superbikes started this topic @ 19:33 on 21/05/2007
Hi,
I've had some advice recently regarding my new business venture and company formation, I wonder if someone could confirm it is good advice or maybe an alternative?
The advice I have is to issue 50,000 initial £1 shares (I will be the only shareholder at the start), however, I wish to provide between 5 & 10% of the business to each of two family members later on.
I would also like to have sufficient initial shares to be able to offer share options and possibly bring in outside investment further down the line.
Question is; is this practical for me to do initially, and just take say 100 shares myself at the nominal £1 each, thus, giving me 100% of the shares (and the business) but with the flexibility as described?
Much appreciated.
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Never trouble trouble till trouble troubles you!
RE: Limited company formation query?
James Smith | 22/05/2007 08:42 AM
100 shares will give sufficient flexibility to bring others into the business and addtional shares can be issued at a later date (this may be how you bring these people in rather than selling/gifting your shares). Quite why you have been advised to issue 50,000 I am unsure. This would tie up £50,000 in the business if the shares are paid which seems a bit odd and makes issuing more share difficult (ie you need to issue another 50,000 if you want to be in equal partnership with a new person coming into the business) but could be for a good reason. Ask your accountant exactly why they have you advised you to do this. Could be they are clueless. Could be a good reason I cant work out!
Regards,
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773
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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
RE: RE: Limited company formation query?
superbikes | 22/05/2007 10:46 AM
Thank you for the feedback.
The current and forseeable plan is that I am setting up a business and investing all initial capital, hence why I am retaining 100% share from the start. I will employ one family member who will help me build the business and another family member a little later on.
Depending on business success and how hard I can get family to work! (advice here would be useful too ;o)) depends on how I release shares to the two family members. I don't have any plans to bring in outside partners although I can't rule this out as the business I will be in is heavily partnership and franchise orientated.
With this in mind I guess it would be wiser to issue say 1,000 shares, take 100 myself only and even at this scale retain some flexibilty for the future. I can gift/sell shares to family at the rate of 2/3% per annum (2 or 3 shares each), still have the option to double my shareholding and take on new investors/partners.
Does this make sense? So complicated when you think about all the options available and requirements that may crop up.
Advice is sincerely appreciated.
Regards,
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Never trouble trouble till trouble troubles you!
RE: Limited company formation query?
James Smith | 22/05/2007 03:09 PM
When you say "issue" 1000 shares I think you mean "authorise".
By definition if you take 100 shares and you have them all 100 them, these are the 100 issued shares. The "authorised" share capital are those shares available for issue, but this amount can be increased quite easily so don’t get too hung up on it. So if you have 1000 authorised and 100 in issue there are another 900 available.
Be however EXTREMELY careful about gifting/selling shares to family members. This needs to be all done correctly and is complicated and may involve valuing the company etc and agreeing this with HMRC. Your normal accountant will advise you on all of this, please make sure you have gone through your plans in detail before you start as it will save a lot of time and cost to do this right from day one. Also ensure that a limited company is the right structure for you at this time. Many businesses are better off as a sole trader to start with whilst the business model is being proven with incorporation later on down the line.
hope this helps.
Regards,
------------------------
James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773
---------------------------
Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
