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Jordans FAQs: Does a private limited company offer the best protection for my investment company?

10th Apr 2014
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Q: Does a private limited company offer the best protection for my investment company?

A: Everyone knows that forming a limited company is a great option when seeking to protect individuals and their assets and for this reason they have long been the choice of property investment companies.  A lone investor acting as sole shareholder and director enjoys all of the protection that the company can offer him, whilst retaining full control of the day to day decisions relating to his company.  This can offer him a very tax efficient way of managing his portfolio.

But what about the same situation where multiple investors are involved?  When parties embark on a joint venture or their small property investment business takes off and additional investors are on the horizon, the shortcomings of a private limited company become apparent.  Simply owning shares in a company does not provide an automatic right to a say in how that company is run.  If investors have little or no previous experience, they may find that their money falls into the control of directors who do not share their view of how their capital should be applied.  Similarly, small companies new to external investment may find pressure being applied by those investors to move their company in a direction that they did not envisage. 

With property investment companies becoming ever more popular, what is the solution?  A Shareholders Agreement which can provide for the following:

  • shareholder’s right to appoint a director;
  • role and salary provisions for directors;
  • dividend policy;
  • pre-emption rights which ensure that any proposed sale of shares is first offered to fellow investors;
  • restrictions on competing with the business, poaching staff and solicitation of the company’s customers;
  • dispute resolution to help avoid costly litigation in the event of a break down in relations.

These do not have to be detailed, technical or expensive documents but can be of great benefit and safeguard investments to ensure the success of your business for all parties.

About the author: Dana Ewans LLB, ACILEx  is  Corporate Legal Services Executive, Jordans Corporate Law Limited

For more information, visit Jordan's official website.

 
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