Adding a new director / shareholder to Ltd Co

Adding a new director / shareholder to Ltd Co

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My client company has 3 director shareholders and cash at bank and P & L balance = approx £300K, no other significant tangible assets. The company provides IT related services.

The 3 wish to invite a fourth to join them and participate in future profits equally with them, but do not wish the fourth the pay anything for this. They would like me to come up with a plan that allows the new chap to participate equally in the company's future profits whilst preserving the currently accumulated profits as their own. The 4th chap is a long standing friend and colleague, there is no motive of profit extraction.

My first plan was that no 4 purchases shares directly from the other 3, both pre and post 5th April, until he owns 25%.  Whether he actually pays them or not is irrelevant, although he could by being credited with equal dividends and transferring a proportion to the other three. Problem is valuing shares, would it be as simple as undistributed reserves at date of purchase? Is goodwill a factor and if so is it valueless as being personal?

Second plan is to issued class B shares, 25% to each which are full voting shares but only participate in profits, both capital and revenue from date of issue. At the same time change the status of the original shares to non voting shares that are only entitled to dividends of profits earned prior to the issue of the B shares.

Any flaws in my cunning plans would be gratefully received as would any other potential solutions to a simple problem to understand, but not so simple to solve.

Thanks in advance to anyone taking the time to reply.

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By dalacca
03rd Dec 2009 09:07

dalacca

One solution is to convert all existing reserves into preference shares (with interest attached to compensate for existing capital which is over and above the capital the new chap is bringing) and allocate these shares to existing 3 shareholder/ directors before ant new director is introduced. This will preserve there existing wealth/ retained profits. Issue new shares to new director/shareholders to bring shares in equal proportion.

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