A company director has recently referred our clients to one of our suppliers under a commission scheme. The director believes they should keep this commission for themselves. Who has the legal right to receive this money: the individual or the business?
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If I was a director or shareholder in this company I would insist strongly that the commission income belongs to the company. Are there any other directors or shareholders in this company, and if so what do they say?
If you're not a shareholder or director (assumption) and the 2 directors/shareholders have decided this - why are you concerned ?
Hmmm. So why were you attempting to come across as a third party?
And it didn't bother you two minutes ago, apparently:
'There's one other director and they're not bothered by the claim, perhaps even leaning towards thinking they deserve it. I find their stance a little baffling, but these two directors always stick together. '
I suspect because the arrangement likely has certain tax implications that I strongly suspect the directors wish to airbrush from history.
It may be a mindset view, but I, as a mere employee, keep a close eye on the business I work for and tend to tell my directors what they can and cannot do.
If I were the employee I would also be somewhat concerned if they ignored my advice regarding a financial matter, after all that is my area of responsibility;maybe the OP feels the same way.
Edit-now see OP is director and shareholder. Maybe a read of CA 2006, s182 would be a good place to start
At the time of your previous thread, you apparently thought the commission was paid by the company to whom you sold; now you have established it's paid by the company from which you buy.
That's important, in reading John's previous answers.
I wonder why you are discussing these matters on AW though; do you not trust the advice of your solicitor?
Perhaps you need put this a different way to the other directors.
The commission has arose because of their directorship at your company.
If your client receives a poor service from the supplier, you are potentially going to lose goodwill.
Why should the company risk losing goodwill and clients, without being remunerated for the referral?
I cannot see why it isn't the income of the company.
Incidentally, there could also be VAT issues to deal with.
If the director wants to earn money outside of the company, perhaps they should resign as director and go on to other pursuits. Piggy backing the company, and expecting this commission to be yours isn't on in my opinion.
Do you need any legal reference? It's just common sense.
The clients were that of the company. The director, as an individual, did not have any clients to introduce to the supplier.
Aren't you going to be outvoted anyway, regardless?
What is the mechanism for paying the commission (eg. company raises an invoice, or director collects cash in his back pocket? Isn't who has been paid the indicator of who the payers believe they are transacting with?
You appear to be after legal references but without supplying or knowing the framework on which to base a judgement (edit, good ref mrme89). Morally, I agree with you, but it's not a moral issue.
Then surely you need to get a handle on what is intended before you can know that you have a problem with it.
If it transpires that you are the 'odd one out' then it seems to me equally important that you have the skills to resolve the ensuing conflict you are in danger of creating.
That's a step up from the "casual insight" you wanted just a few minutes ago.Thanks – that's an interesting alternative angle to look at it. I obviously agree with your assessment that it should be company income, but would love to be able to quote a definitive ruling to help my cause.
Anyway, you have clearly raised this with your colleagues and got nowhere. If you are not planning to go legal, what are you intending?
Do the directors have contracts of employment / service contracts with the company? Are there any shareholders' agreements?
RM
1.I assume the receiving director knows that the commission will be taxable on him
2. Your opinion that it should be company income should be put in writing to both your co-directors and also logged with your solicitor so that if in future problems occur you are on record as a dissenting voice.
3. One question to bring to the other directors attention is what is the legal/insurance position if the service provided on which the commission is paid is inadequate and legal actions ensue. The company needs cover for this
I assume that the other director is backing the first director up because he will be getting a share of the commission.
It looks like they are trying to fleece you out of your share.
One question that is possibly causing curiosity is how much money is involved in the commission payment
Also
If he gets away with it this time a precedent will be created for future decisions not just about commission
The customers he is referring are customers of the business. He would not be able to refer them if the business did not exist so the commission should belong to the business.
As someone else has said, there is also the question of goodwill - if the supplier upsets the customer the business could end up losing the customer. The business is taking the risk of this and should therefore also get the reward/commission.
Whoever the commission belongs to, if the director keeps it I would suggest it was income arising out of his employment and so taxable as earnings. it is then either the director's income from a third party or the company's income paid out as remuneration.