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Company incorporation - share structure

2 shareholders - A + B shares - goodwill attached to B shares and different split. Workable?

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2 people looking to set up a company.  They have agreed to split profits 50/50 but goodwill of the company (if successful) to be split 60/40.

Is there an issue with setting a company up as:

A shares - split 50/50 - full rights to voting, dividends and rights to capital (excluding proceeds from sale of goodwill or if trade not sold excluding excess of stated balance sheet reserves)

B shares - split 60/40 - no rights other than right to capital in excess of the balance sheet reserves or proceeds from sale of goodwill

Thanks in advance for any assistance

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By trucker
09th Jul 2020 21:16

Or could you simply say rights to capital for both class of shares as referenced in the shareholders agreement

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By Paul Crowley
10th Jul 2020 09:19

Recipe for future disputes when they fall out. Would legal people interpret the agreement the way they now consider the way it is to be interpreted.

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By paul.benny
10th Jul 2020 13:24

The concept is fundamentally flawed because there can never (barring acquisitions) be any goodwill in the company's accounts. You cannot recognise internally-generated goodwill.

If the owners subsequently sell the company, there is no "goodwill" as such - the buyer may pay a premium over net asset value; if they prepare group accounts, that would be recognised in the *buyer's* group accounts

If instead of selling the company, they were to sell the trade and assets for more than net asset value, the company would show a profit, but again, no goodwill.

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RLI
By lionofludesch
10th Jul 2020 13:46

They need to rethink this. The best I can come up with is for them to hold shares 50/50 and one of them has a right to buy 20% of the other's holding (ie 10% of the total) for a nominal sum should some specific event take place, like a sale of the company.

It's fraught with dangers and it isn't anything I'd recommend without a boatload of caveats, which would mainly consist of "I told you it was a bad idea but you still did it".

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