Any business/financial folks here?

Hi all.

Does anyone here know anything at all about buying shares in a private limited company, ie not one that's floated on the stock exchange? I've been invited to buy into my company at a discount price in return for certain conditions. The trouble is I've never dabbled in this sort of thing before so I have no idea what sort of paperwork I should expect to see to prove it's genuine.

Does anyone have any knowledge in this area?

Cheers.

 

Nope, nobody here but us chickens.

 

I owner my own company and I owned one share. So I worked for the company I owned and was paid a salary from the company. Several tax advantages by doing this. As I owned the company, I "Lent" the company the capital needed to set up the business. (Personal Security, IE: Bodyguard). By doing so I could then take money from the company tax free, as and when the company could afford to repay me.

I chose a limited company to protect my personal assets. As the company Managing Director, the most that any creditor could ever sue me for was the maximum value of my one share in the company. Any limited company has to have a minimum of two share holders.

A private limited company is a living, breathing and seperate entity. It MUST be registered with Companies House and they must have audited accounts every year. Google Companies House, its free to check out.

If you have been invited to buy shares in the company, you need tocheckout a few things BEFORE you commit to buying any shares. First question is "Why are you being invited to invest?". Do the share holders really like you and want you to have the chance to benefit from outstanding trading results? OR and this is themorelikely reason, "Is the company in trouble and needs to raise capital?"

Buying shares in a company means that you are buying a share of any profits. The flip sideis that you are also buying a share of the risk. As a share holder you have the right to know what the Company Directors are being paid and what thier shares are. You NEED to know exactly what the company assets and liabilities are.

A company can NOT be made bankrupt. If the company goes into liquidation, shareholders can only be sued for the value of thier shares by each individual creditor. So if the shares costs you £1.00 each and you buy 100 shares, the most that any creditir can sue you personnaly for is £100.

When I set up my company, I valued the shares at £1.00 each. I owned one share, my ex wife was company secretary and she owned one share. My business was very high risk. I knew that there was a high probability that I would get injured or worse. Hence using a limited company to protect my private assets. When I folded the company I owed NOTHING to any creditors. I had guys working for me as self employed sub contractors. They invoiced the company for the work they did and sorted out thier own tax and NI. The company office was in my home. I paid Business Rates on my office space. I paid for the office equipment myself and hired it to the company. Things like phones, walkie talkie radios, cars, protective clothing was all owned by me and leased to staff. On closure the company owned no capital assets. Everything was owned by me and hired to the company, returned to me on winding up the company. Allof the capital was repaid to me.

That was all quite straightforward. Things become much more involved when you have a company that buys goods, materials, services to produce a product or service that they sell on. You then have creditors which demand payment. They may have a lease on thier premises which may have to be bought out to close the business. Suppliers may have outstanding accounts to settle. HM Revenue and Customs may be owed large sums. Council Tax may be outstanding. There could easily be claims against the company that have yet to be settled. ALL OF THESE THINGS MUST BE CHECKED OUT BEFORE YOU INVEST IN THE COMPANY.

While a company can NOT go bankrupt or be made bankrupt by a creditor, and individual CAN be made bankrupt. As a share holder, you are buying into the company. The company directors have a legal responsibility to thier share holders to behave in certain ways. If the directors turn out to be incompetant in business then you could easily lose your investment. You may be able to accept that risk and think it may be worth persuing the investment. I mentioned earlier what your risk may be.

If you choose toinvest more than available capital that you have and you are asked toput up your houseor other assets as security for loans. DO NOT DO IT. That is what is known as a persoanl guarantee. In the event the company folds, any creditir is legally entitled to sieze your house or assets to repay any outstanding debt.

You need to see the Company Memorandum and Articles of Association. Company accounts for the last three years. A list of all assets and liabilities. Get a solicitor to request a letter confirming there are no outstanding legal issues. Get written confirmation of what benefits you will receive in return for your investment and over what period of time. SIGN NOTHING UNTIL YOU HAVE CHECKED EVERYTHING. ANY HARD SELL OR PRESSURE TO HANDOVER MONEY SHOULD MAKE YOU WALK AWAY VERY QUICKLY.

Ask yourself why the company wants to sell you shares, instead of asking the bank for an overdraft or loan.

Hope I have helped. If in doubt DON'T.

Chopper.

 

I've run several Limited companies ove the last 25 years and have some good experience with this.

Share-holders and Directors are totally seperate entities to a business.

Buying shares in the company simply means you own a percentage of the business and are entitled to a percentage of the profits as a dividend. You have NO liability to the business, or its debts, whatsoever. You do not need to be employed by the company to own shares and you have no say in the running of the company.

A Director has a control in the running of the business and holds liability for this. Many employed people are titled Directors, but if you're not registered as such with Companies House then you have no default liability, although liability may be pursued in cases of negligence or malpractice.

A director does not have to be a share-holder, and vice versa, although in a small business it is usual to be both.

If you work for a company that you hold shares in, and earn less than £37,400p.a. combined, you will only pay 10% tax on the dividends. If possible you should engineer it so that you earn minimum PAYE (around £430.00 per month depending on your personal allowance) to pay your NI stamp but very little tax, and take the rest as dividends with a 10% tax liability.

Everything Chopper has said is correct, although the potential liabilty there is from being a Director, not a share-holder.

I would also agree with Shiney, and recommend that you don't invest more than you can afford to lose should the business take a downturn.

 

Just so that doesn't look like the sort of thing that Bankers are getting a bad name for! Dividends are paid from the money left after the company has paid corporation tax.

So you personally pay 10% tax on the dividend, but the company has already paid corporation tax, so the government gets "about the same" amount of money. You personally pay a lot less in National Insurance though, which is usually what makes it attractive for "employees".

But that's probably not what you are being offered - an employee share holding scheme is usually just a perk for employees, whereas directors are more likely to take substantial share packages to best suit their tax arrangements. Its common for husband-and-wife companies to draw their "salary" as dividend rather than as PAYE - they need to be confident that there will be a profit though, otherwise no dividend!

My view on this would be: If you think the company is sound, and is likely to do well - its being run by people who have a track record of steering a good course - then go for it.

If the company is bought out you will be able to sell your shares - at a profit if the company was doing well when it was sold (i.e. a "willing buyer" rather than a "forced sale")

There will probably be a formula for the company to buy back the shares if you want / need to sell - that might include buying them back if you leave the company. Or it may be VERY difficult to sell the shares at a time to suit you - so your money could be locked up until the next "selling window"

Don't put money into it that you cannot afford to lose. If payment for the shares is ongoing, from your wage packet, it might be no more of a commitment that buying a few pints or fags a week - in which case worth a punt. If the company is asking you to put your life savings into the scheme then I would be MUCH more cautious - why, now, are the company offering this?

Microsoft offered their employees a $1,000 stock option early in the company's life. Something like 200 programmers took up the offer and within a couple of years were dollar-millionaires. Others have put their life savings into company share holder schemes and lost the lot when the company went down the tubes. Caveat Emptor I suppose ...

 

Qutie right, Kristen, I wasn't suggesting anything untoward!!

 

Thanks for the advice folks, very much appreciated.

I wish I could tell you the full story, but I'd be paranoid about someone connected with work seeing it.

It seems that in this matter, I have nothing to lose, so I'm going to go for it.

 

Here's an update.

Well I and my colleagues have been well and truly conned. We still haven't been paid and the boss is nowhere to be seen, although he does occassionally answer his phone and reply to texts with stalling tactics. We're taking legal action against him.

But it gets better. It turns out he was in rent arrears for our office space. In response to threats of legal action from the building owners for their rent, he said he was skint but intended to pay as soon as money came in. As an assurance to them, he said they could have all the brand new computers and associated kit. They accepted this offer and made arrangements to move the kit into storage. Before they got chance a chap turned up at the premises with a repossession order. He wanted his equipment back, which he'd supplied to my boss on loan, but had never been paid for.

I've moved on, and have a new job, but am still owed money. I still have my building pass. I mentioned to one of the lads that I might go in and get my computer and some personal effects (unimportant stuff) that I'd left in there. He said I couldn't, he'd already tried but found his key card had been disabled. On querying this at reception he was told that so many reporters and disgruntled former staff had turned up that they were worried about building security, so had disabled the passes of all former employees.

If it wasn't for the fact that I and my friends are several thousand pounds down, I'd find the whole thing amusing, and I must admit, now that there is light at the end of the tunnel (ie new jobs at reputable companies) it is almost amusing, but at the same time we can't have this man ripping off good people just to make himself rich, so legal action has started.