70% of the total pot but there is no requirement at all that the remaining 30% of the pot be paid out to the B class and no requirement whatsoever that the B class gets the same dividend rate per share as the A class. What is paid to B is decided by those with a vote (the A class)

Perhaps numbers will illustrate more easily
£20k pot and a share structure of 100 A (voting) class shares held 60 to one person and 40 to the other. There are lets say 100 B (non voting) class shares held by a third person 

the two A class decide to take 70% of the reserves (£14,000 total) this year as dividends so the two A class get £8,400 and £5,600 respectively (60/40 split at a dividend rate of £140 per share)
That leaves £6,000 residue in the pot

The A class then votes on what to do with that residue and may decide anything, for example:
- either that B gets nothing at all (the £6k remains in company reserves)
- or that B gets £2,000 (so effective B dividend of £20 per share) with the remaining £4k left in the company 
- or that B gets all £6k (so an effective B dividend rate of £60 per share
- or any value between 0 and £6,000 with the dividend rate being the simple maths outcome

the overriding point is the A class has total control over how much of the pot they take for themselves as dividend because they have the only votes (and in reality the person with 60% of the A class votes dictates what is going to happen as they cannot be outvoted as they have absolute control)

uknick

I think we agree about the existing shareholders need to look at their profit share arrangements as well as voting rights.  And, if they adopt something along the lines of your example, make it very clear to the incoming shareholder what the 30% actually means.

It'll be interesting to get the view of the OP.  

Bookworm225

uknick said:

It'll be interesting to get the view of the OP.  

OP has made their view clear: under no circumstances must the incoming shareholder be able to vote out the "main" (currently 60%) shareholder by working in conjunction with the second shareholder so that pair attain a combined majority vote.

there are only 2 ways to achieve that:
A) complete restructuring of the company using a single class of shares so that that main shareholder has 51% of the entire share capital and the other 2 have a combined total of 49%. All 3 would get the same dividend rate so profits split according to number of shares held by each person 

or

as already explained, incoming shareholder is given B shares that have no vote leaving control of the company as it currently stands: the 60% shareholder dictates every thing that can happen as only they have absolute control. The main shareholder decides they want to impose on the other two: same dividend rate for 1&2 with same, different  or no dividend for the 3rd person. It remains a dictatorship