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Balance Sheet Equity Protection for Shareholder

How to protect equity when new shareholder invests in SME

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I have a client who has worked on his business for several years and has some equity on the balance sheet. He is thinking of bringing in another person as a director and director to help grow the business.

The question is how to protect the current equity? For example, if the equity balance was say £20k, this is all attributable to the work of the current owner and who would like to ensure that they only benefit from this. Obviously, he is happy to issue dividend to the new shareholder but only based on th equity that is generated from the point they join the business.

Is there an equity protection agreement? Do we transfer the equity to another account? He doesn't want to take it as a dividend preferring to leave it in the company at the moment.

Any ideas?

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By AndersonAccountancy
08th Sep 2017 13:32

Sorry, should read "director and shareholder" :-)

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By tom123
08th Sep 2017 13:44

What you need to be looking at are shareholder agreements.

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By Matrix
08th Sep 2017 14:31

The current equity will be reflected in the price the incoming shareholder pays for the shares having taken into account any dividends taken in the meantime.

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